2. Limit your total portfolio risk to 20%.

In other words, if you were stopped out

on every open position in your account at the same time, you would still retain 80%
of your original trading capital.
3. Keep your reward-to-risk ratio at a minimum of 2:1, and preferably 3:1 or
higher. In other words, if you are risking 1 point on each trade, you should be
making, on average, at least 2 points. An S&P futures system I recently saw did
just the opposite: It risked 3 points to make only 1. That is, for every losing
trade, it took 3 winners make up for it. The first drawdown (string of losses)
would wipe out all of the trader's money.
4. Be realistic about the amount of risk required to properly trade a given market.
For instance, don't kid yourself by thinking you are only risking a small amount if
you are position trading (holding overnight) in a high-flying technology stock or a
highly leveraged and volatile market like the S&P futures.
5. Understand the volatility of the market you are trading and adjust position size
accordingly. That is, take smaller positions in more volatile stocks and futures.
Also, be aware that volatility is constantly changing as markets heat up and cool
off.
Never

Summary
Money management involves analyzing the risk/reward of trades on an individual and
portfolio basis. Drawdown refers to how much money you've lost between hitting new
equity peaks in your account. As drawdowns increase in size, it becomes
increasingly difficult, if not impossible, to recover the equity. Traders may have
phenomenal short-term success by taking undue risk, but sooner or later these risks
will catch up with them and destroy their accounts. Professional traders with long-
term track records fully understand this and control risk through proper money
management.
In the next installment: Money management ranges from simple, commonsense
approaches to complex portfolio theory formulas. The good news is that it does not
have to be rocket science. A simple, straightforward approach should be sufficient
for most traders. In the next installment of this series (May 15), we will look at
general money management guidelines that should help keep you out of trouble and
help ensure your long-term success.
Maximum drawdown is the largest percentage drop in your account between equity
peaks. In other words, it's how much money you lose until you get back to
breakeven. If you began with $10,000 and lost $4,000 before getting back to
breakeven, your maximum drawdown would be 40%. Keep in mind that no matter how much
you are up in your account at any given time--100%, 200%, 300%--a 100% drawdown
will wipe out your trading account. This leads us to our next topic: the difficulty
of recovering from drawdowns.
Drawdown recovery The best illustration of the importance of money management is
the percent gain necessary to recover from a drawdown. Many think that if you lose
10% of your money all you have to do is make a 10% gain to recoup your loss.
Unfortunately, this is not true.
Suppose you start with $10,000 and lose 10% ($1,000), which leaves you with $9,000.
To get back to breakeven, you would need to make a return of 11.11% on this new
account balance, not 10% (10% of $9,000 is only $900--you have to make 11.11% on
the $9,000 to recoup the $1,000 lost).
Even worse is that as the drawdowns deepen, the recovery percentage begins to grow
geometrically. For example, a 50% loss requires a 100% return just to get back to
break even (see Table 1 and Figure 1 for details).
Professional traders and money mangers are well aware of how difficult it is to
recover from drawdowns. Those who succeed long term have the utmost respect for
risk. They get on top and stay on top, not by being gunslingers and taking huge
risks, but by controlling risk through proper money management. Sure, we all like
to read about famous traders who parlay small sums into fortunes, but what these
stories fail to mention is that many such traders, through lack of respect for
risk, are eventually wiped out.
% Loss
CANDLESTICKS, FIBONACCI,AND CHART PATTERN TRADING TOOLS

