Trend Following Money Management Insights

A good reminder about money management (PDF):

Money management in the context of trading refers to what a gambler might call ‘bet sizing’. It is how many contracts to trade on a certain strategy, given a certain bankroll. In my experience with retail investors, the number of contracts to trade is normally an arbitrary consideration. One contract, five contracts, ten contracts – whatever you can afford. I have known traders who spent countless hours studying Gann, or testing indicators, or drawing little lines all over their little charts. But when it came to placing the bet, there appeared to be no consideration to the position size. Someone even said to me recently, “It doesn’t matter how much you bet as long as it’s a good trade.” We will use a really simple example to explain why such thinking is incorrect.