A Ready to Use Money Management Excel Spreadsheet

I am fond of saying that trading is NOT about being right or wrong! Trading IS about managing money.

To prove this to our members a few years ago, on a percentage of account basis, I presented my trades in a Microsoft Excel Spreadsheet.  Recently I had a request to resurrect the spreadsheet for others to use. This work and trading is from a few years ago, therefore the equities, ETFs, and options have been removed from the spreadsheet. It's purpose was to illustrate money management principles not trading prowess although it turned out to be a pretty good year.

Top right hand corner: Percent of Account Equity you are willing to risk on any one trade and the number of open positions you are willing to maintain.  They are set in this example at 3% of account equity and maximum positions at 6. Your requirements may be different just change those two cells.

• Beginning Capital =100 which one looks at as a percent.  Columns 1,2,3,8,and 9 are self explanatory.
• Column 4 is the amount of equity committed to this trade.  100 divided by 6 equals 16.67%.  For this spreadsheet I'm using equal dollar amounts in each position, if you have other means by all means use them.
• Column 5 is just showing the number of currently open positions.
• Column 6 is your perceived risk on the trade basis the stocks price. i.e. bot at $15 stop at $13 - Position Risk is 13.33%
• Capital at risk is column 4 times column 6 - that is the percent of your total account.  A test in this cell makes sure that number is less than the 3% placed above.  If it is higher the cell is flagged with a message.
• Column 12 takes the gain (loss) and adds (subtracts from previous) column 4 times column 11.
• Something learned from Victor Sperandeo's Trader Vic books is that any time you move above 100 in the account you remove half the amount above 100 from trading during this accounting period.

If I had set 4 open positions then we would be committing 25% on an equal percent basis.  While this is a manual input here is what happens to the spreadsheet: In column 7 we would have many "Flags".  What this is telling you is that with a 25% commitment you are violating your 3% rule. Something must change, either the 3% or the percent commitment.

This is not to say that the portfolio risk shown (3%) or the maximum positions (6) is correct for you.  I believe one of the problems in this business is we tend to ignore YOU!.

If you wish to download this spreadsheet as seen and make changes to suit your individual needs

Download the Excel Spreadsheet HERE!

The Winning Trader is the Disciplined Trader

Discipline is the bridge between goals and accomplishment. Jim Rohn

If you read enough you've probably heard the saying; "The winning trader is the disciplined trader". What that means in its basic form is you outline a specific trading plan and you follow it. Sounds simple enough, however people differ in terms of their ability to maintain self-control and discipline, especially in difficult market environments. In Neil Simon's play the "Odd Couple" Felix Ungar and Oscar Madison illustrate perfectly the stark contrast between the disciplined and the undisciplined. Felix was the neat freak, everything had its place and everything belonged in its place, Oscar on the other hand was sloppy and impulsive. But even though Oscar was undisciplined he showed signs of discipline in certain areas. Oscar was a well known sports writer and he had to show an acceptable amount of self control and discipline in order to put out his column every day. So even if you are an undisciplined person in terms of personality traits you can show discipline when completing specific tasks. And of course we are talking about the specific task of trading / investing in the markets successfully.

The lesson here is that you don't have to be disciplined all the time. You only need to be disciplined when you are putting on or taking off a trade, not during all your waking hours. Just understanding this can take some of the pressure off. Secondly it is a good idea to have a detailed trading plan written down. Specify exactly what signals will tell you to enter a trade and what signals will tell you to exit. Many traders make the mistake of leaving some of these factors unspecified and unwritten, they just "wing it". This approach will cause problems for discipline. When you don't know what to do specifically, that breeds sloppiness which leads to the loss of self control. As an added benefit to writing down your rules and writing down your reasons for each trade is that you create a log, a journal, which over time you can refer back to and learn from. You will be amazed over the next year what you will learn not only about trading but about yourself. I can't tell you how many times I've looked back and said to myself - did I really think that back then?

When you are getting ready to trade make sure your energy level is high and your stress level low. When you are tired and worn out you have little energy left to focus on managing your tasks. Be relaxed, rested, and energized. If you aren't you'll tend to make careless unnecessary mistakes!

It's healthy to be skeptical and overly cautious while planning your trade, but once you have outlined your trading plan, you must execute it with confidence. You can't question it. You can't second-guess your decisions. You must execute your plan as if you are absolutely positive it will succeed. You can mull over its success later, after the trade is through. So don't minimize the importance of self-control and discipline. The more disciplined you can trade, the more profits you'll realize.

Reprint from a May 2005 PrudentTrader Newsletter