6SIMPLE STRATEGIES FOR TRADING FOREX Getting Started in CURRENCY TRADING

Currency Trading in the FOREX and Futures Markets
Equality and uniformity of diameter of rollers. It should be
possible, with a bar of type (a), to compare the rollers on the comparator,
using a suitable size of slip gauge as ,a measuring anvil
and holding the bar so that a diameter lying at about 45�, to the
horizontal can be measured.
This method will not be possible with a bar of type (b), and it
will be necessary to set up a slip-gauge gap with which to gauge
the diameter ofthe rollers. The diameter ofthe open J:ollershould be
measured with a micrometer; this will save time in finding the exact
slip-gauge combination. The gap should be made up, using the
small cage from the slip gauge accessories set, together with the
thinnest pair of measuring jaws. With care in handling and wringing
the slips it should be possible to feel a distinct difference between
the gap which goes easily and one which is 0.0001 in. smaller and
just binds. Although an experienced observer could estimate the
equality of the rollers to 0'00005in. by this method, it should not be
assumed to be accurate to better than 0.0001 in.
Compare and record the values and variations found for each(2) Distance between
axes of rollers. Set up the angle plate or
other vertical surface on the surface plate. Set up the sine bar
with its gauging surface in contact With the vertical surface and the
lower roller resting on the surface plate; if desired, the bar may be
held in place with a rubber band (not to be despised) or other form
of very light clamping.
If the sine bar is of type (a), the height over the top of the upper
roller must be determined with slip gauges. Build up 'a pile, with
a gauge or jaw from the accessories set protruding at the top, which
just goes over the top of the roller. Check from each side of the bar
and note any variation between one side of the roller and the
other. If the bar is of type (b), the height to the under side of the
upper roller is determined in a similar manner. In this case it will
be essential to use a slip gauge as.a protrusion at the top, since its
size must be included in the measurement and accessory jaws are
not normally calibrated for size. The two methods are illustrated
in Fig. 16.
It is bbvious that the centre distance of a type (a) bar is determined
from the dimension over the rollers minus the mean measured
diameter of the rollers. Particular care must therefore have been
taken in measuring the actual diameters as well. as equality of diameters.
The centre distance of a type (b) bar will be the actual vl;I.lue
of the slips inserted, provided the equality of the diameters is good.
(3) Parallelism of axes of rollers. Any error in parallelism of roller
axis in one plane wiil be obvious from variations in centre distance
found in the last section, but it is also important to test the rollers
for relative twist in planes normal to the gauging surface.
Support one roller along the length of a 0.2 in. slip gauge which
should be wrung down on to the surface plate, if possible. The
other roller is supported on two similar piles of slips, one at each
end of the roller. To make these piles equal, the slips used could be
0-1 in. + 0.1005 in. and 0.1003 in. + 0.1002 in. Either of these
piles can be varied if the roller does not rest evenly on them, a
condition which can easily be detected if the bar rocks slightly on
the slips. It should be possible to detect an error in parallelism of
0.00005 in. by this method if the surface plate is a good one (Fig. 17).
(4) Flatness of gauging surface. There are several tests which may
be applied for the flatness of the gauging surface. If the surface isIdeally, it is
necessary to remove the rollers from the bar so that
their individual diameters may be accurately measured on a comparator.
It is unlikely that this will be permitted in a class laboratory
exercise and therefore should not be done unless specially
authorised by the instructor. Sine bars generally fall into two
types, illustrated in Fig. 16 (a) and (b). Type (a) will be the easier
to measure for diameter of rollers and centre distance, but type (b)
is the' one more commonly used, since its upper end will rest more
stably on a pile of slips and, incidentally, is easier to manufacture
with a precise distance between the rollers.
The features listed above should be measured in the following ways:One or more
Plate Gauges of large radius (several inches).
Surface Plate, preferably having tapped holes in its surface.
Straightedge.
Set of Slip Gauges.
Pair of Standard Rollers (preferably not less than tin.).
Suitable clamps for clamping gauge and rollers to surface plate.
The method to be described is intended for a plate gauge of large
radius which is too large to be projected on a normal projector and
whose radius cannot easily be drawn at an appropriate magnification.
The method is suitable for any radius a,bove a few inches,
and the exercise will be more valuable if two or more gauges or
templat~s of appreciably different radii are available. One gauge
of several inches radius 'and one of several feet radius could be used.
'If gauges or templates of this kind are not available, it will be
necessary to make them. This may be done by a method described
in the N.P.L. publication Note8 on Gauge Making and Mea8uring
(H.M.S.O.).*
Since it is necessary to clamp the. gauge and the rollers on to the
