Welcome to the first edition of our new column/newsletter "Trading with CT". This column will compliment our daily broadcast which includes extracting 1 point from the Russell eMini every trading day. Depending on how well you've negotiated your margins, 1 point on the ER2 contract equals a daily return of 5-20%. Remember, commissions and margins ARE negotiable.

Our daily economic and market commentary will continue to appear under "A Global Perspective", all articles that deal specifically with Fibonnacci Strategy will continue to be posted under -
"Dancing with Fibs - One Man's Spiritual Journey".

Those of us who trade futures, especially those of us who daytrade futures, are often considered to be nothing more than a tech-savvy version of the stereotypical race track degenerate. Unless you have a well defined trading plan with specific rules of engagement, the resemblance is undeniably there, even though your odds of success are substantially higher. At the track you must decide which of  the ten will win, place, or show. In the futures market there are only two possibilities - Price will go up / Price will go down. There are as many trading plans or methods for trading the eMini markets as there are Traders trading them. There is however, no one correct method, and no matter how much you Google it, there is - No Holy Grail................. Sorry!

Once you have firmly established your trading plan no matter how successful your strategy is, over the long haul you are doomed to fail unless Money Management is an integral part of the overall plan. So just how important is Money Management? This is going to blow your mind..........

The Coin Flip
Take a coin and flip it in the air 100 times. You have a total of $100 to bet on the 100 flips. When the coin lands heads up, you win $2 for every $1 you bet. When the coin lands tails up, you lose $1 for every $1 you bet. Assuming that the coin will land heads up 50% of the time and tails up 50% of the time, the question is how much of your $100 should you risk on each flip of the coin?

If you only risked $1 on every flip of the coin, your $100 would increase to $150 after 100 flips of the coin (assuming it landed heads up 50 times and tails up 50 times).

Knowing that money management can have such a dramatic affect on the overall results, you know that it is better to apply money management to this scenario. The question is what money management strategy? I am going to narrow your choices down, you choose which one you think is the absolute best for this scenario. Remember, you already KNOW you are going to make money with this coin flip, so making the money management decision should be easier.

These are the choices:

10% of the equity on each trade.

25% of the equity on each trade.

40% of the equity on each trade.

51% of the equity on each trade.

(This is a fixed fractional money management method. On the first flip, you will risk 10% or $10 on the next trade. If it lands heads up, you win $20 and the equity increases to $120. On the next flip, you will bet 10% of the new $120. If the first flip is a loser, you will lose $10 and the equity will drop to $90. On the next flip, you will bet $9 of the new $90 equity level, etc.)

Ready for the outcome?

If you chose 10%, your $100 turns into $4,700.
If you chose 25%, your $100 turns into $36,100!
If you chose 40%, your $100 turns into $4,700!
If you chose 51%, your $100 drops to only $31!

You read that right; the wrong money management can turn a mathematically fixed winning situation into a loser!

If actual trading is not a mathematically fixed winning situation, how much MORE important is choosing the proper money management strategy?!?!

Now, having driven home the point that you can’t just pull any money management strategy out of the hat, brings me to my special guest today, Ryan Jones founder of SmartTrading. The above coin flip scenario was borrowed from Ryan's site. If your trading plan is failing, perhaps all that's missing is proper money management. Check out today's interview and stay tuned for more "Trading with CT"