Customer Reviews

A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading)

5 star:		(45)
4 star:		(30)
3 star:		(3)
2 star:		(4)
1 star:		(5)

 

 

Thank you to John T. Morris for buying "A Trader's Money Management System" book and for reading it. And, though his review was less than glowing, I appreciate his comments here on Amazon.com because it opens up a valuable dialogue for traders about "effective" money management.

In response to his comments, let's just say I'm the first to admire the work of Douglas, Elder and Tharp -- and encourage anyone not familiar with their work to study them. My concern for Morris is that he makes no mention of Nauzer Balsara or Ralph Vince -- arguably the two greatest mathematicians in the field of trading. These men are mentioned in my book because their timeless concepts (both wrote books over 15 years ago) are the basis for truly "effective" money management.

With that said, many will agree that Balsara and Vince, while they are pure genius, can be at times difficult to comprehend for the new trader -- and even for some very seasoned traders. What "A Trader's Money Management System" does for the reader, is to make some of these complex concepts -- like using the risk-of-ruin tables and optimal f formulas -- easy to understand and instantly implement.

Apparently my simplicity in the book has worked since Morris says in his review that "...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: The Risk of Ruin concept plus optimal percentage formula to determine the amount of equity capital to be risked on any one trade...".

If he has gained that insight from the book, then he is one step closer to developing more "effective" money management. The next big step for him would be to realize that there is no "magic percent" to risk on each trade. The 2% figure is purely an example and a frame of reference for the reader and that is why there is an "Important Note" stated when ever the 2% figure is mentioned. The important note directs the reader to Chapter 9 so that they can use the risk of ruin tables and optimal f formulas to calculate the exact amount that should be risked on each trade.

When Morris states that "...except in very exceptional cases, 2% is way too much to risk on a trade and that it should be more like half at most..." he is not basing his analysis on any mathematical probabilities. Instead, it's more of a hunch, since he's taking numbers out of a hat from interviews in the Market Wizards book. He doesn't know what the pay off ratios or win ratios for the traders interviewed were.

By looking at page number 79 in "A Trader's Money Management System" you'll see that my recommendation for a trader producing a win ratio of 35% (meaning you are winning only 35% of your trades) and a payoff ratio of 2 to 1 (meaning for every dollar you lose you earn 2 dollars) -- they should be risking only 1% . Where as on the same page of the book you'll see that if you have a win ratio of 50% and a payoff ratio of 3 to 1 you would in fact be able to risk 10%.

Why can one trader risk only 1% and another risk as much as 10%? It is simple, from a mathematical probability, their historical performance warrants -- less risk -- OR -- more risk -- depending on how well they trade.

I've been working with traders for over ten years and have to say that my passion is trading and education. Hopefully this response to John T. Morris will give other traders, if not Morris himself, some insight into effective ways to structure their risk -- depending on what their current trading results are telling them through their win ratio and payoff ratio.

This one's a brand new book to add to your collection of Ralph Vince and Nauzer Balsara. Difference, though, is that this book really simpllifies the essentials and makes it easy for even the beginner to understand the sometimes complex money management formulas that truly are essential to trading success. I've got the other books too -- but this is the one that helped me effectively and profitably implement the formulas to calculate what percent of risk to take on each of my trades so that I'm not risking too much (which has exposed me to risk of ruin in the past) and then again -- McDowell's formulas help me not risk too little so that I'm not maximizing my return. The formulas are all based on your performance statistics at any given moment (which will be different during drawdown VS a winning streak) and they are basic algebra -- so you don't need to be a mathematical expert to use them. The other really valuable tool that has helped me is the record keeping forms that come with the book. Now I'm caputuring the data I need on each transaction and my analysis gives me the answers I need.

I'm glad I checked out this book in the bookstore before buying it. I would be seriously pissed off paying so much for what is really just a sampler, just enough to whet the appetite. The bulk of the book is trading 101 on money management, and the little bit that goes beyond the basics is covered in much greater depth in the Vince or Balsara books. In itself there's nothing wrong with an intro book, but at this price it's just greedy. It just proves Elder true when he says that most of the money of the "losers" in trading doesn't go to the "winners" but to the trading industry. If you're serious about trading you're going to want to move on to the more meaty books anyway, so don't waste your money and go there straight away. So I'd say, read Balsara first (very readable) and then move on to Vince (quite a bit of algebra, but actually quite basic by quant standards -- anyone with good high school math and willing to make the cognitive effort will be OK).

