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

Trading Systems Pt II

This post *was* going to be an exploration of the first item on the list -- money management. However, I think I left something off that I should touch on first. Education.

I'm a bookish type. I've read about five investment books cover to cover, and feel like I'm finally beginning to understand a bit more about my horizon of ignorance. Yes, I've been trading too, but it's important to do both. The reality of trading re-enforces the theory, and the theory contributes to your understanding of the trading decisions you make.

I feel constantly frustrated by not having enough time to spend on this, however some time management is required. It would be easy to sink entirely into the world of trading, and possibly to only a little advantage. I will probably always feel like the tools at my disposal (including time) are insufficient to the task.

I believe that the only way to function properly in such a new, complex and bewildering environment is to combine doing, thinking and learning on an ongoing basis.

I will try to return to regular posting soon, and start at the stop of my list. :)

As a final note, I followed up the link sent to me by a reader which might be useful to others also. I have joined his website and will post to this blog if my impressions of the site change, but at first glance it looks genuine and useful. http://www.newsalerts.com.au/

Cheers,
-MP