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What is meant by money management?

Those two words money management cover almost everything that really matters with regard to commodity trading.

Even more important than your trading rules, your money management methods will decide what happens to your account balance.

If your system rules can be shown to have a positive expectation, then you certainly could make money with them – but it is by no means certain that you will. How you will fare has much more to do with your money management than anything else – even the rules themselves.

How much should you risk on a particular trade? Do you have the free resources to take this trade at all? What will be in line with your trading goals?

All of the answers are built into your money management system.

Your money management system will see to it that you do not overtrade – that is the certain road to ruin. It will see that you are here tomorrow, ready to trade. It will also see that you don’t under-trade by passing up opportunities. It is a balancing act between your return requirements and the level of risk you are personally prepared to take.

Your money management will be largely invisible to you as a systems trader because it is built into your methods and software. As long as you know its pedigree you will feel comfortable with it.

Money management is your silent ally that helps you control your trading resources towards achieving your trading goals.


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Copyright David Bromley 2006
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