Money Management - The Primary Aim of Trading
In this video, Stuart McPhee says that no matter what aims you may identify when first determining what you are setting out to achieve with your trading, all aims are secondary to your primary goal — preserving your capital. This is by far the most important aspect of successful trading.
Making money is not the most important aim. The money that you have are the most important. Protecting the money that you have is the most important aim. Making money is also important. He was sometime asked what is his best advice for a trader and he said that he would say not to get out.
You will use money that you have to trade, so if you lose them you will have nothing to trade with. You have to be defensive and you also have to manage your risk. A trader said once that there are three elements of good trading: cutting losses, cutting losses and cutting losses. If you follow these three rules, you may have a chance.
This advice is so simple. The most important thing in making money is not letting your losses get out of hand. Stuart McPhee thinks that in trading it is the best losers that ultimately can be long term winners. One of his friends, Mark Cook, has one of the best advice for traders, to learn to take losses. As losses get bigger, to cut them gets no easier. So the easier is ever going to be is right from the beginning. So you should take this opportunity.
Stuart McPhee quotes from this video:
- Don’t focus on making money, focus on the money you have