Money Management

[Hotch]

Yes because the reward potential and success rate is higher for my position trades than it is for day-trades.

Aka: bigger edge.

 

[Blaiserboy]

I use a fixed TP and a fixed stoploss...

mainly because I did a lot of research on what I trade and made conclusions as to what i thought was right for me......

And, much to my regret, I miss some excellent profits from day to day.

It seems easier for me to make entries and wait until i am taken out by either one. hopefully I know enough to make a profit.

 

[wackypete2]

I use random money management.

Peter

 

[TheBramble]

I’m not a big fan of statistics and quantifying edge. Trading performance statistics tend to ‘congeal‘ early on in the run. Slightly more valid as you increasingly reduce the span of time over which you’re assessing them and move closer to present day performance, but even then, of questionable value.

It's a given that your stats have to be correct.

What’s ‘correct’ got to do with it? Stats are superfluous. Period. For those that want to play with numbers I was suggesting a smaller and more recent sample would be more representative.

I guess if you had more than one system with different edges (I wondering why would you trade any other than the best?) those comments would be quite valid. I don’t so they make no sense for my trading style.

More opportunities to trade. Spread your risk. 0% is a valid amount of risk to use, you're still using more on the better one.

More opportunities to trade = INCREASE your risk if that means using a system with a lower edge than optimum.

Yeah, I’ve looked at ramping up my stake and been through all the good Kelly stuff (which BTW was based on signal:noise in telecommunications lines – and some think that makes it perfectly applicable to calculating trading positions size – LOL) and if I wind in my trading performance stats into any current model, sure I could (should?) be trading much bigger size.

It's not "some think", it's mathematically proven (fixed odds).

I’m deeply suspicious of anything that has been ‘mathematically proven’ – especially if it actually has. They rarely have much, if anything, to do with the actual reality.

But when I do ramp it up, I don’t get the same good ‘feel’ about running the trade and I’m less likely to stick to my rules. Tough one to quantify under a Money Management heading other than perhaps ‘level of comfort absolute amount at risk’.

I never said use more risk, and you feeling comfortable is a different point (which I thought I addressed).

You were suggesting 1% was for beginners and a larger percentage of trading capital should be employed on systems with a better edge. Employing a greater percentage of your trading capital is ‘taking more risk’.

I certainly consider myself a cautious trader and don’t plan to change. But on the other hand, who would you want working for you on your trading capital: A guy who delivers 100% returns with a 50% drawdown or a guy that delivers 10% returns with a 5% drawdown?

You might actually be managing to get to the point

Nobody else seems to have had any trouble understanding the points I made. More to the point, I don’t particularly appreciate your tone.

Let's assume you're happy with this 10% return 5% drawdown. Now if you come across something which makes returns 5% and drawdowns 0.1% on 1% risk, are you going to increase your risk to get to 10% return with a 0.2% drawdown? Or are you going to continue to use your 10% system?

I didn’t specify amount risked in the hypothetical example as that wasn’t significant for my purpose, which I’ll explain to you in a moment. I know you understand that there is a difference between risk and drawdown in that risk is the amount you could in theory lose (and are willing to lose) on a trade and drawdown is the maximum amount the trade goes against you before being closed (for either profit or loss).

The purpose of my example was to suggest we consider the importance of comparing apparently stellar returns (50%) achieved but only in the light of potential drawdown.

geez.

Not sure whether you’re just having a tough day or a tough time with this one post, but whichever, I hope it soon passes.
__________________

 

[Hotch]

1-I was trying to agree that your stats have to be realistic. I'm sorry you misunderstood.
2-Increasing your risk by more opportunities to trade is a completely different point. I will attempt to explain in simple terms that you may understand.

You are at a casino, there are two games. Game 1 you have a 60% chance of winning with 1:1 payout, you can play that once every hour. Game 2 you have a 40% chance of winning with a 3:1 payout, you can play that twice an hour. Why you would choose to only play game 2 is beyond me.

3. Yes, I recall you don't understand probability either, however I haven't seen your publications on why it's all wrong yet, still working on it? What are your thoughts on black scholes,

4. I wasn't suggesting, I said I understood it, I actually believe that beginners should trade on minimum risk (1 lot of minimum size) to start. I am merely saying that higher edge strategies should have larger risk, I'm not making many of these points you are arguing with.

5.You misread the sentence. P.S. DILLIGAF to what you think of my tone.

6. You don't need to specify a risk, the numbers still work, BUT OH YEAH, THE NUMBERS ARE EVIL.

I'm sorry but I can't explain things any simpler so I won't post again on this thread: systems with larger edges should have more money risked on them. Whether that is 1% on your highest edge strategy and 0% on everything else, whether it's fixed odds or not it doesn't matter how much, that's not my point.

 

[TheBramble]

Hotch {plop}

 

[TheBramble]

Pro Traders

I'm not planning on doing all the running on this thread.

Come on you pro traders out there. You have an audience ready and waiting to understand how YOU approach and utilise money management from a professional trading perspective.

And don't play the 'proprietary' card because we don’t believe you.

