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jeffgroove

Best Money Management Book for Futures Trading?

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I am trying to decide what would be a good money management book.

 

To give you all context:(About me and my objective, skip if you want)

Mostly a losing trader with low winning percentage. I do not have time to divulge the details other than my account has gone from 5100 to 3540, part of this has been from monthly platform fees. I mostly trade in the morning during the first 2 hours of the US trading day. I trade futures, ES and TF, but now mostly TF as, at least to me, it seems to trend pretty well. My preferred style would be a swing trading with 3 point profit objectives on the TF. That is my goal. For the time being, to getter a better sample size of how I trade, I am looking at moving to the NQ100 contract. I figure with my account size and to keep from becoming an ex-trader, this is the best course of action for me.

 

My two considerations:

Money management strategies for futures traders: Balsara

A traders money management system: Mcdowell

 

I want these to better develop my trading plan, and establish a performance metric for myself, so I can decide how best to trade. I have read some trading psychology books, which are good, but unfortunately, as with many endeavors in life, confidence is earned, and having some wins results in a less hesitant trigger finger, which is what I need. Hopefully I have provided enough info. here, all suggestions are appreciated. My intention is to order one of these books from amazon, right now, I am leaning towards balsara's book since it mentions futures in the title, what do you guys think?

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to be blunt - with a low winning percentage and only targeting 3 point profit targets - no money management book will help you. You will not make enough to cover losses.

 

If you are going to scalp - I dont know what to recommend as thats something I dont do.

I would suggest working on setup that allows you to run larger profits compared to your losers, or at least one that has a high percentage of winners if you are only taking a few points.

 

Also having some wins WILL NOT necessarily help your trigger finger - if you dont have the right setups, and plan, then having a few wins may just give you an itchy trigger finger and will lead to trades you dont need, or want - usually these end in tears.

 

The best resource is here on this site - various threads..... free, helpful and a licorice allsorts of information.

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Altho I hated your response at first, the truth hurts, hahaha.

 

I am a firm adherent of believing in finding reasons for an idea being wrong before being right. I think this helps and hinders me at times at the same time, as that saying goes, the market has a way of shaking out the weak hands.

 

I am gradually building my base of ideas for entry and exit based on market profile, volume and a couple of moving averages, but I am still a skeptic. Not sure if I am a big believer in paper trading either, because having money on the line really really does effect your psychology in the moment.

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trading is not necessarily about ideas that are right or wrong..... its about averages and consistency.

If you are looking for something that is going to help you be right (eg; patterns, indicators) then you are missing the point.

I can tell you now and save you a lot of time - no one thing in the market works all the time, so you will always find the times it does not work, and hence prove its adherents wrong.

Congratulations......

 

There is only one right or wrong in the markets - you have to be long the things that go up, and short the things that go down. After that the rest is how much you make or loose over a series of trades based on whatever method gets you long or short. Averages.

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If u understand MM as a tool for getting geometric growth on your account then I would suggest "The Trading Game" by Ryan Jones. It's hard to read and to understand but if u make it (I had to read it 3 times until I got a grasp on it) u'll be ahead of the other 98% of the crowd. It shows the difference between making USD 70.000 (w/o MM) and USD 600.000+ with MM doing the exact same trades.

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Money Management is in my opinion the "HOLY GRAIL" of trading. I finally understand it but I still lack the discipline to follow it consistently. It has been said that with proper MM you can randomly enter trades and still be successful. While I don't know about that, I do know that for my trading if I limit my daily loss to $250 and I make at least $750 on winning days, I can have 2 winning days a week, losing the other 3 days and walk away with more money than I started the week with. The concept is simple. The hard part is sticking with it and turning trading platform off as soon as you lose $250.

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Money Management is in my opinion the "HOLY GRAIL" of trading. I finally understand it but I still lack the discipline to follow it consistently. It has been said that with proper MM you can randomly enter trades and still be successful. While I don't know about that, I do know that for my trading if I limit my daily loss to $250 and I make at least $750 on winning days, I can have 2 winning days a week, losing the other 3 days and walk away with more money than I started the week with. The concept is simple. The hard part is sticking with it and turning trading platform off as soon as you lose $250.

 

I would acknowledge that MM is a kind of holy grail in trading and investing. Still about 98% of the trading community isn't using proper MM. Often they tell u s/th about trade management and think they use MM which they don't. If you don't use proper MM u'll lose in the end, period. If u use it u at least have a chance to survive and if u have a winning system/strategy then you will get really wealthy u cannot avoid it.

So if you have a system with the RR ratio u described that would be great, add proper MM and it will be a holy grail.

 

If one would really want to dig into this there is also another book out there which I would recommend: Van K. Tharp - Trade Your Way to Financial Freedom. After reading it u'll never trade w/o MM.

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Another good practice/exercise to do when trying to get the head around money management - regardless of which book you get.

Use excel to run through some different scenarios of what happens with compounding of different percentages. Look at what happens when you do some things like looking at increasing your contracts and decreasing your contract sizes, as the account equity grows.

eg; when the account equity grows by 20% increase your contract sizes. If the account equity falls by 10% decrease the contract sizes.

Look at what happens if you risk 1% per trade, 5% per trade etc; consider the risk of ruin.

 

(you may need to use larger numbers to understand the real significance here)

The exercises, even if very simply done will convince you of the power of money management, and by trying to work out how it actually looks in excel can really help get the mind to understand it.

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@ DugDug:

I don't think that experimenting is not the right way to learn MM. Read some books and then apply PROPER MM to your trading. AND: you still first have teo develop a winning strategy!! That's more important than experimenting with MM. There where bright brains that already discovered how to do it right, why to waste time on it?

I don't think one has to be convinced to use proper MM, the math behind stands for itself. If u don't use it you lose. BIG. Again there is a difference between earning 70.000 and more than 600.000 with the IDENTICAL trades, isn't it?

 

That's what I learned in my 26 years of trading; it's my personal opinion and experience. Take it or leave it, but don't take it personal DugDug, ok?

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Hi firstbrain - I dont take it personally - this is the internet :)

However while you are correct in that a lot of people already have proven certain things, there is no substitute to take a little bit of time (not copious amounts) and really understand it and have something to show you/remind you how the little differences can make a big impact.

While you say people dont need to be convinced to use proper money management you also then remind us that in your opinion 98% traders dont use it - I would argue that the reason many people throw out or forget their money management principles (and many other trading principles) is precisely that while they may know about MM, they are not convinced and they dont truly understand it. Hence the exercise.

 

(my first post was to point out that you need a strategy first)

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Well, money management is a really important skill as we deal with money every day of our life and it's sometimes rather difficult to avoid troubles due to its mismanagement. Every person should be really careful with his personal finances in order to plan the budget with no troubles.

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To the very first post, i think books are helpful but not in the beginning of the activity, in the beginning there will always be some period for trials and mistakes which you have to go through, if you don't face such problems then you are probablyreallyyyyy lucky, so there is no only one definite way to learn MM((

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