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.

Read this book before you lose your life savings or a portion thereof. I would venture to guess that most "non professionals" play in markets without a plan or system. It may be true that more people lose money in the market than make money in the market, especially in 2008. Well, if you fall into this category you need to read and use this book before you make another trade. Money management discipline is more important than stock picking!

This book is an easy read. It will, in a clear and concise manner, guide you to create your trading system for money management ("preservation"). Learn your strengths and identify your weaknesses. Understand your risk psychology and how to develop a "Traders Mindset" that fits you. Entry rules, stop-loss exits, risk-of-ruin tables, tracking systems and risk management rules, it is all here. It's well laid out and worth the investment in your financial future. I am glad that I bought and am using this book. Highly recommended!

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 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. 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.

A great primer and detailed system on avoiding big losses. The key to profitable trading is adpoting and sticking to a money management system that will protect you against big loses. Planing the trade after calling market direction then implementing a system that keeps your losses small and let's your winners run will allow you to stay in the game. This book outlines such a system that can work to avoid the risk of ruin for a disiplined trader.

This is one of the worst books I have read about trading/financial markets.
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.

With all due respect to TraderHR, I do not consider this a "great book" for experienced traders. The author treats almost all his main points in a very superficial way. If you really want to get an indepth understanding of such important subjects as trader psychology, position sizing, entry and exit strategies, etc., one needs to read and digest the books by Mark Douglas, Van Tharp, and Dr. Alexander Elder.

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. McDowell does not give you any useful Risk of Ruin table but only refers the reader to another author's book where the minimum capital at risk is 10% per trade, way way too much for the table to be useful.

The section on profit and loss recordkeeping would be useful for the beginning trader but certainly not for the experienced or professional trader. An experienced trader not only could easily duplicate the various forms in Excel but could also vastly enhance it for his (her) own purposes.

Bottom line, if you are somewhere beyond a rank beginner in trading, save your money and take a pass on this book.

I have been searching for the elusive consistent profitability for some time and I think this book by Bennett McDowell turned on a light for me. The step by step money management method taught here supports the fact that any trade can go wrong and if you don't use wisdom in the amount you risk on every trade, that loss may wipe out far too much of your equity and before long you are in trouble. I am trying to run my trading as a business. I have never really known how well I was doing. With the suggested data and the pre-formatted forms provided in the book, I can keep an accurate set of statistics and know from day to day how I'm doing. The recommended trade size based on my equity will help me make good decisions about each trade and keep me in better control of my losses. This has been a much needed study into my need for discipline and structure in my trading. The book gives the reader allot of sugestions to help in developing money management rules for a master trading plan. It was an area I had not given much thought to until now. Could have allot to do with my inconsistent results. I recommend this very thoughtful, well written and practical study of money management.

John T Morris' 2-star review sums it up nicely. I'd read that as well before making a buy decision.

The gist of the book is that if you're brand new to trading, barely finished highschool math, and have not done much reading on trading yet, this book might be useful, otherwise probably not. For the record, I am not an experienced trader, I'm an aspiring student, and this was way below my level -- way below. It would serve as a nice survey/intro to other books, but I didn't feel it stood on it's own very well.

The gist of the book can be summed up quick:
- bet no more than 2% unless you know what you're doing
- use stops
- buy my other book
- go spend money on my website

To tweak how much you should wager, he refers the reader to Money Management Strategies for Future Traders (Balsara) and Beyond Technical Analysis 2nd (Chande). This book doesn't really stand on it's own without those tables the author says are in Money Management Strategies.

The author has a section on Psychology, but tries to do way too much, and just comes up really short, especially when compared to most other books that try to cover trading psychology. The book is only 150 pages, less blank pages at the start of most chapters (14) and sections (5), full page examples of filling out queue cards (16), uses moderately large font, and then has the normal charts and formulas of a trading book. There's really very little actual content when it's left over, especially when the author keeps saying "trade only 2 percent" followed by a 1/5 page "Important Note" saying go look at chapter 9 for an exception to the rule. That important note is repeated ad nauseum.

This book is a survey of other works, stitched together from other works that reads like a late night infomercial.

(I'd probably have given this book a 2-star review, the extra star being for the templates and record keeping system which appears to be not bad, but the Author has given himself a 5-star review which I find to be in bad taste. After reading the book and some of the 5-star reviews, I would question the authenticity of the other reviews.)