The truth of trading 5---Money management

Money management is the first leg of trading's Three Pillars, and is a key weapon against  risk of ruin. Since your objectivein trading is survival, you need to understand and inplement money management. Money management is the secret behind survival and big profits. The essence of money management is very simple--when you lose money from trading, you should reduce your trading exposure or position size, and when you make money from trading, you should increase your trading exposure or position size.

Proper money management has two objectives:

* survial--avoiding risk of ruin

* big profits--generating geometric profits.

Anti-Martingale money management has two key characteristics:

* geometric profits

* asymmetrical leverage

Anti-Martingale strategies create a geometric growth in profits during a series of winning trades. but suffer from what is called  asymmetrical leverage during a series of losing trades, or drawdown. 

* The asymmetrical formula:

Required%gain={1/(1-%loss)}-1

* Kelly formula:

F={(R+1)*P-1}/R

P=%Accuracy of the System Winning

R= Ratio of Winning Trade to Losing Trade

* The fixed--units strategy  builds upon fixed risk.

Dollar risk per trade = New Account balance/Fixed number of units of money

Number of contracts = Dollar Risk/Trade risk