Money Management Help

[ivot]

Hey All,

I need some help in developing a money management plan. I've been using a fixed % but what I don't like about that is if you have a two losers in a row, followed by two winners in a row you still be below what you started at.

I trade using FX so I don't need to worry abut gaps or anything like that. My trades are setup so that whatever I'm risking on the trade is also my profit target. The last two months I have had 19 winners and 6 losers. So I'm net 13 winners.

During this period the most losing trades in a row were two, and that has happened once. It looks like it going to happen again soon though since I just had a loser and I'm about to have another one. My winning streaks have been 3, 7, 6. All other winners and losers have been single.

Here is a my list of trades.

Proft
Loss
Profit
Loss
Profit
Profit
Profit
Loss
Loss
Profit
Profit
Profit
Profit
Profit
Profit
Profit
Profit
Loss
Profit
Profit
Profit
Profit
Profit
Profit
Loss

Anyone have any ideas about some money management plans?

 

[LondonUSTrader]

Hey All,

I need some help in developing a money management plan. I've been using a fixed % but what I don't like about that is if you have a two losers in a row, followed by two winners in a row you still be below what you started at.

I trade using FX so I don't need to worry abut gaps or anything like that. My trades are setup so that whatever I'm risking on the trade is also my profit target. The last two months I have had 19 winners and 6 losers. So I'm net 13 winners.

During this period the most losing trades in a row were two, and that has happened once. It looks like it going to happen again soon though since I just had a loser and I'm about to have another one. My winning streaks have been 3, 7, 6. All other winners and losers have been single.

Here is a my list of trades.

Proft
Loss
Profit
Loss
Profit
Profit
Profit
Loss
Loss
Profit
Profit
Profit
Profit
Profit
Profit
Profit
Profit
Loss
Profit
Profit
Profit
Profit
Profit
Profit
Loss

Anyone have any ideas about some money management plans?

In my view, the main thing is that your actual trading is in line with your historical backtests and forward tests. You shouldn't be changing your strategy too much when you are live trading.

My main concern would be are your stops and exits arbitrary or based on actual market conditions? Having the profit target exactly the same as your stop loss would seem a little arbitary on the face of it and probably limits your profitability over the long run. Although, to a certain extent a high win ratio compensates for the 1:1 RR.

If you closed your positions based on the market conditions rather than a profit target dervived from your stop level it would probably mean greater average profit per trade and a consequent faster recovery from your drawdown.

 

[Trader333]

I need some help in developing a money management plan

I am unsure what your issue is here ? You appear to have a good plan that will bring in a profit if you continue. If you start looking at increasing a stake when a loser is encountered then what happens if you get 5 losers in a row which could easily happen ?

I would stick with what you have got as, in the long term, it should prove profitable.


Paul

 

[ivot]

LondonUSTrader,

My stops (which my exits are then based off of) are determined on a trade by trade situation. So I'm not using some arbitrary number(s) to come up with them, they are all based off of whatever my current trade setup is. Based off that then, my exits are actually based off of market conditions versus some artificial number.

As you noted, I do have a high sucess ratio which compensates for my 1:1 RR ratio. Another thing that I didn't mention is that I do move my stops up as the trades progress which means that even though my profit target won't ever change, sometimes I will get stopped out for a loss that is smaller then my initial risk. That also will improve my trading results.

 

[ivot]

Trader333,

My post was to see if anyone had any money management strategies that might be better then simply taking a fixed % of whatever my current account balance might as I'm going into the trade.

I feel my trading strategy is very solid and I anticipate that my 2:1 winning to losing trade ratio will continue forward. Because of this I feel like maybe there are some other money management techniques out there that I should be looking at.

 

[minx]

Its amazing what you can find with a simple Google search.... or amazon for that matter...

 

[Hoggums]

Trader333,

My post was to see if anyone had any money management strategies that might be better then simply taking a fixed % of whatever my current account balance might as I'm going into the trade.

I feel my trading strategy is very solid and I anticipate that my 2:1 winning to losing trade ratio will continue forward. Because of this I feel like maybe there are some other money management techniques out there that I should be looking at.

If you have confidence in your trading then you could only ever size up - and never size down. So that if you have a series of losers you trade the same size until your account level reaches a new high.

You will need to analyse your worst case drawdowns and margin requirements to make this strategy successful.

 

[TWI]

If you risk same as you lose then you have to have >50% expectncy.
I suggest you use martingale strat. That shouold work out OK basis your list.

 

[PaddyMcTaff]

Or the anti-martingale perhaps..

Does anyone here actually use this strategy?

http://en.wikipedia.org/wiki/Anti-Martingale

 

[ivot]

Martingale is too agressive for me.

 

[ivot]

Or the anti-martingale perhaps..

Does anyone here actually use this strategy?

http://en.wikipedia.org/wiki/Anti-Martingale

I'm not overly crazy about this plan either. If you have a number of winners and you keep increasing the amount being risked, at some point your going to have a big loss. Conversely, if you keep decreasing your risk as your losses pile up eventually when you have a winner it's going to be pretty small...

 

[charliechan]

Or the anti-martingale perhaps..

Does anyone here actually use this strategy?

http://en.wikipedia.org/wiki/Anti-Martingale

yes i do! its like trading on crack cocaine if you are too aggressive. i started a thread on it a while back in this section. there were some good replies from twi, gamma jammer and a few others.

 

[TWI]

I use anti-martingale for some things but have definitely moved from micromanaging by market which had some great successes and some great horrors to applying it across a portfolio. There is no doub that martingale can be highly effective, indeed more effective than the anti-martingale with the right system but there is a % risk of ruin which for some will always be too high. I have seen pro's who use martingale make huge PnL's very quickly and also lose everything when they have a string of bad trades without a winner. Never makes sense to investors if after some horrible loses you claim you need to increase, not decrease risk.

 

[JTrader]

Never makes sense to investors if after some horrible loses you claim you need to increase, not decrease risk.

Makes sense. Thats why i also have never really seen the value/logic of that method.

 

[Baldwreck]

Hey All,

Anyone have any ideas about some money management plans?

Ivot - Hi.
You might find that an adaptation of Kelly theory might work for you. If you can be reasonably certain of your success rate and also know your average win and your average loss.

The "pure" formula is (success rate% - (1 - success rate%) divided by (average win/average loss).

I find that too agressive so I divide the result by 5.

So in your case with a success rate of 66% and average winnings being the same as average losses (I am guessing) you would risk 6.4% of your trading bank on each trade (provided you only have one trade open at a time). You would then adjust the amount risked if the success rate or win/loss amounts changed.

I am glad you rejected Martingale - it is guaranteed to bust you in the long run.

Hope that helps