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Thread: Basic notion of money management

  1. #1
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    Basic notion of money management

    This is the place to ask questions regarding the question of ”what is money management?” and how to construct it in regard to your trading system.

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  2. #2
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    Re: Basic notion of money management

    Technical analysis and experiments - the best combinatory route for setting good base of management.
    also,in addition to moderator's theme - do you find advisors significant part of the very process and whether it is worth taking into account when planning money management perspectives

  3. #3
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    Re: Basic notion of money management

    oh well, who knows about this combination - for me,the so-called empirical stuff is always way more constant, profound and significant, that's why i've been checking out demo for quite long, my theory is only based on current changes for the currency pairs

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    Re: Basic notion of money management

    Money management is the process of managing money which includes investment, budgeting, banking and taxes. It is also called investment management.
    Money management is a strategic technique employed at making money yield the highest of interest-yielding value for any amount of it spent. Spending money to provide answers to all cravings (regardless of whether they are justifiable or not to be included in budget basket) is a natural human phenomenon. The idea of money management techniques is developed to plummet the amount individual, firm and institutions spends on items that add no significant value to its living standard, long-term portfolios and asset-basins. Warren Buffett, in one of his documentaries, admonished prospective investors to embrace his highly-esteemed "frugality" ideology. This is the basis of every sound money management formulas. The following are powerful techniques that can be employed in making every expense made to be worth it:
    1. cutting your budget on social needs
    2. avoid any snob-appealing expense
    3. always go for the most cost-effective alternative (establishing small quality-variance bench-mark, if any)
    4. increase expenses more on interest bearing item than any other thing
    5. establish the expected benefits of every desired expense using the canon of plus/minus/nil to standard of living value system.
    These techniques are investment-boosting and portfolio-multiplying.
    Money management is used in Investment management and deals with the question of how much risk a decision maker should take in situations where uncertainty is present. More precisely what percentage or what part of the decision maker's wealth should be put into risk in order to maximize the decision maker's utility function.
    Money management gives practical advice among others for gambling and for stock trading as well.
    Money management can mean gaining greater control over outgoings and incomings, both in personal and business perspective. Greater money management can be achieved by establishing budgets and analysing costs and income etc.
    In stock and futures trading, money management plays an important role in every success of a trading system. This is closely related with trading expectancy:
    “Expectancy” which is the average amount you can expect to win or lose per dollar at risk. Mathematically:
    Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss)
    So for example even if a trading system has 60% losing probability and only 40% winning of all trades, using money management a trader can set his average win substantially higher compared to his average loss in order to produce a profitable trading system. If he set his average win at around $400 per trade (this can be done using proper exit strategy) and managing/limiting the losses to around $100 per trade; the expectancy is around:
    Expectancy = (Trading system Winning probability * Average Win) – (Trading system losing probability * Average Loss) Expectancy = (0.4 x 400) - (0.6 x 100)=$160 - $60 = $100 net average profit per trade (of course commissions are not included in the computations).
    Therefore the key to successful money management is maximizing every winning trades and minimizing losses (regardless whether you have winning or losing trading system, such as %Loss probability > %Win probability).

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    Re: Basic notion of money management

    i prefer for newbies that they learn about money management first if we have knowledge about money management then im sure we are gain big money in forex trading......

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    Re: Basic notion of money management

    Money management is fundamental concept in Forex trading..
    Agree with humie, newbies had to learn about money management firstly, then start trading.
    Lack of many is the root of all evil))))))))))

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    Money management formula.

    I hope every one wil share sample of money management formula, that can be a guide to newbies like me

  8. #8
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    Re: Basic notion of money management

    right.. money management is the basic concept... and not only in trading...
    No act of kindness, no matter how small, is ever wasted..

  9. #9
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    Re: Basic notion of money management

    However, it is common that one afraid of being involved in Forex market because of high risk in this trading field. Although every capital market involves certain level of risk, the risk of loss in foreign currency trading market can be extensive. It would be wise to learn about the potential risk (and managing it) if you wish to trade in Forex market.
    All men are caught in an inescapable network of mutuality.

  10. #10
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    Re: Money management formula.

    Yes you are right someone should say something about this please
    Their is this saying "go to where you are celebrated and not to were you are tolerated" in IAFT you are celebrated.

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