|  MAY 1996

Charting Equity by Joe Luisi

Charting Equity by Joe Luisi Technicians apply technical analysis to charts for trading decisions. This technician applies similar techniques to his trading system results. When asked what the key to long-term trading success is, successful traders always reply that money management is foremost. Professional traders often advise trading hopefuls that 70% of their time should be spent on money management and 30% on searching for low-risk, high-profit trading opportunities. Sounds reasonable, right? It does, but there's a flaw in this reasoning. Information on money management, what it is and how to use it can be hard to come by. Few traders understand or use money management techniques. The average trader feels that a successful system can make them wealthy without their understanding or using money management. There are many systems that are 80% profitable, yet lose money due to overtrading and bad risk-to-reward ratios. A day trading system with nine consecutive profitable days making $100 a day can be wiped out with a $900 loss on day 10; thus, the system technically may have a 90% winning record, but in the end you still end up making no money. Here are several techniques that you can use to get a better understanding of money management. The same techniques that a trader uses to analyze the markets can also be used to analyze trading. Let us analyze four money management charts to determine how well your trading is faring.

by Joe Luisi