A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin 1st Edition

If you are serious about being a profitable stock trader then this book belongs on your top shelf. I have been trading stocks successfully for five years and have read over 100 books on the subject and put this in the top five for useful information. This book spells out each step very simply and clearly for money management,so that you can instantly know, step by step and formula by formula what you need to do so that risk is minimized and the probability of success is maximized.The six types of risk to manage in trading are covered in detail:1. Trade risk2. Market risk3. Margin risk4. Liquidity risk5. Overnight risk6. Volatility riskYour long term success will depend on your ability to control these variables to make your risk of ruin almost zero. "The markets are the ultimate university of finance and sometimes the tuition is on par with Harvard, Columbia, or Yale".This book will take you through exercises to identify your strengths and weaknesses as a trader and show you where improvement is needed. It will also give you questions to answer to grade yourself on where your personality is on the spectrum for taking on risk and also your level of discipline.This book contains a wealth of useful work sheets that enable you to track your trading statistics daily, weekly, monthly, and yearly. You should have at least 25 trades for a system, then check the statistics for that sample. The book suggests the key stats will be: the win ratio, payoff ratio, commission ratio, largest winning trade, largest losing trade, average winning trade, average losing trade, largest % of draw down, average of draw down, total % of profit/loss. These stats are crucial in determining where adjustments need to be made for greater success. While and average amount of risk is 2% of equity on each trade, your amount of risk could be adjusted higher or lower based on your win rate.If you are a fan of Alexander Elder's work then this book will fit in great with his methods. There is no greater book on money and risk management on the market that I know of. Don't go back in the market with out reading it and implementing the record keeping and risk control tactics it teaches.

For the past two years, I traded in my IRA using a variety of approaches recommended by different trading gurus and authors. I've tried everything from so-called "PhD level" training by a major brokerage firm, subscribing to dozens of trading services, and several specialized ETF trading "colleges" by so called trading experts and fund managers. The experiences ranged from dissappointing to a waste of time and money. In the process, I've picked up a few trading skills, but not to the level I expected for over $40,000 invested in my training. The one thing I have learned is to trust in myself and not listen to the hype you get from these so called "gurus".I've read parts of a lot of books on trading and never completed any of them. They either were too technical or too difficult to follow and never really presented a strategy I felt comfortable to implement on my own. An area in which most books gloss over or fail to stress, is in the use stops and an effective money management system. A few will go so far as to discourage using stops. Most will make reference to needing to adhere to good money management techniques, but fail to go into detail on how to do this.After reading Bennett McDowell's "A Trader's Money Management System" and "The Art of Trading"The ART of Trading: Combining the Science of Technical Analysis with the Art of Reality-Based Trading (Wiley Trading), I finally have the confidence and knowledge to start 2010 with a trading plan and strategy for success.I learned how and why to use stops. Not just the importance of stops, but the actual logic behind them. Having lost a lot of money in trades gone bad, I now understand why I should never enter a trade without a good stop in place. By using stops on every trade, I will avoid catastrophic losses and drawdowns. I also learned how the ART System can help me identify entries and exits before placing the trade and how to precisely calculate my trade size in shares or contracts to maximize my reward/risk ratio. By using the ART system to correctly identify "entries and exits", I will have the confidence to place my trades without fear of losing big. I also have a new sense of committment I've been missing in my trading. I plan to paper trade for a few months to master these new skills before risking real money. By incorporating the ART System into my trading strategy, and using a carefully crafted Money Management plan for my future trading, I feel my future as a trader will greatly improve. His books are easy reads and use a lot of examples to help the reader understand the "why" and "how" of what is being discussed.Thank you, Bennett for helping to enlighten all traders on these very important aspects of trading.

I found A Trader's Money Management System extremely valuable and informative. In this book Bennett McDowell divides money management into five parts: The Psychology of Risk Control, Stop-Loss Exits, Trade Size, Record Keeping and Design Your Own Plan. In the Psychology of Risk Control section he discusses the need for a plan of risk control then presents ways of uncovering your psychological makeup which either aid or hinder your trading. Then he outlines a systematic approach to turning your weaknesses into strengths on the way to a trader's mindset. In the Stop-Loss Exit section Mr. McDowell makes a case for stop-losses and gives rules and their uses in different market conditions. The Trade Size section was fascinating, perhaps because I am a math major. Here he explains the tables and formulas for determining the amount of capital to risk, the trade size to achieve this and the probabilities for risk-of-ruin based on your personal success ratios. The Record Keeping Section explains the use of ledgers and score cards to track your trades and analyze your success rates which is vital to becoming a master trader. Finally in Design Your Own Plan Mr. McDowell puts it all together with a step-by-step checklist and personal questionnaire to help you design a realistic and workable plan that you can implement on a regular basis. This book is well written and concise. I highly recommend it for all levels of traders.