surface plate, it is convenient to use a plate which has been drilled
and tapped for clamping screws, usually about i in. B.S.F. If such
a plate is not available, it should be possible to work across a corner
of the plate, using toolmakers' clamps at the edges.Privately and publicly owned
companies have different attitudes
about sharing profits and taxation. The company�s willingness
to show profit is based on items such as its legal form. Generally, a
publicly owned company looks for opportunities to maximize its net
profit, while its financing is dependent on its market value. Investors
use profitability and the ability to pay dividends as criteria for valuing
the company and its shares. Publicly owned companies use accounting
rules to their advantage to maximize net profit.Around the World in a Trading Day
The forex market is open and active 24 hours a day, from the start of business
hours on Monday
morning in the Asia-Pacific time zone straight through to the Friday close of
business hours in
New York. At any given moment, depending on the time zone, dozens of global
financial centers
� such as Sydney, Tokyo, or London � are open, and currency trading desks in those
financial
centers are active in the market.
In addition to the major global financial centers, many financial institutions
operate 24-hour-a-day
currency trading desks, providing an ever-present source of market interest. It may
be a U.S. hedge
fund in Boston that needs to monitor currencies around the clock, or it may be a
major international
bank with a concentrated global trading operation in Singapore
My efforts to translate a career�s worth of currency trading experience into a book
would be
extremely thin were it not for the many lessons I garnered from colleagues in the
market over the
years. Readers of this book will benefit from the experience I�ve gained from many
of you. Thanks
to Mark Galant, for founding GAIN Capital and offering me the opportunity to write
this book. To
the trading team at GAIN: Tim O�Sullivan, Anthony Piccolo, Paul Spirgel, Rob
Voorhees, Mike
Goret, Damon Gallo, and Alan Viola � it�s an honor and pleasure to work with some
of the best
in the business. To Glenn Stevens and Samantha Roady, for setting the whole process
in motion
and encouraging me to go the full distance. To Christa Conte and Henry Feintuch of
Feintuch
Communications, for getting the word out to the media and then some. To my research
team for
picking up the slack while I wrote: Eric Viloria, CMT; Chris Tevere, CMT; Kathleen
Brooks; and
Dan Hwang. To Susan Hobbs for her fine editing assistance that made me get to the
point, clearly.
To McLean D. Giles for his technical review. And to the editors and staff at Wiley
Publishing,
especially Stacy Kennedy, for organizing the book in the first place.Using a Joint
Project Planning Session to Build the WBS
The best way to build a WBS is as a group activity. To create the WBS, assemble
a facilitator, the project manager, the core members of the project team, and
all other managers who might be affected by the project or who will affect the
project. The important thing is to have the expertise and the decision makers
present in this part of the planning session who can give input into the WBS.
This exercise should be continuous; you do not want to interrupt it while you
go looking for input from people who should already be in the session. The
exercise is easy to explain, as we will do in the text that follows, but it is
difficult
to execute, as we will also explain in the text that follows. The tools are
low-tech (Post-It notes, marking pens, and whiteboards), and they greatly
facilitate the orderly completion of the task.
�� The first step is for the whole planning team to decide on the first-level
decomposition of the goal statement. One obvious approach would be to
use the objective statements from the POS as the first-level decomposition.
Objectives are generally of great interest to senior managers, and this fact
might be a major consideration in the team�s choice. For a software development
project, the systems development phases will often be a good
first-level decomposition.
�� Once the first-level decomposition is developed, the team has two choices
on how to proceed:Acceptable Duration Limits
While there is no fixed rule for the duration of an activity, we recommend that
activities have a duration of less than two calendar weeks. This seems to be a
common practice in many organizations. Even for long projects where contractors
may be responsible for major pieces of work, they will generate plans
that decompose their work to activities having this activity duration. There
will be exceptions when the activity defines process work, such as will occur
in many manufacturing situations. There will be exceptions, especially for
those activities whose work is repetitive and simple. For example, if we are
going to build 500 widgets and it takes 10 weeks to complete this activity, we
are not going to decompose the activity into 5 activities with each one building
100 widgets. There is no need to break the 500-widget activity down further. If
we can estimate the time to check one document, then it does not make much
difference if the activity requires two months to check 400 documents or four
2-week periods to check 100 documents per period. The danger you avoid is
longer-duration activities whose delay can create a serious project-scheduling
problem.