|
PureBytes Links
Trading Reference Links
|
The methodology I will present is comprised of the following four
functions:
1.Establish Profit Centers to organize trading results along business
lines
2.Allocate Initial Trading capital to each Profit Center to cover
margin and
trading losses
3.Enter actual trading results into the Profit Centers as trades are
closed out
4.Calculate key money management statistics after approximately 25
trades
are accumulated in a Profit Center
The key money management statistics in step four are then used to:
1.Identify trading strengths and weaknesses
2.Capitalize on trading strengths and minimize or eliminate trading
weaknesses
3.Provide early warning signs of deteriorating trading performance
4.Analyze risk management
5.Provide "management reports" on trading performance enabling the
trader
to manage his trading businesses.
6.Create a professional, disciplined and confident trading
environment
designed to overcome the psychological problems of fear, greed and
uncertainty which plague every trader.
The key statistics are segregated into four general categories:
1.Operating statistics ( % Profitable trades, % Unprofitable trades,
consecutive profitable trades, consecutive unprofitable trades etc
)
2.Profitability ( % return in Initial Capital , Net Income etc )
3.Risk management ( % capital lost on unprofitable trades, % of
profits lost
on unprofitable trades, etc )
4.Drawdown ( There are at least 10 drawdown statistics which you must
know on a trade by trade basis. )
Ideally, before you make your first trade, you should establish your
business
organization. This business organization will reflect your approach
towards
speculation and how you plan to organize and manage your trading
business.
What type of trader do you plan to be.......long or short
term?.......What is your
risk profile?.......How much do you plan to lose as a % of capital on
unprofitable
trades? What are you profit targets on each trade?.......in other
words, what is the
business plan you will use to compete in the business of trading and
more
importantly, what is the business organization you will use to monitor
your trading
performance to ensure that you are adhering to your plan?
Needless to say, very few, if any, traders perform this exercise, and
this factor
probably accounts for the 95 % failure rate of futures traders. They
throw
themselves into the business of trading without a business plan or
business
organization and eventually fall victim to the psychological boogey men
of
uncertainty, fear and greed and are eventually forced to leave the
marketplace.
How can you succeed in business without a business plan or business
organization?
The advantages of adopting a business type organization towards trading
are:
1.Creates a disciplined and professional trading environment.
2.Provides the framework required to identify and capitalize on
trading
strengths and minimize or eliminate trading weaknesses.
3.Significantly reduces the psychological problems of fear, greed and
uncertainty by providing the most valuable commodity any trader or
business manager can possess.........information. Without access
to
properly structured information, it is impossible to intelligently
manage any
type of business activity.
If you agree that trading is a business, then you must organize your
trading
activities similar to the way all successful businesses are
structured........which is
the Profit Center type structure of business organization. Profit
Centers segregate
revenues and expenses by product line. For example, a grocery store may
maintain separate Profit Centers for Frozen Foods, Dairy Products,
Canned
Goods, etc.
As another example, a shoe store may create Profit Centers for Men's
Shoes,
Women's Shoes, Formal Shoes, Sneakers etc.
|