What is the most important skill in successful trading?

No question about it – good money management. Show me one trader with money management skills but no gift for market analysis – and another trader who is a brilliant market analyst but has no money management skills – and I will risk my money with the first trader every time.

Maybe you don’t want to hear that. Maybe you want to envision yourself as someone with extraordinary market analysis skills – able to correctly predict market movements when no one else can. Well, that’s a great talent to have, and I certainly recommend that you work at developing it. But the cold, hard truth is that that’s not the talent that will make you big money in the long run. That honor belongs to the skill of excellent money management.

Here’s the simple strategy for becoming a super-successful, winning trader: Manage your money in such a way that you conserve your trading capital until you stumble upon a “home run” trade that makes you a fortune.

Winning traders keep their risks minimal, and thereby keep their losses small. They simply refuse to enter trades where they have to risk a large amount of their trading capital, no matter how tempting a trade may be. They cut their losses short. (Losing traders, on the other hand, lose their trading capital by taking losses that are much too large – they cancel stop-loss orders, and stay in bad trades, and end up losing $3,000 on a trade they could have – and should have – gotten out of with just a $300 loss.) The trading history of a winning trader looks like this:

• A lot of small, manageable losses
• A fair number of winning trades, that aren’t really huge winners, but that all together add up to a modest profit when all the small losses are subtracted out
• One or two “home run” trades per year, that provide the bulk of the trader’s income

If you can just manage your trading capital sufficiently to do a little better than break-even on a week in, week out basis, eventually, if through nothing more than sheer, blind luck, you will run across a trade that will move rapidly and massively in your favor, making you at least a small fortune. The “trick” is merely staying alive until you get to that trade.

Losing traders don’t have the patience to wait for that trade, and so they overtrade and over-risk, churn and burn up all their capital in markets that are stuck in a trading range, going nowhere at all - trying to force the markets to give them money when the markets simply aren’t ready to do that.

Winning traders carefully conserve their trading capital while patiently waiting for the next “easy money” trade to arrive. When it does, they take full advantage of the opportunity and realize maximum profits…while the traders who failed to practice good money management are long gone, sitting at home, looking at a missed opportunity, and thinking to themselves, “Boy, I wish I still had enough trading capital left to get into that market.”

You can’t control what the market does. You can, however, completely control what you do in the market. Take care of your money, and the trades will take care of themselves.

Halston Adams
www.futures-trading-strategy.com

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