Re: [RT] Risk Management by John Moore

["Ira" <mrira@xxxxxxxxx>]

Dennis:

 

You fall into the catagory of 99% of the new traders.  You start out knowing everything there is to know about trading because you have read a few books on fundamentals and technical trading.  No matter what anyone posts their input is really not incorporated into any plan because if you were successful in your past life, this should be a snap. 

 

After thousands of dollars in losses you find out that there is more to trading then buy and sell.  Trading is a business just like any other business that deals with inventory.  You buy to sell at a higher price or you sell to buy back a lower price.  Inventory in and inventory out.  Instead of a hardware story, clothing store or grocery you are buying and selling stocks, bonds, futures and options on all of the above instead of nails, shirts and oranges.  Before you opened one of the stores mentioned you would put together a busness plan that would include inventory control, money management, risk management and cost controls.  Why don't you do the same thing when you set up a trading business. 

 

What can you successfully trade?  What do you have trouble with?  How much margin should I use when trading futures?  Should I use margin when trading stocks?  Should I sell calls or puts naked?  What are viable option strategies for my current cash position?  What is initial risk and what is voaltility risk?  Should I consider a trade that has more than one risk factor?  And on and on until you have a plan of action, a money management and risk assessment plan, a cash utilitzation plan, and all the other things you need in order to establish a viable business.

 

Sorry, didn't mean to get carried away.  Once again very few will take this advise or even recognize the need for it.  

Ira

----- Original Message -----

From: Dennis L. Conn

To: realtraders@xxxxxxxxxxxxxxx

Sent: Sunday, March 15, 2009 7:07 AM

Subject: Re: [RT] Risk Management by John Moore

Hi Ira,

 

I tried to contact you privately, but I'm not sure you got my email. When you posted it ten years ago, I only knew that one should have a trade management plan. I wasn't aware that a business plan was another necessary part of the "game", distinct from the trade management aspect, and I just didn't get what Moore was talking about. Hey, who needs it when I'm just going to get rich trading, right?!! And since I didn't exactly stick to any trading plan, what were the odds I'd stick to a business plan?

 

Lesson: if it's something I don't understand, then it's probably exactly what I'd better spend more time learning about. Duh.

 

Since then (and after blowing out three accounts), another trader told me that I should first create a business plan, because everything else in my trading depends on it. He also said it should take a couple weeks to create. Since I still didn't have a clue what a business plan should contain, I dug out all the old RT posts I'd saved and sorted into various categories, and found a file labeled "Management", containing Moore's article you posted. It finally dawned on me that trading is somewhat more involved than "cut losses short, let profits run" and other such generalities... So several books and old RT posts later, I finally got it, and understood that a big part of the failure rate in trading is the lack of a coherent structure (business plan). It also took more than a couple of weeks to give it the consideration it required...

 

The point is that after collecting everything I could find on the subject, I want to put it together into a concise explanation for those poor fools like myself who think they're going to trade their way to unimaginable riches with their 2K accounts, and Moore's article is some of the best source material I've seen. So I wanted to see if there was more of it, and thank you for posting it all those years ago.

 

DC

 

 

----- Original Message -----

From: Ira

To: realtraders@yahoogroups.com

Sent: Sunday, March 15, 2009 1:29 AM

Subject: Re: [RT] Risk Management by John Moore

I didn't keep the article, but is just a common business plan that anyone that went to business school would employ before starting a new business or to analyze his current business.

 

<SNIP>

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