Money management ideas

[Merlins]

Hello everyone at t2w ,

I feel as if i am ready to commence trading, i have an account ready with fins, a decent pc and a resonable amount of capital to start. But i need to have a money management startagy?! :?:

Heres my idea to start with : ( please tell me if i am crazy or you think it is way off the mark! )

So for example, when spread betting, make sure you have a thousand point bank. Eg , IF you were going to bet £5 per point,then start with £5,000. Is this too much ? :?:

My paper trading is going well at the moment and i have managed to not trick myself into thinking i would have done this and that....

Any Money management ideas you have / websites to visit / hints + tips / on this subject would be warmly welcomed .

Thanks

Martin

 

[Trader333]

I wouldnt risk more than 2% of your bank on any given trade. So for a £1000 bank that means risking no more than £20 per trade. I would therefore pick a market and a monetary value per point that will not take out your £20 too quickly.

Maybe the S&P500 as this doesnt have a massive range and at £1 per point it is unlikely that you would be stopped out too quickly. This will give you more confidence to not worry about the trade too much but at the same time get "actual" experience of trading. The daily range on the S&P is usually less than 20 points, although on Monday it was over 20 points. Still it is a good starting point.

Good Luck


Paul

 

[RogerM]

Merlins - read this thread, and especially the link in Helen's introductory post.

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=4204

Here is the link to the article Helen posted

http://www.cybertrader.com/cybertraderreview/v1i11/1percentrule.asp

 

[Skimbleshanks]

Apparently the recent average daily range of the S&P emini is 19.15 points.

The average daily range of the Dow is 175 points.

Therefore, Merlins would need to bear these in mind when determining the bet size, to keep within the absolute maximum risk tolerance of 2%.

If you can get your risk down to 1%, then all the better. The best traders (by that I mean those still in the markets after 20-odd years) use around 0.25%.

 

[Merlins]

Trader333, Roger M and Skimbleshanks :

Thanks for replying.

The article in the link roger is very impressive, the " 1 % rule", interesting thread by helen.

Again thanks

 

[sidinuk]

don't forget that the S&P500 usually trades in tenths of a point. So a £1 bet is actually £10 per full point. Thats with D4F anyway.

The e-mini S&P500 is worth $50 per full point, or $12.50 per tick (.25 pts).

You'll find that the S&P500 usually has a slightly greater daily range than the Dow if you multiply it by 10, which you need to.

 

[Merlins]

Hi people ,

How about any books on this subject? Any recommendations?

Thanks

 

[Trader333]

Sid,

Bear in mind that Merlins has opened a SB account with Finspread which is why I suggested the S&P500 at £1 per point and with a spread of only 0.7 points it is a relatively low risk start to trading.


Paul

 

[sidinuk]

ok Paul, as long as Finspreads work on £/full point rather than tenths. I was just trying to save someone making the same mistake I did when I first traded the S&P with D4F, I ended up with a bet 10 times the size I wanted!

 

[Trader333]

Sid,

I see your point, I wasnt aware that D4F set amounts in 10ths. The reason I know Finspreads are different is because I used them to trade the S&P and it suited me as the margin requirement was only £50. In fact I remember enquiring about D4F at the time and couldnt understand why their margin requirements were so much higher. I think you have just answered that one for me.


Paul

 

[FTSE Beater]

How about any books on this subject? Any recommendations?

Hi Merlins

Welcome to T2W

No books to recommend, as there isn't a great deal to teach about the subject.

Personally I would use a 1% stop, and know your exit BEFORE entering your trade. Follow that, and I don't think you can go far wrong.


Hi Skim

I wish I could trade on 0.25% - I can dream though

 

[twiggytwo]

Risk/reward etc

Hi people ,

How about any books on this subject? Any recommendations?

Thanks

I have previously recommended this book to anyone before they start trading serious money - Van Tharp's book - Trade your way to financial freedom, do not use money to trade until you understand risk to reward, all explained in this book, well worth approx £20.