6 Golden Rules of Money Management Most people who are new to trading believe that picking the optimal

entry point on a stock is the key to a successful trade. However, a good entry point is only a small portion of creating a successful trade. Utilizing proper money management techniques is by far the most important factor to be considered on each and every trade. Whether its trading stocks, futures or foreign currencies, successful traders agree that managing their trades correctly is the No. 1 rule to an overall winning strategy. First of all, you must make it OK to lose if you want to win! A losing tradeor even several losing trades in a rowis simply a part of trading. Wizetrade software, when used correctly, is an excellent tool that enables traders to identify potential entry and exit points to increase the probability of a winning trade. However, markets move in unpredictable ways at times and even the best programs are not always right. You may be surprised to know that most professional money managers trade with systems that are correct only 50 percent of the time. Now, I can hear you saying to yourself, How can they make the huge returns they claim if they are only profitable 50 percent of the time? Its really very simplethey adhere to proper money management guidelines! If youre able to effectively manage your money, you only need to be right about 50 percent of the time. The unfortunate thing about so many traders is that their primary focus tends to always be on making money and not protecting what they currently have. You see, you have a 50/50 chance of the market going your way by just flipping a coin. But lets say you flip a coin, heads you buy and tails you sell. Once you have made your entry into the market, you need to protect your position in the event your flip of the coin goes against you. Heres an example of what Im referring to. Lets assume that for each $1,000 we use to control a position we are only willing to lose $200. Well also assume that for every trade we enter we expect to make at least twice what were willing to lose in this example, $400. After we enter the position, we set a $200 stop-loss order and a $400 limit order. In the Sample Trade Log below see what the net effect is by utilizing this strategy and only winning 50 percent of the time.

Sample Trade Log

(Hypothetical, of course)

1 2 3 4 5 6 7 8 9

Profit/ Stock Symbol (Loss) BUD ($200.00) MCO ($200.00) KO +$400.00 LL ($200.00) GILD +$400.00 MEDI +$400.00 UST +$400.00 WMT ($200.00) ADBE ($200.00)

10 DISH Net Profits

+$400.00 $1,000.00

A $1,000 gain! Can you start to see what we are talking about? Sure you can, but most people have a real emotional tie to their money. They dont execute proper money management techniques. Its extremely important to follow proper money management techniques to achieve your overall goal of a profitable account. Setting stop-loss orders is the first rule in proper money management techniques. Lets take a look at the 6 Golden Rules of Money Management.

The 6 Golden Rules of Money Management

1. Protect your gains and never enter into a position without setting a stop loss. 2. Always trade with a Risk-Reward Ratio of 1-to1 3. Never over-leverage your account. 4. Accept your losses, move on to the next trade and trust the software. 5. Make realistic goals that can be achieved within reason. 6. Always trade with money you can afford to lose. or better.

Money management Rule #1

Protect your gains and never enter into a position without setting a stop loss. Protecting your profits and minimizing your losses are two of the most important factors that will help you achieve your long- term financial goals. To minimize your losses, enter a stop-loss order after your initial order has been filled. If you see that you have achieved the gain you were looking for and want to continue to ride the trend even longer, protect the gain you have by adjusting the stop-loss order up to the breakeven point or higher. (Some brokerage firms allow you to enter a trailing stop order so that you dont have to continually be entering stop orders as the price of the stock moves up. Be sure to check with your broker for their guidelines). For example, lets say youre taking a Long position (Buying) in XYZ at $24.00 per share and you're looking for an 8% return. Enter an 8% stop-loss order at $22.08. If the stock moves up 8% ($25.92), but you decide to ride the upward trend even longer, move your stop-loss order up to the breakeven point, or an additional 8%. In this example, you would move it up to $24.00. Now you have protected yourself from losing money on the

trade. If your order does not get stopped out and you enter a sell order to take the profit, be sure and cancel your stop-loss order. By using a stop loss on your trade, you are avoiding losing money on what was once a profit that you did not take. Its the should of, would of, could of train of thought that you want to avoid!

Money Management Rule #2

Always trade with a risk-reward ratio of 1 to 1 or better. Placing a stop loss is, of course, very important, but equally important is determining where to place the proper stop loss. By this I mean, always be aware of what your riskreward ratio is. If you want to make $400.00 but are only willing to risk $200.00, then your risk-reward ratio is 1-to-2. To be even more conservative, you could trade with riskreward ration of 1-to-1 .

Money Management Rule #3

Never over-leverage your account. There are two primary points to consider when it comes to leverage: your brokers guidelines concerning leverage, and how will you allocate the funds in your trading account. Brokerage firms allow you to trade on margin, thereby increasing your buying power and potential trading profits. This can be a good thing and helps you leverage your assets. You pay a fee (margin interest) for this right, but again, you are able to trade with more money than the actual value of the securities and cash in your account in hopes of greater returns. However, you must realize that you may lose more money (getting a margin call) if your trades go against you. Be aware of the finer details of trading on margin and find out the details your brokerage firm has in place. To leverage your account properly, you must determine how to best allocate the funds in your trading account. A good rule of thumb is to only use 10% of your trading funds on any one security. By spreading out your available funds over a variety of stocks, you help protect your total portfolio value from an unexpected catastrophe on any single stock.

Money Management Rule #4

Accept your losses, move on to the next trade, and trust the software. Emotions and money do not mix. Simply treat each trade as a business transaction and dont get emotionally attached to it. Take your losses and move on. Learning how to accept a loss is probably more important than winning. Hanging on to your losing trades and watching the losses grow can lead to a disastrous situation. Unemotional, disciplined trading tends to take a bit of time getting use to, but is truly a high quality trading trait. Learn to trust the software, as it is usually right. It can make calculations without emotion much faster and more accurately than the human mind.

Money Management Rule #5

Make realistic goals that can be achieved within reason. Making realistic goals is another key factor to trading success. Dont expect to be an instant millionaire! There is a learning process that every trader goes through to become successful. Start out by identifying the strategies that are appropriate for you based upon the amount of time that you want to spend at the computer, the length of time you want to hold your stocks and which trading strategies are appropriate for your risk tolerance level. Are you willing to take on a One Day Wonder in hopes for a quick profit? Or, do you prefer to wait for a more conservative trade to come along with all the 3 Wizemen in agreement? Once you have determined your trading style, practicepaper trade, paper trade paper trade! Once you are consistently winning with that strategy, youre ready to put the real money on the line.

Money Management Rule #6

Always trade with money you can afford to lose. Trading with money you cannot afford to lose is a very foolish thing to do; yet, it is common among many traders. When trading, be sure to trade only with money that will not affect your lifestyle. You're trying to improve your lifestyle, not hamper it. When someone trades with money they can afford to lose, they tend to be more focused and more disciplined. They are not worried about any single loss. Simply, they are looking forward to the overall return. Dont borrow money in order to trade. Dont use your life savings. And, by all means, dont use the money that you would typically use to pay your monthly bills. This is just a road to disaster. Traders who do that have the same mentality as gamblers. Remember: Wizetraders are not gamblers. If you must compare trading to gambling, then being a Wizetrader would be akin to being a casino owner. Why? Wizetraders trade with the probabilities on our side! In the end, we, like the casino owners, come out way ahead. The hypothetical examples made above are in no way, meant to imply, assume or guarantee that any client of Wizetrade will attain or even profit in the stock market. These are hypothetical examples only.