New traders search for their Holy Grail because they get a sense of control when they use entry signals to open their positions. They want the point they choose to enter the market to be the point at which the market is doing exactly what they want it to do. If they can find this point, a novice trader will often feel like they have some sort of control, not just over the entry, but also over the market. Unfortunately, there is never a time when a trader has control of the market.
Once you are in a position in the market, the market is going to do whatever it wants to do. No one can control the direction of the market, or the extent of its movements. There is only one component of your trading system that you do have control over, your money management. Here is the true Holy Grail of trading.
Money Management:
Van K. Tharp, PhD, a world renowned leader in the unique area of professional trading says that "Perhaps the greatest secret to top trading and investing success is appropriate money management."
The most important factor in successful futures trading is money management.
The ability to take a loss and trade another day is the key to survival--and ultimate success-- in the futures trading arena.
A successful futures trader should be more an act of survival in the early going than scoring winning trades.
Successful traders set tight stops to get out of losing positions quickly; and they let the winners ride out the trend. On the balance sheet, a few big winning trades will more than offset the more numerous small losers. Good money management allows for that to happen.
Day trading is not a get rich scheme. It is serious business where you could lose everything within minutes because of wrong information. Before jumping into day trading, remember to do your homework first. Go to seminars on day trading, use simulations if possible and practice reading market indicators. To be a successful day trader, you do not just need luck. Knowledge and experience counts.
Pick a few classical chart patterns and specialize in trading with them. You must have discipline and patience to wait for the patterns to develop correctly using only markets suitable for you size account. Additionally, you must apply strict risk management and have great tenacity to let your profits run on the good trades.
Since strings of losses are inevitable regardless of your approach, you must control risk so you are not wiped out by consecutive losers. Experts agree that for proper risk management, you should limit risk to no more than about 1-2% maximum of your account equity. Make sure that no one trade is really going to affect your day trading float, positively or negatively.
While novice traders spend all their time working on entries, seasoned traders know that the really difficult decisions in trading involve exiting profitable positions. Letting profits run on good trades is absolutely essential to long-term success.
Winning traders understand that winning in the markets means "cash flow". More cash must come in than goes out, and anything that affects this should be considered.
ANYTHING that affects bottom line profitability should be considered as a viable area of study to improve performance.
The single best way to protect your profits is to lock them in. Really, you can either lock them in, or you can lose them.
Sometimes, if you think the market could travel a long way, some good money management advice you might want to follow is to plan several levels where you'll take profits. Firstly, take off half at a given target, and move your stop to entry. Alternatively, take off half your position and hold your stop at break even point, so nothing is lost and you also may not be taken out of the trade too early.
Always have your exit strategy in place before you make a trade.
Never, never, never add to a losing position, and every trade should be taken with professional care and planning.
Losing traders focus on winning trades and high percentages of winners. Winning traders focus on losing trades, solid returns and good risk to reward ratios.
When winning traders have a bad trade they spend time figuring out what happened and then they adjust their current methodology to account for this possibility next time.
Keeping losses small keeps your capital intact so that when a trade does become profitable, you can make big gains.
A winner runs his trading business wisely-carefully managing his fixed and variable costs of doing business and making capital investments which provide a worthwhile return to his business.
A loser is sure he's almost worthless as a person after 5 losses in a row.
The most successful traders have a methodology or system that they use in a very consistent manner. Often, this revolves around one or two techniques and market approaches that have proven profitable for them in the past.
You need to make protecting your capital and developing money management strategies your priorities if you want to be successful.
While successfully trading commodities with limited capital presents the highest challenge in trading, you can do it if you recognize the problems and construct a trading plan to accommodate the realities.
You need to position yourself so that you can endure long strings of losses, and maintain your day trading system.
If you can survive some losses in your day trading, the profits will come.
CONSISTENCY is a key factor to profitability.
Money management rules include defining your trading float, setting your maximum loss, calculating your stop loss, and most importantly learning how to choose your position size. Once these rules are in place in your system it's important to follow them. They are a critical part of any effective trading system. Money Management rules are the Holy Grail, the magical object that will bring you success in the market.