Money Management Mystique

[oildaytrader]

A good money management system can make a mediocre system or often a losing system into a profitable one.It works on increasing position sizes and decreasing position size as certain s/l or t/p are hit.

I use one , it is fully automated and it is proprietary and it has been back tested on multiple trading systems and it is successful.

O D T

 

[pedro01]

If you are winning 50% of the time at 1:1.2 , and breaking even, you are doing something very wrong, Sir. Those numbers have a positive expectancy.

Re-read my last post.

People talk about Risk:Reward ratio. In a lot of cases, they are talking about the ratio of the distance from entry to stop loss in comparison with entry to target.

That number in itself is meaningless when not taking into account the probability of hitting your stop.

Risk:Reward ratio would be better named stop:target ratio.

If indeed you have a system that has 50% winners and 1:1.2 'risk reward ratio' then it is not random - it has a 20% edge. The edge is not necessarily present in the stop:target ratio, it could be present in the win %age.

 

[pedro01]

A good money management system can make a mediocre system or often a losing system into a profitable one.It works on increasing position sizes and decreasing position size as certain s/l or t/p are hit.

I use one , it is fully automated and it is proprietary and it has been back tested on multiple trading systems and it is successful.

O D T

Aaah - so you know the key to money management but it's proprietary and so you can't let on. Gotcha

So - this money management 'secret' you can't tell us will make a losing system a profitable one ?

I would certainly like a system that increases my position size when I hit my target. Problem is - my broker wont let me do that...

BTW - if you are increasing position size as you lose, you will at some point end up with a position size you can't afford to place. I think they call it 'doubling up'.

 

[oildaytrader]

So - this money management 'secret' you can't tell us will make a losing system a profitable one ?

BTW - if you are increasing position size as you lose, you will at some point end up with a position size you can't afford to place. I think they call it 'doubling up'.

Pedro

It is not as simple as that , I mean simple as martingale.It is highly sophisticated using 34 automated trading systems's money management working in synch.

Yes it has made many losing systems profitable.FACT

I had to work for it ,and I will be glad for you when you put in the hard work and find your key to money management.When you find it will be your holy grail.

O D T

 

[1Pipped]

Re-read my last post.

People talk about Risk:Reward ratio. In a lot of cases, they are talking about the ratio of the distance from entry to stop loss in comparison with entry to target.

That number in itself is meaningless when not taking into account the probability of hitting your stop.

Risk:Reward ratio would be better named stop:target ratio.

If indeed you have a system that has 50% winners and 1:1.2 'risk reward ratio' then it is not random - it has a 20% edge. The edge is not necessarily present in the stop:target ratio, it could be present in the win %age.

You might want to re-read my last post (and note it was in response to amnonco).

Might I also be so bold as to suggest that you re-read http://www.trade2win.com/boards/gen...2-money-management-mystique-2.html#post871810 that one, and plug any break even (or losing) risk:reward and winrate you want in. Then you should have more confidence in your suspicion that "you cant polish a turd".

If the system is breakeven or a loser (whichever way its risk:reward and winrate is skewed), it doesnt matter how much you risk on it, its still a loser.

Then you might want to argue it out with oildaytrader because I certainly can not be arsed.

 

[amnonco]

Re-read my last post.

Risk:Reward ratio would be better named stop:target ratio.

If indeed you have a system that has 50% winners and 1:1.2 'risk reward ratio' then it is not random - it has a 20% edge. The edge is not necessarily present in the stop:target ratio, it could be present in the win %age.

You're trying so hard to prove your point, you're not listening or reading carefully.
either we're not talking about the same stuff, or your just stubborn.

if a system has 1:1.2 ratio (empirical, not pre-determined) and W% is 50% then the system is not a random entry one? are you OK?
a system is random entry, if the ENTRY IS RANDOM, time and direction.

about that +ve expectancy system blah blah. check out MA Xovers on a EOD data basis.
100 and 350 days MA. take that system and run it over high volume futures. it's a positive expectancy one.

basic money management. short stops vs large rewards (I'm not using the term targets, because in my systems I don't use targets - targets are boundaries for profit.)
pyramiding (martingale). position sizing of small percentage of equity. all those will turn a 50% W% to +ve expectancy one.

take a look at long term trend following systems.
they all have in common lower tan 50% W%, but much karger than 2:1 or even 3:1 risk reward ratios (empirical). and if it's empirical, it means that the chance of hitting the stop is in there.
so, there's absolutely no doubt, that you can turn a random entry to a long term trend following system.

 

[pedro01]

You might want to re-read my last post (and note it was in response to amnonco).

