Chapter 23. Money and Risk Management

Chapter Objectives

After reading this chapter, you should be familiar with

• Definitions and measurements of risk as it relates to money management

• The martingale betting strategy

• Diversifiable versus correlated risk

• Methods for testing money-management strategies

• The use of various types of stops to manage risk

• Methods for determining the minimum capital needed for a system

• Methods for determining the percentage of capital to allocate toward one system

They [great traders] have all been humbled by the market early on in their careers. This creates a definite respect for Mr. Market. Until one has this respect indelibly engraved in their (sic) makeup, the concept of money management and discipline ...

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