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THE NEW TRADING OF A LIVING- RISK MANAGEMENT

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THE NEW TRADING OF A LIVING RISK MANAGEMENT The 2% Rule in the Futures Markets A trader recently asked me how he could apply the Iron Triangle of risk control to  trading e-mini futures in his $50,000 account. I replied: A. If you are trading a $50k account, the 2% Rule would limit your risk on any  trade to $1,000. Let’s say you want to be conservative and risk only 1% of that  account, or $500. That will be the first side of “the Iron Triangle of risk Control.” B. Suppose you look at your favorite e-minis and want to sell a contract short at  1810, with a profit target at 1790 and a stop at 1816. You’ll be risking 6 points,  and since one point in e-minis is worth $50, your total risk will be $300 . That will be the second side of your Iron  Triangle of risk control. C. Close the triangle by dividing “a” by “b” to find the maximum size you may trade.  If your maximum risk is $500, then one contract, but if $1,000, then three. Please meet two futures

THE NEW TRADING OF A LIVING- INTRODUCTION

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THE NEW TRADING OF A LIVING Introduction Trading—The Last Frontier You can be free. You can live and work anywhere in the world. You can be indepen dent from routine and not answer to anybody.  This is the life of a successful trader. Many aspire to it but few succeed. An amateur looks at a quote screen and sees  millions of dollars sparkle in front of his face. He reaches for the money—and loses.  He reaches again—and loses more. Traders lose because the game is hard, or out of  ignorance, or from lack of discipline. If any of these ail you, I wrote this book for you. How I Began to Trade In the summer of 1976, I drove from New York to California. I took along a few books  on psychiatry (I was a first-year psychiatric resident), several histories, and put a pa perback copy of Engel’s How to Buy Stocks into the trunk of my old Dodge. Little did I  know that a dog-eared paperback, borrowed from a lawyer friend, would in due time  change the course of my li