Might I also be so bold as to suggest that you re-read http://www.trade2win.com/boards/gen...2-money-management-mystique-2.html#post871810 that one, and plug any break even (or losing) risk:reward and winrate you want in. Then you should have more confidence in your suspicion that "you cant polish a turd".

If the system is breakeven or a loser (whichever way its risk:reward and winrate is skewed), it doesnt matter how much you risk on it, its still a loser.

Then you might want to argue it out with oildaytrader because I certainly can not be arsed.

I agree.

As for "you can't polish a turd" - that was the phrase I was looking for !

 

[oildaytrader]

I agree.

As for "you can't polish a turd" - that was the phrase I was looking for !

Here is a similiar money management system which can turn losers into winners.

Zorro_Trading_Group by FXiGoR - Page 124 - Forex Trading

I have my own propreitary version, very useful in difficult market conditions when we get losses after losses and the occasional win.

O D T

 

[pedro01]

You're trying so hard to prove your point, you're not listening or reading carefully.
either we're not talking about the same stuff, or your just stubborn.

if a system has 1:1.2 ratio (empirical, not pre-determined) and W% is 50% then the system is not a random entry one? are you OK?
a system is random entry, if the ENTRY IS RANDOM, time and direction.

about that +ve expectancy system blah blah. check out MA Xovers on a EOD data basis.
100 and 350 days MA. take that system and run it over high volume futures. it's a positive expectancy one.

basic money management. short stops vs large rewards (I'm not using the term targets, because in my systems I don't use targets - targets are boundaries for profit.)
pyramiding (martingale). position sizing of small percentage of equity. all those will turn a 50% W% to +ve expectancy one.

take a look at long term trend following systems.
they all have in common lower tan 50% W%, but much karger than 2:1 or even 3:1 risk reward ratios (empirical). and if it's empirical, it means that the chance of hitting the stop is in there.
so, there's absolutely no doubt, that you can turn a random entry to a long term trend following system.

I think your argument is not relevant to the point at hand. You are arguing the point about what a 'random entry' system is. I am not sure why that is but what you have is in no way random. Of course you have to get in at some point but an MA crossover system is not at all random

The idea of me introducing the point of a random system is specifically to examing how money management will be able to turn such a system profitable. Instead we ended up debating what a random system is.

So - let me define 'random entry system' in the context of this argument:

1 - A random entry system is one in which the entry point is random and not based on anything more objective than a dart thrown at a list of instruments from 5 feet away. In this system position size, stop loss and target are fixed.

OK - so can we use this definition of a random entry system and then look at how money management would improve upon it ? Personally, I don't think it's possible.

 

[pedro01]

Here is a similiar money management system which can turn losers into winners.

Zorro_Trading_Group by FXiGoR - Page 124 - Forex Trading

I have my own propreitary version, very useful in difficult market conditions when we get losses after losses and the occasional win.

O D T

All I see there is a systems vendor trying to sell his wares to be honest.

There's no details on how, just that it can be done & it's $89 a month.

 

[Splitlink]

A good money management system can make a mediocre system or often a losing system into a profitable one.It works on increasing position sizes and decreasing position size as certain s/l or t/p are hit.

I use one , it is fully automated and it is proprietary and it has been back tested on multiple trading systems and it is successful.

O D T

A good MM system will draw out the agony but, make no mistake, you had better start making good trades at some point or no amount of MM will help in the end. What the random system depends on is the fact that the MM part of the trade is able to take the strain. What my objection to "random" is that the trader has absolute confidence that a toss of the coin will take care of a gambling problem, in the end. I'm old enough to know that that is nowhere near proven. If you don't put your knowledge and expertise into the equation, you are lost.

 

[Splitlink]

Aaah - so you know the key to money management but it's proprietary and so you can't let on. Gotcha

So - this money management 'secret' you can't tell us will make a losing system a profitable one ?

Never.

IMO, of course!

 

[pedro01]

A good MM system will draw out the agony but, make no mistake, you had better start making good trades at some point or no amount of MM will help in the end. What the random system depends on is the fact that the MM part of the trade is able to take the strain. What my objection to "random" is that the trader has absolute confidence that a toss of the coin will take care of a gambling problem, in the end. I'm old enough to know that that is nowhere near proven. If you don't put your knowledge and expertise into the equation, you are lost.

I agree 100%.

I am not for a second implying that a random strategy should be traded. I only use it to highlight the grail-esque attribute that people ascribe to MM.

