Needless to say, I am a believer in the importance of money management. The industry is full of advisors and advisory services telling clients what to buy or sell and when to do it. Very little is said about of one's capital to commit to each trade.
Some traders believe that money management is the most important ingredient in a trading program, even more crucial than the trading approach itself. I'm not sure I'd go that far, but I don't believe it's possible to survive for long without it. Money management deals with the question of survival. It tells the trader how to handle his or her money. Any good trader should win in the long run. Money management increases the odds that the trader will survive to reach the long run.
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The best futures traders make money on only 40% of their trades.
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Because most trades are losers, the only way to come out ahead is to ensure that the dollar amount of the winning trades is greater than that of the losing trades.
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"Letting profits run and cutting losses short" is one of the oldest maxims of trading. Large profits in trading are achieved by staying with persistent trends. Because only a relative handful of trades during the course of a year will generate large profits, it is necessary to maximize those few big winners. Letting profits run is the way that it is done.
John J. Murphy
Every young man should have a hobby. Learning how to handle money is the best one.
Jack Hurley
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