“Money management is like sex: Everyone does it,one way or another, but not many like to talk about it and some do it better than others. But there’s a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find…..” written by Gibbons Burke.
Yes, Gibbons is right….money management is a rare commodity especially on Options courses. “Get Rich Quick” is the strong password to sell Options Course for many speakers/seminars. They put pictures of ex-students and commented that Mr. A- had been profiting more than 1000% in in GOOG Options trading…. When I looked at this advertisement… “yes”, it happen on paper trading and it was only occurred one time, not everytime…….
Money management in Options is indeed very important. Yet, it is very difficult to execute it if you overtrade and do not trade based on your level or expertise. On one occasion, I had been on one single big trade and using more than 50% of my fund margin (note: it is only a foolish who uses 50% margin fund for one position). I was so “Greed” and saw only profit potential and did not see the catastrophic possibility. I was so sure that the stock would not move down passed the strong support level that I believed in. This was due to that the stock had been lowered on an extended period of time and experienced exhaustion. Well, there was one important lesson here that during a Bearish Market, anything can be happen…. and the stock really against toward my position…..
Since I was over-trade, cutting loss means huge pain. Therefore, I fixed the position by rolling my position to next month, putting to more conservative strike price and expecting time will help to recover the loss.
My expectation was half true. I was right that the stock crept up again.. but only for certain period of time and began to be pressured by whole discouraging market conditions. When the stock rebound, I actually could make a good stop loss, nevertheless, over-trade made me hesitate to do that…….
A week later, the stock showed further deterioration and luckily, I could be able to discipline myself to get out from this trade and ate my loss (around 40% from the margin and I really did not like the whole technical indicators). The prediction was right, the stock plunged more than 20% to the lowest level for over 2-3 years. Should I waited again, I could loss the whole margin……
The thing that I want to share to you is that “over-trade” can definitely make you stunned on executing important move. I experienced that I can cut loss earlier when I did not over trade. It was really easy and no emotional involvement. I can also close my profitable positions earlier (if I have more than 80% of profit and options expiration is still more than 2 weeks) and look for another options trading opportunities. Not to over-trade is one important step to Money Management.
Gibbons Burke wrote an interesting article about “Money Management”. The article discussed about:
- Money Management Task
- Determining per Trade Risk
- It is more than Stops
- OverTrading and UnderTrading
- Understanding Trading Risk
- Tools for understanding and practicing money management
….for those of you who are interested to read the article (in PDF format), please send me an email to kxdhar@yahoo.com and posted “Article Intrested”. I will send you the download link.
Faith, hope and prayer should be reserved for God …. the markets are false and fickle idols.
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