Be warned, if you fail to implement an effective system for trade money management, it’s highly unlikely that you’ll achieve any noticeable success. Essentially, money management is vital to any trading business.

Let’s face it; being successful in the markets is not something that just happens. It takes a lot of hard work, a solid plan, discipline, and a strong will to succeed. Contrary to what you may believe, traders aren’t born with a gift. They’ve simply dedicated plenty of time to learning, as can anyone else. As Dr Van Tharp says, “Successful trading is all about psychology and mindset”.

For example, let’s say some of your trades aren’t going as planned. Many traders, new traders in particular, would let their losses run in the hope that market conditions change before they loose everything. While this may seem like the best thing to do, the number one rule of trading tells us we should be doing the exact opposite – “cut your losses and let your profits run”. Of course this may sound obvious but please believe me, when the pressure is on; you’re going to need a good trading psychology to see you through.

You need to be capable of going against the grain if you’re to win in trading.

You need to realize that without proper trade money management at the centre of your system, one bad trade could spell absolute disaster. Sure, a perfect system should always be 100% accurate but I can assure you they’re not always accurate, so yes, one loss could mean you loose everything. Contrary to what you may have heard its trade money management that makes a solid system, rather than a market full of money making opportunities and magical trade entries. The bottom line is; trade money management protects your capital.

Given the extreme importance of trade money management, I would’ve expected to see many courses dedicating whole chapters to the subject and yet I’ve never seen one that does.

The fact is, there are plenty of stories which can attest to the importance trade money management so I’m obviously not the only one who knows about this. It’s just unfortunate that so little is said about it because trade money management needs to be applied, irrespective of what market you’re involved in, or which method you choose to use. The bottom line is; there are simply no exceptions to the rule, regardless of the system you use.

In the vast majority of cases where traders are under-achieving, the primary reason is lack of discipline, with regards to the rules of meaningful trade money management. This is hardly surprising though because actually applying these rules, is a far cry from simply being aware of them.

No matter how far down the road you are, a single change of strategy can mean the difference between mediocre results and explosive results.

Essentially, you need to thoroughly understand what you’re doing and also why you’re doing it. Having a rock solid system in place means you’ll no longer be dependent on gurus and tips as a source of information.

Essentially, you need to be confident that when you decide to enter into a trade, you have a well thought out exit strategy in place, and that risks have been tailored accordingly with regards to your risk tolerance. This not only allows you to manage your portfolio in as little as five minutes each day, but it also ensures you can sleep peacefully at night.

Before I end off, I just want to point out that I wrote this article essentially as an introduction to trade money management. The bottom line is; by implementing masterful trade money management, you will reach all your goals. In fact, simply following all my future articles and applying what you learn, you’ll soon be able to master the markets using excellent trade money management.

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Here is an interview with a well-known trader to ask the hard questions regarding the necessary characteristics of a successful stock market trader, and also, how to maximize one’s time when trading.

David: A question has been sent in: I’m new to this game and I’m slowly but surely learning. How can one become a trader? What are the habits that are common to your family? Where must I begin so to speak in order to make the first confident step, to feel as a trader must, in knowing where to look. What I’m trying to find is an underlying process that will ensure the job’s done successfully.

As a blacksmith, in order to make a tool I need to understand the whole process in my mind before I begin. This is so I can know exactly what tool is to be used in order to develop design and the process to do this, in order to feel confident of the success, allowing that our best made plans can still fail due to unforeseen uncalculated constraints. How do I learn or find my basic processes associated to your profession?

Stuart: What I got out of this is what behaviors do we associate with a stock market trader? When I think of traders, I think of people who are structured, disciplined, they’re planners, they’re organized, they’re efficient. A couple of important ones there are being organized and being structured. They have a methodology to follow; they have a routine that they follow, obviously complementing their plan.

David: Mentioning of wanting to know what tools to use in order to develop and design and the process, when he was using the analogy of the blacksmith. There are the three m’s the mindset, money management and method, making sure you have those in place. It is also taking it in the right steps. A quick overview: make sure you define your objectives. This will dictate what markets you will be trading and the methodology you will be using. Also what returns, and is it realistic.

Then you’ll look at some entries and exits and money management for that particular market and make sure you document those appropriately. Then you do some backtesting to build up the confidence or even some paper trading if you’re not comfortable doing backtesting. Depending on what components you’ve got in your trading, some are easier to backtest than others and then you look at starting to trade your system. If you have backtested, keep monitoring your system, keep an eye on the stats as you go, to see that you are on track and you will be on your way to becoming a successful stock market trader.

The next question which is: my biggest issue is with time. With a full-time job, kids and working life limits my time. What sort of system can be used that would maximize my time? Many trading systems treat you as if all you have is all day trade, but a lot of people would rather have a system that uses less than an hour per day. How can this be done?

Stuart: Trading stocks medium term is most likely the simple answer to that. I think the situation that person has raised a lot of people could relate to. That’s how I started. Our ultimate goal is to give up work and trade full-time but we need to go through that apprenticeship to get to that point. While we do that we need the support and security of a full-time job until we can become a fully fledged stock market trader.

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