Does money management trump stock picking?

If you're reading this, then you clearly have an interest in improving your trading returns. One of the surest ways to do that, is not so much by picking the right stock to invest in, but rather incorporating sound money management principals into your trading.

We recently had a MarketClub member on the Members Blog who was claiming that he had lost a tremendous amount of money using the Trade Triangles, trading in the FX market. Doing the math, I just couldn't figure out or understand how he could have lost the money he claimed he had lost. I thought that the matter was closed until one of our members came back with a reply. Frankly, it is a perfect reply and one that applies to everyone who has traded or is presently trading.

Here is the member's unedited response: Continue reading "Does money management trump stock picking?"

How to Position Size and Allocate Capital

Today the Trader’s Blog welcomes back Marc Nicolas of In previous posts Marc has shared invaluable trading concepts on risk management and using runners to increase profits. Today will be no different as he discusses the often overlooked method for calculating proper position sizing to stay in the game by taking into account your total risk capital and stoploss level.

Visit to learn more about trading psychology, money management and Marc’s trading strategies.

In my 17 years of trading and having traded for a hedge fund, it is Proper Position Sizing and Capital Allocation which has kept me consistently in the game as a professional trader. Even if you have a great trading strategy, if you do not understand how to properly size your positions, you are unlikely to achieve a comfortable level of consistency and you risk blowing account after account. Proper Position Sizing and Capital allocation protects your risk capital by determining how big a position you should take on any one trade. This will mean fighting the urge to buy an arbitrary number of shares because you “feel” a trade is a sure winner. It is the bridge between your chart analysis and risk management plan. Unfortunately position size is the most overlooked aspect of trading and yet is the most important aspect, especially with the volatility we have seen in the markets lately. I hope the 4 steps below will help you.

• Step 1: Capital Allocation

This calculation will split your capital according to the number of different positions or instruments, like futures, stocks, forex, commodities or options you want to trade, or hold in your portfolio. For instance, assume that you have $100,000 Total Risk Capital and you want to include 5 different positions in your portfolio to diversify your risk. Your Instrument Capital Split should be Total Risk Capital/Number of Positions, in this example, $100,000/5 = $20,000 is the capital allocated to each position. Continue reading "How to Position Size and Allocate Capital"