Position sizing, or what was once called “money management,” refers to
how much one
invests or allocates to any particular position throughout the course
of the trade. Many professionals believe this is the key to the kingdom –
the holy grail of trading. I am among them. There isn’t a more
important factor in your education and eventual success. It is through
position sizing, not your trading system, that you meet your trading
objectives.
This begs the question: Are you concentrating on predicting the
market and not even thinking about position sizing? If you are, you are
neglecting a factor that, along with your personal psychology,
contributes to over 90% of the variability of trading performance.
One of the reasons most people don’t understand this aspect of
trading, and fewer implement it properly, is because it is a complex
subject. In a word, it is difficult; and it takes time to assimilate the
theory. People that want to take the easy way out, including the
Internet gurus, virtually ignore it. Mastering and implementing it is
what will set you apart from your competition. It is potentially the
most profitable journey you will ever take as a trader.
