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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
Risk control tends to be the last thing that most traders focus on, perhaps because of the popular belief that it's their trading strategy that will generate great fortunes. But ultimately, a strategy alone won't create riches. A trader or investor needs to develop discipline, a strong financial psychology, and a sound money management system to maximize profits and keep them out of financial danger. In A Trader's Money Management System, veteran trader Bennett McDowell offers readers an expert guide to the most important elements of money management in trading.
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
Praise for A Trader's Money Management System
"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.
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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. 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.
Most Recent Customer Reviews
Ideal for day trading system set ups parameters. importance of size and money management