The Successful Trader's Guide to Money Management

Regardless of the market or country in which you operate, money management is a fundamental aspect of risk management in investing and trading. However, while many operators focus on identifying operational set-ups, like entry levels and stop-loss ratios, many do not consider the often-decisive impact that money management can have on their investment returns. In The Successful Trader's Guide to Money Management, celebrated investor, educator, and author Andrea Unger delivers a thorough exploration of the different methods used by traders and professional investors to calculate how much of their capital to use in individual transactions. Sometimes referred to as "position-sizing," money management in trading is a central component of effective risk management. You'll find practical examples with a special focus on money management and position-sizing, as well as comprehensive coverage of widely practiced investment techniques, including discussions of their strengths and weaknesses. You'll discover treatments of the most effective position sizing models. You'll also learn about portfolio management, with examples on how different approaches lead to completely different results. Finally, the book also offers essential tips on building and designing a trading system, how to trade on equity, derivative, and forex markets, and how to choose a broker aligned with your needs. Perfect for investors, retail traders, fund managers, and professional or advanced investors, The Successful Trader's Guide to Money Management will also earn a place in the libraries of anyone thinking about beginning to invest or start their trading career and who seeks a one-stop, authoritative resource on how to manage one's money while actively trading.

Foreword xi
Preface xiii
Chapter 1 Martingale and Anti-Martingale 1
1. 1 The Right Stake 1
1. 2 Martingale 2
1. 3 Anti-Martingale 9
1. 4 More Examples 15
1. 5 A Miraculous Technique? 17
1. 6 Conclusions 20
Chapter 2 The Kelly Formula 21
2. 1 Kelly and Co. 21
2. 2 Conclusions 31
Chapter 3 A Banal Trading System 33
3. 1 Analyzing a System Based on Moving Averages 33
3. 2 Applying the Kelly Formula 37
3. 3 Conclusions 52
Chapter 4 Money Management Models 53
4. 1 The Fixed Fractional Method 54
4. 2 Optimal f 60
4. 3 Secure f 65
4. 4 Fixed Ratio 68
4. 5 Percent Volatility Model 81
4. 6 Levels for Changing the Number of Contracts 91
4. 7 Conclusions 92
Chapter 5 Refining the Techniques 94
5. 1 The Importance of the Trader's Temperament 94
5. 2 Reduced f 95
5. 3 Aggressive Ratio 97
5. 4 Asymmetric Ratio 99
5. 5 Timid Bold Equity 100
5. 6 Equity Curve Trading 103
5. 7 z-Score 110
5. 8 Conclusions 112
Chapter 6 The Monte Carlo Simulation 114
6. 1 Using the Monte Carlo Simulation 114
6. 2 Maximum Loss 135
6. 3 Conclusions 139
Chapter 7 The Work Plan 141
7. 1 Using a Work Plan 141
7. 2 Conclusions 155
Chapter 8 Combining Forces 157
8. 1 Using a Combination of Systems 157
8. 2 Portfolio Money Management 168
8. 3 Which Capital? 169
8. 4 The Effects of Portfolio Money Management 173
8. 5 Conclusions 180
Chapter 9 Money Management When Trading Stocks 181
9. 1 Trading in the Stock Market 181
9. 2 Conclusions 192
Chapter 10 Portfolio Management 193
10. 1 A Portfolio Approach 195
10. 2 Some Improvements to the System 208
10. 3 Conclusions 214
Chapter 11 Discretionary Trading 215
11. 1 Trading Criteria and Definition 215
11. 2 An Example: Mediaset 218
11. 3 Adjusting Volatility During the Trade 225
11. 4 Trading Futures 228
11. 5 Conclusions 245
Chapter 12 Questions and Answers 246
Appendix I 252
I. 1 The Impact of a Trading System on Planning 252
I. 2 The Trading System 252
Appendix II 268
II. 1 Understanding the Type of Strategy 268
Appendix III 278
III. 1 The Advantages of Forex 278
Appendix IV Online Trading 282
IV. 1 The Trader 282
IV. 2 Trading Profits 284
IV. 3 Systematic or Discretionary? 286
IV. 4 Choosing the Broker 287
IV. 5 Which Platform? 288
Index 291