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> the main aspect of money management is the risk/reward ratio.
>I have found that 3:1 to come out on top (well, in the bonds anyway).
> If you are day trading and going in and out of the market two or three
times a day,
>you want to be able to be wrong more than you are right and still come out
okay.
> The object of the exercise is that your stop will be where the market is
going to use
>some effort to get you out - and it is probably going the other way, so you
will want
> to be reversing.
>The closer your entry to that stop the better the r/r/r and if you cannot
see where your
>target is and what that risk is, don't take the trade. If you don't
>have an edge you don't have a trade.
So many decisions before and during a trade... so much stress, esp if day
trading.
Why go through all this trouble when instruments and strategies exist that
a/ increase risk-reward ratio while reducing the margin money committed
b/ reduce frequency of trading for same amount of gross $ profit on lesser
margin money committed
c/ reduce capital-intensiveness of the trade and let surplus earn T-Bill
interest
d/ reduce or eliminate dependence on ability to pick accurate price
direction
e/ create alternatives from existing set of position instruments if one is
still wrong (as opposed to exiting the market, and then going through the
whole decision matrix again in a declining psychological backdrop).
No, not being facetious/flippant nor trying to sell you my mousetrap, but it
strikes me as odd that virtually no discussion on money management explores
these concepts on this list.
Everything is "stops, direction, turning point, accuracy, market will get
you so get the edge on your side"
All that is a given for anybody to trade, right? If its going up, own it. If
its going down, short it. If its going nowhere, forget about it.
Whatever "it" is - price, value, volatility, etc.
Either one has it, or one doesn't. One still has to - and does - finds ways
to carve out their piece of the pie from "the edges" knife.
With so many of the market's participants trading and making money, I
sometimes wonder how many edges there must be.
Check that: How many edges CAN there be?
Gitanshu
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