V.13:10 (443-448): A Mathematical Game Plan by Gene Carey

MONEY MANAGEMENT A Mathematical Game Plan by Gene Carey

Here's how the elements of a successful trading plan - profits, losses, commissions and slippage - can be used to quantify performance goals.

I t's a given: Operating with a game plan is a necessary ingredient in trading success. A trader needs to develop a plan that suits his or her personality and provides an efficient means of operating in the trading framework of choice, be it intraday trading the Standard & Poor's 500, position trading oats, or anything in between.

What does it mean to have a game plan? What is a game plan, how is it formulated, and why is it so important? Are there any elements to a game plan that may be considered universally applicable to any trading enterprise?

Traders come in many different types, but in broad terms they may be classified as either hedgers or speculators. Hedgers are usually large commercial enterprises, while speculators are generally independent traders with relatively limited trading capital and resources. In either case, an operation intent on generating profits from trading activity should be considered and run as a business. While trading should ultimately be fun, this is a serious and important consideration, one that demands a sound framework - in other words, a game plan. So whether you are a hedger or a speculator, certain business considerations need to be formulated.