Been a long while since I last share good trading resource. We are always questioning if some of the educators out there are REALLY trading. And our circle of friends may not have successful traders amongst them. For us, aspiring traders, it is really important for us to find out what trading really involves. To prepare ourselves mentally on what does learning trading involve. So that we are not fazed by advertisements which promised explosive profits, carefree lifestyle etc. We can definitely lead a carefree lifestyle AFTER we succeed in trading, but nobody mention about the process, the treacherous journey before success.
I often go TradersInterview.com to listen to real retail traders speak. They interview forex educators, such as Grace Cheng and Ed Ponsi, trader-bloggers, such as Trader Mike, DownTownTrader and Trader-X, and ex-fund managers/analyst, former stock brokers trading in the pits etc, who are mostly trading independently now. You can go to the Archives section to listen to the past interviews. You can even subscribe to its podcast and listen to the interviews on the move!
Allow me to share some of the interesting points that I gathered from the interviews:
- They lost a lot of money before they became successful
- They took quite a number of years before they became succesful and go full-time. Around 3-6 years.
- They got themselves education, somehow. Not just from courses, some looked for successful traders and be their mentees. Some joined a brokerage firm and became a stock broker to learn the trade! And they read a lot of books!
- Most are technical traders. Only one (if I remembered correctly) is a fundamental trader so far.
- Most use technical indicators of some sort.
- The success rates of their trades are 40-60%. They have good risk-reward ratios.
- They cited psychology and money management as more important than strategy.
- They trade with stop loss. Those who don’t use mental stop loss (that is, they have the price which they want to be out in their heads and execute it manually when the price level is reached)
So you see, lots of things to learn there 
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The only way to be truely satisfied is to do what you believe is great work and the only way to do great work is to love what you do… - Steve Jobs
Hi Jmot,
I am thinking about money management. Below is the seed. Work it out and post an article. And I will call you Dr Jmot.
Money Management
There are 2 main areas of money management for a simple directional trading system using straight calls and puts or long/short stock.
Risk management
1R(Minimum Risk Amount Per Trade)
1R is called the Minimum Risk Amount you risked per trade.
Trading literature and most trader sets it at 2% of capital.
Instills discipline and prevent trader from taking too large positions due to emotions, indiscipline, hope. And prevent account blow-up(Risk of Ruin)
Portfolio Risk
Portfolio Risk is the Minimum Risk Amount for the whole portfolio at a given time. Thus this sets the number of maximum trade ongoing at a time.
So for a trading system of other options strategy e.g Iron Condor. I do not know how to apply.
Capital Optimisation
One main thing we can observe if 1R is too small, so is the reward.
If 1R is too big e.g 50% of capital, Risk of Ruin(losing all your capital) is just around the corner.
Second Risk:Reward Ratio, for a positive expectancy system(winning in trading over the long term) Trades must have greater than 1:1 Risk to Reward Ratio. Most traders set it at 2:1 or 3:1.
This has been covered at
http://www.seykota.com/tribe/risk/index.htm
Where the Expected Value vs Bet Fraction Graph shows the optimal
risk to take for the greatest expected return.
One rule of thumb is to take the left side of the curve of the optimal bet fraction(25% in the graph) as it is symmetrical on the right side(>25%-50%)
Should the bet fraction be 1R or Portfolio Risk.
How to relate Return to Risk. E.g assuming my trades are 2:1.
If I risk 10% of my capital(Portfolio Risk), I can expect my capital to grow 50% in a certain time(what time?)
I believe the above is the model of money management for aspiring traders.
A one million dollar question.
Mike