TAILIEUCHUNG - Money Management Strategies For Futures Traders
Distills complex theories for the benefit of the average trader with little or no background in finance or mathematics by offering a wide range of valuable, practical strategies for limiting risk, avoiding catastrophic losses and managing the futures portfolio to maximize profits. Numerous topics are explored including: why most traders lose at the futures game most of the time; why most mechanical trading systems are apt to fail; the probabilistic approach to trading; how to make stop-loss orders work for, rather than against you; the pros and cons of options versus futures trading; and how to limit risk through diversification. trade-specific. | X PREFACE you also goes to Dave Lowdon of Logical Systems Inc. for program- ming support and to Mark Wiemeler and Ken McGahan for the charts presented in the book. Thanks are also due to graduate assistants Daniel Snyder and V. Anand for their untiring efforts. Special thanks are due to John Oleson for introducing me to chart-based risk and reward esti- mation techniques. My debt to these individuals parallels the enormous debt I owe to Dean Olga Engelhardt for encouraging me to write the book and Associate Contents Dean Kathleen Carlson for providing valuable administrative support. My chairperson, Professor C. T. Chen, deserves special commendation for creating an environment conducive to thinking and writing. I also wish to thank the Northeastern Illinois University Foundation for its generous support of my research endeavors. Finally, I wish to thank Karl Weber, Associate Publisher, John Wiley & Sons, for his infinite patience with and support of a first-time writer. 1 Understanding the Money Management Process 1 Steps in the Money Management Process, -1 Ranking of Available Opportunities, 2 Controlling Overall Exposure, 3 Allocating Risk Capital, 4 Assessing the Maximum Permissible Loss on a Trade, 4 The Risk Equation, 5 Deciding the Number of Contracts to be Traded: Balancing the Risk Equation, 6 Consequences of Trading an Unbalanced Risk Equation, 6 Conclusion, 7 2 The Dynamics of Ruin 8 Inaction, 8 Incorrect Action, 9 Assessing the Magnitude of Loss, 11 The Risk of Ruin, 12 Simulating the Risk of Ruin, 16 Conclusion, 21 . . . . xii CONTENTS CONTENTS XIII 3 Estimating Risk and Reward 23 Wilder’s Commodity Selection Index, 80 The Price Movement Index, 83 The Importance of Defining Risk, 23 The Adjusted Payoff Ratio Index, 84 The Importance of Estimating Reward, 24 Conclusion, 86 Estimating Risk and Reward on Commonly Observed Patterns, 24 Head-and-Shoulders Formation, 25 6 Managing Unrealized Profits and Losses 87 Double Tops and Bottoms, 30 Drawing the Line
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