 

[Blaiserboy]

I use random money management.

Peter

Ah yes, the random people...... an excellent firm, did you know that they have a second division that sponsors easter egg hunts every July 5.....?

 

[trendie]

You've already stated that MM is used by pros to
"Money management is what competent traders use to [a] not lose money make money."

MM is risk control. Risk is the only component we have control over. Reward is variable.

I'm not sure what else there is. I like your description of time:value of money thing.

 

[Shakone]

Slightly confused here Hotch. If you believe in Kelly Criterion, and you consider two systems, one with higher prob of win, and the second with lower prob of winning, but higher expectancy. You should not necessarily risk more on the higher expectancy one. That's not what Kelly says at all. Run some examples into a calculator.

 

[Blaiserboy]

Yes because the reward potential and success rate is higher for my position trades than it is for day-trades.


Paul

How long would a 'position' trade last.. do you mean weeks....?

and one more question.... why would a position trade have a higher success rate than a day trade.... Is it the selection method.....

I can understand that a trade from a higher time frame has higher potential, I am not sure as to why the success rate its better...

Thanks..

 

[Blaiserboy]

You've already stated that MM is used by pros to
"Money management is what competent traders use to [a] not lose money make money."

MM is risk control. Risk is the only component we have control over. Reward is variable.

I'm not sure what else there is. I like your description of time:value of money thing.

So correct about risk being the only thing we have control over.. I only lost my account a few times before I learned that...

 

[TheBramble]

You've already stated that MM is used by pros to
"Money management is what competent traders use to [a] not lose money make money."

MM is risk control. Risk is the only component we have control over. Reward is variable.

I'm not sure what else there is. I like your description of time:value of money thing.

I was careful to say competent traders, not pros: necessarily. LOL. I was also guilty of being equally glib regarding [a] and .

I will get on to the time:value and the timing topics in due course as I do consider these to be probably the most important facets of money management. The first applies to management of your trades and the second to execution. However, I'd really like to see others chipping in too otherwise it just becomes a stale monologue, with the occasional disenfranchised heckler to remind us of what we’re trying to avoid becoming.:cheesy:

 

[wackypete2]

Ah yes, the random people...... an excellent firm, did you know that they have a second division that sponsors easter egg hunts every July 5.....?

Yeah, the eggs are randomly placed

Peter

 

[Hotch]

Slightly confused here Hotch. If you believe in Kelly Criterion, and you consider two systems, one with higher prob of win, and the second with lower prob of winning, but higher expectancy. You should not necessarily risk more on the higher expectancy one. That's not what Kelly says at all. Run some examples into a calculator.

I am well aware of this, I don't believe I actually said that I follow Kelly, merely that it's proven for fixed odds. I think the confusion is between edge and expectation, I may well have gotten them muddled up somewhere, apologies.

 

[astoria]

A number of valid points have been made on this thread and there seems to be mutual agreement that MM is important,BUT unless there is a sound trading system it really won't matter...the trader will lose their capital.

I think the overall subject has dismissed the most important element to allow a trader to be successful and that is being ADEQUATELY CAPITALIZED.

In my opinion, that is the bane of many traders and not their fault either...a trader can only work with what they have....the key is how they work it or, more importantly, should they be working it with 'limited' resources at all.

EGO will prevent most traders from considering micro instruments and ,quite franky ,I think that is dumb ,because if they set goals that are realistic they will have a better chance over a longer period to achieve those goals..

Don't want to be long winded about this so I will stop now and 'cover' any responses...

In closing, it really is not how much you make trading, it is how much you don't lose....profits look after themselves...

Astoria

 

[zsawevv212]

Buy a notebook and keep records of how much you spend and what you buy, and then ask yourself if those items were necessary for your everyday existence.
Plan and follow a strict monthly budget by determining how much you will need to live on, including paying your bills and keeping some spending money for yourself.
Make a list of what your most important expenditures are, putting your home or apartment at the top of the list because having a place to live is more important than anything else. If you have a car note, and need it for transportation to and from work, that may be second on the list, then food, and so on and so on.
Curtail all unnecessary spending, like going to games and other sporting events. It's fine to go to sporting events, but they can become expensive, so either stop going so much, or stop going altogether.

 

[TheBramble]

LOL

If it's serious then even more LOLs.

 

[DionysusToast]

Buy a notebook and keep records of how much you spend and what you buy, and then ask yourself if those items were necessary for your everyday existence.
Plan and follow a strict monthly budget by determining how much you will need to live on, including paying your bills and keeping some spending money for yourself.
Make a list of what your most important expenditures are, putting your home or apartment at the top of the list because having a place to live is more important than anything else. If you have a car note, and need it for transportation to and from work, that may be second on the list, then food, and so on and so on.
Curtail all unnecessary spending, like going to games and other sporting events. It's fine to go to sporting events, but they can become expensive, so either stop going so much, or stop going altogether.

I tried this but my wife found the notebook which contained the amount I spent on tarts.

That discovery cost me a house.

Terrible idea...

 

[Hotch]

Jam or syrup?