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A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin Hardcover – July 8, 2008
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From the Inside Flap
McDowell shares his personal money management system, with the ultimate goal of helping you design your own system, customized to fit your risk tolerance, your experience level, and financial needs. He identifies the six types of risk to consider every time you make a trade—trade risk, market risk, margin risk, liquidity risk, overnight risk, and volatility risk—covering each in detail.
In easy-to-understand terms, the author then breaks down his system into five key elements. He first explains the psychology of risk control, telling what issues to look for and how to address them in order to more effectively implement your money management system. McDowell then details a variety of stop-loss approaches and gives you tips on how to make sure you adhere to them when they're hit. He follows with a discussion of trade size, showing how to determine how large or small your trade size should be so that you are not overextending your risk. McDowell then covers the crucial element of record keeping, and explains how it pays significant dividends. Finally, he shows how to design a realistic personal plan—one that you will continue to use and profit from.
This book also equips readers with two valuable tools: A one-month free trial of Trade Size Calculator software and The Trader's Assistant recordkeeping materials. The trial Trade Size Calculator software is downloadable at www.traderscoach.com (see Appendix A for details), and The Trader's Assistant recordkeeping materials can be photocopied directly from the book. These two tools complement the text and together provide a complete package that will deliver better results to your bottom line.
From the Back Cover
"I am pleased to strongly recommend this excellent book, A Trader's Money Management System. If you are picking up this book, congratulations, since you have taken the first steps in following in the footsteps (by using proper money management) of successful traders."
—Steve Nison, President, Candlecharts.com, and author of Japanese Candlestick Charting Techniques
"Bennett McDowell demystifies money management for traders in his new book. With these simple, time-tested strategies, a trader will decrease the time it will take to become profitable."
—Adrienne Toghraie, President, TradingOnTarget.com
"Bennett McDowell does traders a HUGE favor in this valuable book by emphasizing the extreme importance of risk control and its vital place in a sound trading plan. Further, he provides knowledge of and access to specific tools, which enable the trader to implement his ideas simply and effectively. His simple straightforward treatment of a complex and often boring subject is a breath of fresh air and a worthwhilecontribution to this important element so crucial to the achievement of successful trading results."
—Edward D. Dobson, President, Traders Press Inc.
The best-kept secret to trading success: money management
Money management may very well be the most important piece of the trading puzzle. In A Trader's Money Management System, expert Bennett McDowell provides time-tested techniques that can turn a losing trader into a winning one—and take the winning trader to an entirely new level. In revealing his personal approach to staying out of trouble in the financial markets and maximizing profits, he offers comprehensive insights into:
The psychology of risk control as well as the finer aspects of setting stop-loss exits
The value of managing trade size and consistent record keeping
The process of putting together your own personal money management system
Unlike other books that focus on the complex mathematical theories behind money management, this book presents its system in straightforward, easy-to-understand terms that will allow you to quickly see how these concepts work—and immediately benefit from the value of effectively managing risk.
More About the Author
San Diego, CA USA
Bennett McDowell is the founder and president of TradersCoach.com®. He developed the Applied Reality Trading® (ART®) software and home-study course, featuring the Pyramid Trading Point® indicator.
These products are now used by traders worldwide and the ART® trading system has been favorably reviewed by leading industry publications, such as Stocks & Commodities magazine and Traders World magazine.
Mr. McDowell was honored to be included as a member of the eSignal "Trading With The Masters" team, and his company, TradersCoach.com®, received a Stocks & Commodities "Reader's Choice Award."
Considered an expert in technical analysis and complex trading platforms, he lectures nationally and writes articles for many leading trading publications and Web sites.
Mr. McDowell began his financial career on Wall Street with J.J. Kenny Co.; and then became a Registered Securities Broker and financial advisor for Prudential Securities and Morgan Stanley.
Top Customer Reviews
Note also that most 4 and 5 star reviewers have only a track record of one review (or if it's two, it's to give rave reviews for the author's other book). What a coincidence, so many first-time reviewers.
It might have been an interesting 5-page article in a magazine but almost 200 pages is just very painful for the reader. It's not really about money management except mentioning that stops are important - well, we know that by now. Just a few examples about other things that are very annoying in the book (in pretty random order):
[x] The author talks about 7 types of risk (as mentioned in other reviews) but there is not real value in this categorization and the "explanations" are a waste of time, e.g.:
"Overnight risk. For day traders, overnight risk presents a concern of what can happen overnight, when the markets are closed, can dramatically impact the value of their position. [...]" Zzzzzzz - tell me something new.
[x] In every chart there is advertising for the authors trading system that he tries to sell, e.g.: "THE ART CHARTING SOFTWARE WORKS ON ALL TIME-FRAMES!". By page 5 you know the author has this "fantastic" system but he goes on and on and on about it on every page and every chart.
[x] The author never explains on how to do it... he only says that this and that is important, like "Have a plan.", "Find a winning trading system", ... My grandma could have given me more helpful advice.
I found that in several places Mr. McDowell was greatly at odds with the legendary traders interviewed in Jack Schwager's various Market Wizard books. For example, Mr. McDowell recommends throughout the book that beginning traders should limit their risk on individual trades to no more than 2% of their trading capital. Virtually every professional (and successful) trader in Schwager's books says that, except in very exceptional cases, 2% is way too much to risk on a trade and that it should be more like half that at most.
I also found it very annoying that Mr. McDowell saw fit to put in the following "Important Note" virtually every time he mentioned the 2% rule: "For some advanced traders, it is beneficial to risk more than 2% of their trading account." First of all, based on Mr. Schwager's interviews, no advanced trader would ever go above 2%, and secondly, I personally don't think any advanced trader would ever bother reading Mr. McDowell's book in the first place. It's way too elementary.
I do give this book two stars rather than one because it does contain some ideas that I have never run across before in my study of trading: For example, the Risk of Ruin concept plus the optimal percentage formula to determine the amount of equity capital to be risked on any one trade. That said, Mr.Read more ›
The six types of risk to manage in trading are covered in detail:
1. Trade risk
2. Market risk
3. Margin risk
4. Liquidity risk
5. Overnight risk
6. Volatility risk
Your 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.Read more ›
Most Recent Customer Reviews
Like many other aspiring traders, I started by focusing on trading systems that promised high rates of return. Read morePublished 9 months ago by Dan S.
Not much to add that has not already been written in the 1-3star comments. So I will not rehash it. For a book written in 2008 I would have thought the author would have done a... Read morePublished on September 20, 2013 by R. S.
Basic but so tough to apply when eager to succed. excelent book.
Ideal for day trading system set ups parameters. importance of size and money management
Just the usual - you need a plan, stop-loss and certainly traderscoach.com - and nothing, but nothing original. At least nice reviews from other readers...Published on February 18, 2012 by RB
Others have already given good accounts of what this book covers, so I won't rehash them here. If you haven't already accepted the premise, you should: money management is... Read morePublished on November 22, 2011 by D. Witkin
place stops let profits run , advanced traders have higher risk tolerance, really really basic, not worth the price at all, a media for selling some other a.r. Read morePublished on October 26, 2011 by Fan Blunt
I find this book an eye opener in explaining in simple layman language the money management concepts to prevent risk of ruin. Read morePublished on August 22, 2011 by MK
Never trade more than 2% of your total capital. There, you no longer need to read this book because there is nothing else of value in it.Published on December 23, 2010 by James S. Reed