Author of The Day Trade Forex Advanced Course
http://www.daytradeforex.com/advanced.htm and
Co-Author of The Day Trade Forex Beginners Course
http://www.daytradeforex.com and The Euro Fractal Trading System
http://www.daytradeforex.com/euro.htm

(excerpt taken from John Piper's book “The Way To Trade”, by permission)

“It is easy to demonstrate that Money Management (MM) may be more important than analysis.  A total lack of MM would mean risking everything on any one trade.

You might have the best analysis system in the world and get 99 straight trades right but that 100th trade would wipe you out.

On the other hand you might have the worst analysis system in the world. If so, a proper MM system will reveal this fact while at the same time minimizing the risk to your capital.

So if you get 10 straight trades wrong you [may] still lose only 10% of your capital! It is therefore immediately clear which is the more important.

MM is what makes the analysis / system work, not the other way around.

Learning to trade in a demo account is necessary, practicing is necessary, but when you start to play the game for real everything changes, if only because you start to hit emotional/psychological problems you never even dreamt existed. These problems can be overcome but when you enter a new arena (i.e. actually trading your new system/approach) then you must minimize your risk – indeed good traders minimize risk at all times.

So you don't trade 10 lots, you just trade one. Or you don't trade even 1 full lot, you trade .1 mini lot. And you keep trading just one until your actual results confirm that you should increase position size.

At that point your area of risk (new territory) has become more quantified and you can move ahead a more relaxed trader. It would then make sense to increase position size in appropriate steps. If your system had some flaws then you do not lose all your capital and you also develop some discipline along the way. What do you stand to lose? Just a little time. If all goes according to plan you may well be trading at the size you originally wanted to just a few months later.”

To order John Piper's book “The Way to Trade” (good for traders of any market), please click here:

http://www.the-way-to-trade.com/wayto/trade-108.php

Byline:

Erol Bortucene and Cynthia Macy are co-authors of ‘The Day Trade Forex System: The Ultimate Step-By-Step Guides To Online Currency Trading’.

Visit: http://www.daytradeforex.com/products.htm

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