Trading for Dummies® 2nd Edition

Chapter 12. Money Management Techniques: When to Hold 'em, When to Fold 'em

In This Chapter

• Building your trading characteristics

• Trading successfully and cutting your losses

• Managing your holdings

• Protecting your money

• Knowing your risks

You may find this hard to believe, but some successful traders have more losing trades than winning trades. How? Their profits from winning trades overwhelm the losses from losing trades. The key to this success is knowing when to hold 'em and when to fold 'em — disciplined money management. You must develop a discipline that keeps your losses under control by quickly closing losing positions. The trick is to follow the rules you set. Good money management minimizes your trading losses when they occur and helps you realize a profit when it hits you right in the old kisser. Recognizing winners and losers — and setting your target prices before ever entering a position — is crucial to your money management strategy. In this chapter, we give you a set of rules to follow to get you started.

Identifying Important Characteristics of a Successful Trader

Successful traders share a common trait. You'll find that they all successfully manage their money. The critical points of successful money management may be difficult to implement, but they're easy to identify. They include

• Planning your trades carefully by identifying entry and exit points

• Minimizing losses by ruthlessly adhering to your stop-loss points

• Protecting your profits with trailing stops

• Exiting your position ...