Thursday, September 28, 2006

Money Management

* Money management -- decisions that are semi-independent from the trade itself, relating to ideas about conserving capital, how much to invest, why to protect profits and when to stop losses

This stuff isn't quite the same thing as a trading strategy, although it has implications for it. Mostly, it's to do with risk, tax, income, profit, loss and accounting. It's also got a little to do with goals and achievement.

Let's suppose you've got a dead-cert trading strategy which makes you 10% a year without fail. Let's say.

Even with this in place, you're still going to have to know about money management. It's not usually the case that the trading strategy will demand that you are invested in the market 100%. In fact, it's much more likely that you'll have big lumps of cash sitting around waiting for opportunities or just gaining interest for lack of anything better.

For myself, I save X dollars per month, and I usually don't invest it all straight away. When should you invest? What constitutes too much exposure to the market, and what constitutes too little? How much are you willing to lose in the pursuit of profit? How much *research* are you willing to do.

Given your desires for profit, risk, how much work you are prepared to put in, what are you looking for in a trading system? Do you want to spend a day a week and an hour each other day reviewing your success and trading frequently? Or would you rather push the boulder down the slope and let it bounce where it may?

When do you get in? When do you get out? How much does your trading cost you in brokerage terms and in time management terms? Do you want to try taking out a loan product to gain leverage? How about other kinds of leverage?

These things can all be thought of independently of any particular approach to trading. This is a good thing, because it allows one to focus on a particular set of decisions in what is a very complex area...

Cheers,
-MP

5 Comments:

Anonymous Anonymous said...

Hey good luck with it. While I'm lazy about money management, I'm glad to see others see ambitions beyond what's immediately in front of their noses. There is a lot of wisdom out there in all disciplines of life. It just takes some curiosity and time to unlock it all.

10/05/2006 09:33:00 AM  
Anonymous invest said...

I really enjoyed reading your blog and I bookmarked it! by the way if you are looking for investement information check out my website!

10/11/2006 03:54:00 AM  
Anonymous Keith said...

Hi John (I assume MP & John are one and the same),

Nice blog. I was surprised when I found it, b/c I think you and I may have talked elsewhere, at www.summaphilosophiae.wordpress.com. Someone named John, who specified they are from Melbourne Australia, has shown up twice, posted some random links, and run from the ensuing discussion. Of course, this may not be you; I'm sure more than one person named John with a passing interest in philosophy live in Melbourne (which, by the way, is a beautiful place).

You know, we'd like to actually have a discussion with you. We even read some of the articles you linked to in the comments at our blog. Come on back over, but next time (if you're the person I think you are) have the courage to stay and defend your position. But, if you are not the person I think you are, please accept my deepest apologies for this confusion. Incidentally, I picked up some great financial advice on your blog!

10/22/2006 03:32:00 AM  
Anonymous Anonymous said...

I really enjoyed reading your blog and I bookmarked it! Thank you You

5/17/2007 04:05:00 AM  
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