Money management

GREY1:
Im interested in ramdomness, Monte Carlo techniques. Do you have specific software and if so who are the suppliers. Thanks:
A great thread all. My input. Its seems logical to enter the risk/reward ratio into the equation. But the ratio is an opinion and not a statistical fact. Unlike tossing a coin which 50/50 is a statistical condition. Before endeavouring to use the risk/reward ratio in the equation you would need to develop a frequency table of at least 20 samples. Then retrieve the probability % of your successes for your equation.
 
Grey/Chartman

I think we would all agree that entry is important. There are
innumerable 'systems' available which will give you an
entry point based on one philosophy or another.

But having entered, which takes 1 second and is achieved ay the
click of a button the trade arguably then becomes ALL about
exit.

However I do not believe there is such a plethora of information
about when to exit. And that , of course, is why it is important.
Because then, you are on your own !

Techniques for 'reading' the market moves seems abysmally
short. It is left to the inate 'skill' of the trader to interpret what
might be happening ?

'Inate skill' turns out to be largely 'trial and error' ?

Any thoughts ?
 
Zig Zag,

I donot use any commercial software for risk analysis and to be quite honnest i donot need one either.. I use the Monte carlo simulation on Excel and that is enough for me..

Bonsi

one can asses Exit based on a TA signal or accumulation of risk should he continues to stay in a trade..

By accumulation of risk i mean

1) Risk of losing the trade
2) Risk of losing the reward should the position run into profit..

SO WHAT IS THE OVER RIDING FACTOR IN A TRADE? .. TA EXIT SIGNAL OR REWARD/RISK ANLAYSIS.. OF COURSE THE LATTER...

THOSE TRADERS WHO BEAT THE MARKET DONOT OPEN A POSITION IF THEY SEE A FAVARABLE PATTERN ON THE CHART BUT ONLY IF THIS PATTERN HAS HIGH REWARD FACTOR ATTACHED TO IT
iraj
 
grey1
sounds very good but what sort of objective risk/reward analysis
do you have in mind for a market which is neither random nor chaotic ?

And if you move your stop up with the market so as to lock in
profit, what then ? Risk becomes Zero (probably).

Most T/A signals have an inherent delay built in, so the market can move against you and put you in a Loss before triggering a
signal. So they don't fill the bill ?
They are part of the 'cop out' created by most concepts because
they are really entry systems .
 
Bonsai,

Quote “what sort of objective risk/reward analysis
do you have in mind for a market which is neither random nor chaotic ?”

Market is NOT random but it is chaotic… there fore it is possible to make a living out of it…
But lets leave this argument behind us and stick to making money issues..

If you had £5000 and you traded on 51% win system ( have you lately back tested your trading strategy ?) and you RISKED 5% of your trade in each trade and you took profit when you made 5% then you would eventually go bankrupt.. Reward/Risk = 5/5 =1 )

Lets change the Reward factor to 2 .. in this case not only you do not go bankrupt but your initial £5000 would grow to an average of £21699 after 100 trades with an average drawdown of £3293 ( I have simulated the worse case scenario of losing to winning trades using Monta carlo technique)

So clearly we do not have to have a 90% trading strategy to make money out of the market (it would be nice if we did because our total capital in the above example would be around £1.8 Million in 100 trades only )

Would a trader be able to obtain a Reward/risk of 2.. of course he could… So how does he do it?

Step 1
Reduce risk by reducing the spread and broker’s cost ( No spread betting for day traders )
Step 2
Improve Entry using the most surgical technique you can find ( level II traders have better chance )
Step 3
Have a tight stop loss strategy based on Money management and some kind of a volatility envelope around the price action and stop loss which ever triggered first..
Step 4.. Trade near Low of the day ( Long ) or SUPPORT (Hmmmm) if market is oscillating .. ( market oscillates 70 % of the day )
Step 5 make sure there is enough meat in the trade to justify the trade.. ( subtract the HIGH of the day from the LOW . If the range is narrow then forget it.. some times MSFT range is only 5Cents with scalpers at work.

You see, the whole subject of trading is about reducing risk , protecting you capital and hopefully the rewards comes in time..

PS:-- have you noticed I have said a little about the good exit .. Well who can see into the future



If I was as Efficient of market is, then I would nearly won all the time… Hmmmmmmmmmm

Iraj
 
Last edited:
I think that's the end of my contribution because I dont think
the market is chaotic.

And the rest is a bit too academic for me.

But from your profile, I see you are a scalper.
So that might explain things.
When you're scalping market moves do look chaotic ?

Personally I trade on a 1:3 risk/reward ratio but then I am in the
market for longer than you would be.
 
It is pretty late at night I know but I have just tossed a coin 15 times.

The only slight variation to the initial posting is that I have consistently played £500 per time (i.e. 10% of the original stake).

After 15 plays £5000 has become £7,000. I have decided to forget about the plane on the basis that a 40% gain is above what I could expect over a longer period.

At two stages the £5,000 had become £4,000 but I never got below this figure. If I had gone down to £3000 I may have got out of the casino with 60% of my stake intact.

It seems to me the reward to the risk make this a very unattractive game to play.

Perhaps I will toss the coin 15 times tomorrow but my real money will stay firmly in my pocket.

Kinglatfan
 
GREY1: Thanks for your reply. Great. You have found what I am looking for. THe problem is I dont appear to have it on my version of EXCEL 97. What version of EXCEL are you using. Awaiting with abated breadth although I have a gut feel its going to cost me money.
 
ZigZag said:
GREY1: Thanks for your reply. Great. You have found what I am looking for. THe problem is I dont appear to have it on my version of EXCEL 97. What version of EXCEL are you using. Awaiting with abated breadth although I have a gut feel its going to cost me money.
Click to expand...

go to kazaa, do a search for Excel viewer, download it

cost, nothing

yeah, sweet :)
 
There's a spy free version http://www.k-lite.tk/
but I'd be wary of what you can catch from these sort of sites. I had all sorts of problems after trying to get some "Free" stuff......
Another clean install.

Good luck
 
Thanks for your replies chaps. But Im beginning to bite my lip. I have had problems before in downloading stuff & it was a nightmare. As I buy investment books I dont mind buying the software. My philosphy is if I only get a part of an idea from my purchases I consider it money well spent. Just thought! Does microsoft have an add in package. See my point, your replies have given me an idea. Thanks again
 
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