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What is Money Management? 

Running a Backtest with TC-Companion will tell you what your overall profit would be if every trade that met your criteria was taken., but is this possible? Unless you are quite wealthy and/or are making small trades, there will be days when there will be trades that you will have to pass on because:
 

  • Either all of your trading equity is tied up in open trades
  • You want to limit the number of new trades that you'll open on at any given time
 

There are other questions to be answered as well before your overall trading strategy can be completed.
 

  • What is the optimum amount of equity to risk on each trade?
  • What are the effects of limiting the number of trades that I take:
    • Per day?
    • Per week?
    • Concurrently? (Number of concurrent open trades)
  • What is the effect of using margin do to my overall equity gain or loss?
  • What would be the effect if I didn't take a trade unless there were at least X other additional trades available the same day. Would this help separate "noise" from significant turning points in the market?
  • What effect does ramping up my volume as my equity increases have versus trading the same number of shares each time have on my equity
  • Tiebreakers. If I have ten potential trades in one day, how can I test ranking of the trades into a priority order for electing one which one(s) to take?
 

These answers to these questions can be answered by using the Money Management portion of TC-Companion to apply your parameters against your Backtest results and to rerun Money Management simulations over and over with different scenarios until you find a solution that is optimum to your style and needs.

    
Screenshot: Money Management Results

Note that it is not necessary to run Backtests over and over in order to run multiple Money Management scenarios.

 
 
 
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