Courses 1Lesson 1

How Much Risk do You Want to Take on Each Trade?

A significant question, one that is perhaps best answered prior to the start of trading is, “how much do

you want to risk on each trade?”  Many factors enter into this decision, and there are many different

opinions regarding the best answer.

On opposite ends of the continuum, we find the two most extreme approaches.

Those who belong to the “money management school” will tell you that the best approach to take is a

per-trade risk based strictly on money management.  In other words, you decide ahead the maximum

risk you want to take, in dollars.  When a trade goes against you by the predetermined amount, you

close it out.

On the other end of the spectrum is the “systems approach.”  Proponents of this approach claim that

each trade is unique.  Every trade has specific levels of support and resistance and, therefore, it is not

possible to determine a prior rule for dollar risk.

My approach to this aspect of futures trading is essentially similar to my approach in other areas.  I

prefer not to be in the middle of the road.  Rather, I would align myself with either of the extremes.

As you continue to read this course, you will understand more clearly why my preference is usually to

be found on one end of the spectrum or the other, but rarely in the middle.

It’s been said that you can walk on the left side of the road or the right side of the road, but if you walk

in the middle of the road you will get squashed.  There are merits to each approach and there is no right

or wrong answer to the question.  There is, however, an answer that is your answer.  My job is to help

you find it.

Hopefully, by the time you have finished this course, you will have found the answer falling naturally

into place.  For the time being, however, I will tell you that each approach has its strong and weak

points and you can be successful by following either of the extremes.

Summary

This section reviewed some basic principles and distinctions.  You must learn them before you can

continue.

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C1L1-17

© 2000 MBH Commodity Advisors, Inc.