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Figure 18-1
Good/Bad Equity Curves |
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Essence of Money Management |
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The essence of money management is how well a trader manages his or her equity. Whenever we think of risk or reward, we must always keep in mind the total potential profit or loss, and the probability of that profit or loss occurring. |
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The trader's equity curve is dependent upon the reward-to-risk ratio. Risk depends on the amount of uncertainty that is inherent in a trade or in the market. The amount of risk is largely dependent upon the time frame under consideration. |
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The trader's equity curve is independent of any trading methodology. The trader's methodology should give an indication of the amount of risk and reward in the potential movefor example, a double bottom or a rising wedge formation. |
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