05/09/2020
The Basics of Share Trading...
More than 90% of people trading the share market lose money because the majority do not use correct Money & Risk Management principles or have the discipline to follow them.
Money Management, Position or Trade Sizing No matter what you call it......You Had Better Know It!
Money Management and Position Sizing skills are regarded as ESSENTIALS for successful trading. This is shown by 'The Ralph Vincent Experiment'.
Van Tharp on Page 162 Trade your way to Financial Freedom'(1999) he indicates that Position Sizing, also known as Money Management, is the key ingredient behind any Holy Grail trading system and the difference between winning and losing.
Larry Williams a high profile well known trader says Money Management is his favourite subject. In his book, Day Trade Futures Online between the ho-hum trading methodology and the world's best methodologies. Yet in his experience working with many traders he finds that only a few people even think about the subject. .Larry says "Until you use a Money Management approach, you will be a two-bit speculator, making some money here, losing some there, but never making a big score...."
Also confirming what Van Tharp had discovered, Larry goes on to say that the truly shocking thing about Money Management is how few people want to hear about it or learn the correct principles. I have found it’s just not a sexy enough product.
NEVER risk more than 2% of your Core Trading Capital on any one trade. e.g. If you have $30,000 your maximum risk is $600 but what many forget is to also cater for brokerage. If it’s say $50 RT your maximum risk is now $550 and a stop is set appropriately so if your share drops in value by $550 you EXIT first opportunity.
NEVER trade with more than 20% of your Core Trading Capital on any one trade.
e.g. Again, if you have $30,000, your trade size would be $6,000 BUT I prefer to use 19% if I have less than $50,000 as my Core Trading Capital and 5(five) open trades I will still have 5% of my trading capital out of the market to allow for things like slippage, data, etc.
Here’s a simple mistake many traders make regarding their available Trading Capital. “My 1st trade is doing great, now worth $7000, up $1000 so I decide to open a 2nd trade”.
“Do I base my next trades’ Trading Capital as $31,000, $24,000 or $30,000 again?”
To fully optimize your Core Trading Capital the correct method should be to first determine the profit or loss of every open position if the current stop was hit. You may be up $1000 but your trailing stop is set and if hit you make less, say $900 so the next calculation would be based on $30,000 (Initial) + $900 (Profit). So your true Trading Capital known as Core Trading Capital is your available Cash + or – the profit or loss of all your open positions, if all stops were hit.
It's the 21st Century last time I looked and it’s quite normal to manage one’s own investments, yet very few implement disciplined, professional Money Risk Management principles or understand them. During the stock market boom, limiting risk was always an afterthought, but given the recent volatility in Market Conditions, advancements in Technology and World events, it’s time to get serious!
Professional Money and Risk Management strategies, used correctly and together, will be your foundation to trading success. Essentially, Money Management tells you how many shares to trade at any given time and your Initial Stop placement is where you must accept you have made the wrong decision, close that trade and move on. A Profit Stop will help you protect your PROFITS and when triggered is also the time to exit the trade. It is a defensive concept that protects your portfolio and keeps you in the game to play another day and sleep better at night. Begin today and prosper!
I wish you all share trading success!
Joseph (JBL) Barrington-Lew
Don’t confuse Money Management with Stop placement.
Stop placement does not answer the question, how much or how many?
Risk Management can be the difference between success and failure when trading shares. It refers to Stop placement Initial Stop Loss and maximise any profits and this stop is called a Trailing or Profit Stop. There are 2 types of stops: Static and Dynamic. How are they handled by JBL Risk Manager?
The automatic Initial Stop (Static) default option during new trade set-up basically answers the question: “If I have x dollars to spend and I'm willing to risk up to y amount (includes brokerage both ways), how many shares should I buy (or short sell) and at what price level should my initial Stop Loss be set at. This is my preferred option as it also avoids Stop Gunning/Running & best optimizes available CORE Trading Capital.
Your Preferred Initial Stop (Dynamic) option during new trade set-up will answer the question: “If I have x dollars to spend and I'm willing to risk up to y amount (includes brokerage both ways), how many shares should I buy (or short sell) if I placed my Preferred Initial Stop Loss at price z?”
Money Management, used correctly, optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital. JBL Risk Manager will help you do that.
JBL Risk Manager is a simple to operate but Professional Position Sizing Money, Risk and Trade Management program that was specifically developed to combat the frustration in correctly calculating these parameters in multiple open positions, monitoring and measuring performance. Your FREE 14 day fully functional trial integrates with MetaStock™ format Price Data. If you do not have local Metastock format Price Data the latest version (9) of JBLRM also gives you FREE access to Global Stock Market Price Data. You are NOT required to own the MetaStock™ Charting Analysis Software but Metastock 11 is the writers preferred program. JBLRM9 also includes a simple Portfolio Backup/Restore feature.
It will automatically calculate your Trade/Position Size, initial Stop Loss price, Trailing Stop when in profit, Break-even price and so much more, based on the last close. It will, of course, also allow you to change your anticipated buy price to actual buy price (slippage) You can still enter your Preferred initial Stop Loss but still control your Trade Size $value. JBLRM will indicate when to look for another trade (control over trading and Pyramiding) and also automatically report on your performance by showing you your portfolio %win-loss ratios, average $win-loss, trade expectancy and much more, accurately. It also includes, with kind permission from the Van Tharp Institute, performance values such as R-Multiples, R-Expectancy and System Quality Number. Money Risk Management is vital and JBLRM will remove emotion and guesswork from your trading decisions.
I urge you to give the latest 14 day FREE fully functional trial a test and available to download here
or Google or YouTube “JBL Risk Manager” looking for https://www.jblriskmanager.com
Park Avenue is Stockmarket Share Trading Software, Search Engine Marketing Solutions. Proven Money Management-Position Sizing strategies to help you achieve your financial goals sooner. Money Risk Management made simple.
