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Forex Misc
Money Management
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About Forex
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P R E F A C E
We live in an age that is dominated by the “I know what I want and I
want it now” attitude. It is a time of fast food and quick fixes. A time
of self before everything and Me! Me! Me! A rat race of the lowest
kind. Keeping up has never seemed more important-a mentality of
getting rich quick at any cost.
This attitude is also why many people are getting involved with
the commodity and futures industry. Trading can be a powerful en-
deavor. On the other hand, it can also be financially crippling. Trad-
ing is a game of risk versus reward. It is also a game that is not
forgiving of players who come in without learning the rules. For
those with the “get rich quick” or “gotta have it now” mentality, fail-
ure is all but certain.
The failure rate of those who attempt to trade in the leveraged
markets arena is somewhere around 90 percent. As far as I can tell,
this means that 90 percent of those who begin trading stop showing
a net loss. I have also been told that at any given time 90 percent of
the open accounts show losses while only 10 percent of the accounts
show profits. These statistics illustrate that getting rich quick in
these markets is highly improbable. To make serious money in this
environment, traders must manage their money. Unless sheer luck
intervenes, no one will make a fortune in leveraged markets with-
out proper money management strategy. This is the basis of this
book.
R
YAN
J
ONES
Colorado Springs, Colorado
March 1999
ix
A C K N O W L E D G M E N T S
Many people have helped me gain the knowledge to write about money
management on leveraged instruments. The information in this book
is based primarily on experience-from experience, then came re-
search. From my research I developed the methods described here.
Therefore, I want to acknowledge first those who made the experi-
ences possible.
When I was 16 years old, I entered a national stock-trading con-
test with my high school economics class and became very interested
in the markets. My first mentor was Mike Benzin, a member of the
same church I attended. He was an analyst with Smith Barney and
offered to help me. He took the time to begin to teach a high school
kid about the markets and how they worked. He opened his office
doors to me anytime (sometimes daily) and put up with my constant
inquiries and inconvenient presence. Without Mike, I would have
never gotten started in the markets.
I was married, had two children, and was putting myself
through college when Fred Stoops hired me at the law firm of
Richardson, Stoops
half at the firm was another crucial time period during my training.
Fred did more than just provide a paycheck, much more. A simple ac-
knowledgment cannot describe Fred’s profound influence on my
trading career or my life in general. I am greatly in debt to him for
what he has given me. In that same law firm, Chuck Richardson be-
came a good friend and showed a great deal of trust in my trading
abilities. Chuck and I were in some trades together. Through one se-
ries of those trades came the experience that drove me to research
Keating in Tulsa, Oklahoma. My year and a
xii
ACKNOWLEDGMENTS
money management in trading. Chuck certainly deserves some credit
for this book.
I left the law firm to become a broker in south Florida, but quit
after only three months when I realized that being a broker was not
for me. My plan all along had been to learn the industry for two
years and launch my own business. Needless to say, I wasn’t ready
to start my own business after three months. So, I decided to try
trading for a living. After about six months, I found out I wasn’t
ready for that either.
However, as I put my business plan together, Willard Keeran
showed a great deal of faith in my abilities and completely funded the
start-up of Rumery Lehman, Inc. Not only did he and his family
completely fund the business, they did so without any strings at-
tached. I had the freedom to take the business in whatever direction
I saw fit without even a hint or question from Willard. If anyone has
shown complete trust and faith that this venture would become a suc-
cessful one, it is Willard-the single most influential person (except
for my wife) in making this book, my trading, and my business a re-
ality. Thank you, Willard, for your trust, confidence, and more im-
portantly, your prayers.
Among the many others who belong in this acknowledgment are
our four daughters, Autumn Faith, Summer Hope, Winter Love, and
Spring Grace and our son, Christian Everett, whose free spirits have
been an encouragement to me. My former partner, Darren Peeples,
who put up with the worst of me, has been a true friend. Monte Veal
is a friend who would gladly give up his life for me and I for him. He is
a steadfast friend and brother. My father-in-law, Thomas Gamwell,
helped me put together some of the formulas contained in this book.
Thanks to my parents, George and Pat Jones, who raised me and
showed me how to earn my living with hard work. And, last but cer-
tainly not least, Larry Williams has given his friendship and his
CONTENTS
Chapter
1
Why? What? Where? When? Who? How?
1
Chapter 2
Why (Proper) Money Management? 10
Chapter 3
Types of Money Management 18
Chapter 4
Practical Facts 29
Chapter 5
Fixed Fractional Trading 36
sup-
Chapter 6
Fixed Ratio Trading 80
port of many of the methods contained in this book. In addition, I
have benefited from his massive research.
This list could go on for a long time. I want to thank everyone who
has contributed to this undertaking. I could not have done it alone.
Chapter 7
Rate of Decrease 98
R. J.
Chapter 8
Portfolios 118
Chapter 9
Market Weighting 136
CONTENTS
Chapter10
Market Weighting through Money Management,
Not before It 142
T H E T R A D I N G
G A M E
Chapter
Other Profit Protecting Measures 148
Chapter 12
Risk of Ruin 172
Chapter 13
The System 177
Chapter14
Optimization 191
Chapter 15
Commodity Trading Advisors
and Money Management 209
Chapter 16
Money Management Marriage 214
Chapter 17
Putting It All Together 222
Index 233
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