Dollar cost averaging is a form of money management. With that system, a wide-boy 'financial consultant' will show you a chart where a stock goes from A->B. It'll show the results of investing all up front in comparison with dollar cost averaging (usually to justify an investment plan with a monthly premium). Of course, the chart is rigged. The price has to move in a specific way for dollar cost averaging to work.

On this post - Zorro_Trading_Group by FXiGoR - Page 124 - Forex Trading - you can see 2 pictures. One with a losing system and then another with the same losing system with the 'Super Money Management" applied.

The issue of course is that the first chart is chery picked. You could apply Robert Lichellos money management technique to a system with those moves & you'd get similar results.

Pick another losing system with different yield curve, add in the same "Super Money Management" and you'll see it magnifies the losers as would Lichello's system on system that went straight down.

Lichello's techniques makes a system more profitable on volatile instruments. If something went straight down, you'd lose your shirt as much as with dollar cost averaging.

 

[oildaytrader]

All I see there is a systems vendor trying to sell his wares to be honest.

There's no details on how, just that it can be done & it's $89 a month.

He posted clues/details on his system with proof, in earlier part of the thread.Just need to do the work to find it.

Nobody is going to hand it on your plate.

O D T

 

[oildaytrader]

I agree 100%.


On this post - Zorro_Trading_Group by FXiGoR - Page 124 - Forex Trading - you can see 2 pictures. One with a losing system and then another with the same losing system with the 'Super Money Management" applied.

The issue of course is that the first chart is chery picked. You could apply Robert Lichellos money management technique to a system with those moves & you'd get similar results.

Pick another losing system with different yield curve, add in the same "Super Money Management" and you'll see it magnifies the losers as would Lichello's system on system that went straight down.

Lichello's techniques makes a system more profitable on volatile instruments. If something went straight down, you'd lose your shirt as much as with dollar cost averaging.

Reasonable systems with 20 to 80 win ratio systems tested over 8 years worked profitably using MM systems.Using any system lower than 20 % is using sxxx not a system.Using a system that will never make money will lead to disaster anyway.Use systems with no more than 20 consecutive losses

O D T

 

[tommog]

i know this thread was always meant to be hypothetical. But you are forgetting a major issue. Comissions/slippage/spreads. Yes a coin toss is 50-50, but with costs added it is far less. I know a lot of part time systems developers that dont even factor this in.

 

[Splitlink]

Reasonable systems with 20 to 80 win ratio systems tested over 8 years worked profitably using MM systems.Using any system lower than 20 % is using sxxx not a system.Using a system that will never make money will lead to disaster anyway.Use systems with no more than 20 consecutive losses

O D T

I agree with most of that but it is a bit elastic. Good MM management will, probably, keep the trader's head above water if he is making any kind of reasonable profits. What "reasonable" is is up to the trader to decide. 8 years testing and being only 10% above start would not satisfy me nor, I'm sure, most people, but it would be enough to prove the argument. Because of the different cycles, depressions and booms that exist (and, I must admit, age comes into it, as well, ) I haven't time to go back more than a month!

 

[oildaytrader]

I agree with most of that but it is a bit elastic. Good MM management will, probably, keep the trader's head above water if he is making any kind of reasonable profits. What "reasonable" is is up to the trader to decide. 8 years testing and being only 10% above start would not satisfy me nor, I'm sure, most people, but it would be enough to prove the argument. Because of the different cycles, depressions and booms that exist (and, I must admit, age comes into it, as well, ) I haven't time to go back more than a month!

If the markets became difficult ,I mean extremely difficult and markets do change,MM systems will give profits in conditions where only one out of ten trades is a win.

They can give 50 % profit per annum when standard systems are breaking even.

I have done extensive testing in bad market conditions in forex on euro usd and cable.

O D T

 

[pedro01]

If the markets became difficult ,I mean extremely difficult and markets do change,MM systems will give profits in conditions where only one out of ten trades is a win.

They can give 50 % profit per annum when standard systems are breaking even.

I know - you could tell us... but you'd have to kill us afterwards... :whistling

I have done extensive testing in bad market conditions in forex on euro usd and cable.

O D T

Backtesting ? So this is a theoretical thing then. It's not what you actually do ?

 

[oildaytrader]

I know - you could tell us... but you'd have to kill us afterwards... :whistling



Backtesting ? So this is a theoretical thing then. It's not what you actually do ?

Backtesting gives an indication of how strategies performed in different market conditions in the past.

Now I trade STANDARD MM systems on live accounts and money management systems on forward tests.These MM systems have to be used with caution and care, plans have to be made for survival in worst case scenarios.They go live very soon ,they couldn't go live because my mm systems had a flaw ,until this morning when I figured out the final jigsaw in the puzzle of money management.

O D T