Forex Misc - Money Management - Ryan Jones.pdf - Forex Iiteratura - PanKaktus

Forex Misc

Money Management

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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

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?

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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