Trading Systems and Money Management


  • Pages: 415
  • Format: PDF
  • Published Date: 2003


Trading Systems and Money Management recognizes the importance of proven money management principles to the success of a trading program. This step-by-step guide shows how to use stops to improve profit taking and reduce losses, add filters such as moving averages and breakouts to improve entry and exit points, and practice basic money management techniques to improve the performance of any trading system.

Author’s Introduction:

This book is for those traders who haven’t been able to pinpoint what is missing to make the complete strategy larger than the sum of its parts. If you allow me to take a guess, I’d guess that what you feel is keeping you from succeeding as a trader is the overall understanding for how it all ties together and what really constitutes a more “sophisticated” strategy with a higher likelihood for success than the ones you’re currently using.

The way I see it, to simplify things, the development process could be divided into a few building blocks: First, we need to learn what we need to measure to achieve robustness and reliability. Second, we need to learn to formulate and test the logic for the entry (and possibly also some sort of filtering technique). Third, we must understand and test different types of exits. The last point of actual research is to apply and test the money management according to our risk preferences.

The first part of the book will show you how to measure a system’s performance to make it as forward-looking as possible. In the second part, we will take a closer look at the systems we will work with throughout the rest of the book. In Part 3 we therefore substitute all the old exit rules for all systems with a set of new rules, optimized to work on average equally as well on all markets at all times. The last part of the book will tie it all together by applying a dynamic ratio money management (DRMM) regimen on top of all the trading rules.