Page 35 - Trading #101 Course – PART II TWO: SUCCESSFUL TRADING PIE – www.traderscoach.com

TRADING #101 COURSE – PART II TWO: SUCCESSFUL TRADING PIE – WWW.TRADERSCOACH.COM

Chapter 11:

Third Slice – Money Management

The third slice of the “financial pie” is money management. If you improve this one area
of your trading approach, you’ll have the greatest chance of delivering the quickest
results to your bottom line in the shortest amount of time. Plus, money management
concepts are simple and easy to comprehend.

But, even though these approaches are relatively straightforward, many traders still
don’t implement money management techniques. This happens for one of three basic
reasons:

1. They haven’t learned these concepts yet;
2. They have learned the concepts but lack the discipline and trader’s mind-set to
adhere to them; or
3. They don’t believe they need these concepts, because their ego makes them feel
they are far superior and therefore impervious to risk.

To make these concepts work, you will need to believe that you actually do need a
money management plan. Believing that you need a plan is really the first crucial step.
Everything after that tends to fall into place. Sadly, it is usually a staggering financial
loss that will drive this point home to a trader.

What Can Money Management Do for You?

Money management to me is like a wonder drug. It does so many things that can
enhance even a mediocre system. I’ve watched many students experience the thrill of
finally attaining consistent profitability just because they improved their ability to control
risk by adhering to a money management plan.

In a nutshell, here are some things that money management can do:

• Allows you to be wrong and not go bust.
• Helps you minimize risk and maximize profit.
• Understands that every trade can be a potential loss.
• Separates the professionals from the novices.
• Relieves anxiety when you know that risk is controlled.

For some, money management can transform an anxiety-ridden trader into a consistent,
well-balanced trader. It may take some getting used to for certain individuals, since the
adrenaline rush of taking on excessive risk is part of the enjoyment of trading for many
traders.

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