Unusual Money Management Methods

[adrianallen99]

So does anyone have any unusual money management methods for their type of trading.

Found this one a while back that could be used for fixed odds stuff. It is a true money management system for gamblers high drawdown, high risk, etc..

Basically you choose a unit price say £20. then write 4 single digit numbers say 1 2 3 4 .

For each bet you take the first and last digit - these are units.
so bet 1 would be 1 +4 =5, 5*£20=£100
If you win you remove the numbers and have just 2 3. If you lose you add 5 (the losing units) to the end and have 1 2 3 4 5

Eventually you will 10 * unit stake (10 being the numbers you started with). in this case £200.

Ive not taken into account commission etc.

Anyone got any others

 

[TWI]

"Stops are for poofs"
was one I once heard

 

[BBB]

lol -
'hedging is for nancies' was one I heard - by one of the larger Stirling option traders at LIFFE who was facing a drawdown. He was down £250,000 the following week.

 

[waverider]

Simple money management for spreadbetting beginners

I haven't read all the posts on money-management so this one may already be out there. It's benefits are it's simplicity plus it has a degree of incentivisation / dis-incentivisation. This may or may not be a good thing in trading depending on your personality but I find it teaches me to take more care. It's also particularly apt to spreadbetting as opposed to trading contracts:

If you're an absolute beginner open an account of at least £1,000 and spread-bet the minimum amount you can while learning. Some providers will allow you to trade as little as 1p per point on some instruments (Finspreads I think). Do it. You'll feel stupid but you'll find you really care about the amounts you're winning and losing and equally, if you started at £5 per point, you'd lose sight of the value you'd be risking...until you're cleaned out.

DON'T open a credit account, just trade on deposits. You're going to lose in the early stages, so the idea is to minimise the impact while still risking some money in order to make trades real.

When you feel you're actually trading with a degree of consistency (ideally upwards!) you can gradually increase your bet sizes to £1 per point. This is when the incentive element comes in. You stick to £1 per point until you have more than £2000 in your account, at which time you can trade at £2 per point. It could take quite a while to acheive that level, which is the whole point. You'll be learning all the time including how to lose.

And don't break the rules, otherwise there's no point in having a maney management system in the first place. The rest is simple - you can trade £3 per point when you have £3000 in your account and so on at each £1000 level..

The key is you MUST drop down to the previous level if your account drops below it's trigger point (i.e. back to £1 per point if it drops below £2000.

There's nothing revolutionary here but I like the effect it has on the care I take a) to increase to the next level, and b) not to drop back to the previous level.

However, the method has an exponential effect as your bet size grows in that once you get to say £5 per point the route to zero is potentially quicker per trade than it would be from £4 per point. Therefore, depending on your trading style and approach you should consider switching to another money management technique once you reach that sort of level. But I've found it a good limiter for me at the low end while I've been learning.

Hope it helps someone.

 

[twiggytwo]

Hi Waverider,
Try this 1 2 3 for spreadbetting
First take a small % ( you pick the amount ) of your capital for risk .
Second arrive at your technical stop position by looking at your chart.
Third and always last, take the size of the stop and divide it into the amount of risk to give you the size of your stake per point .

 

[dc2000]

Hi Waverider
I believe larry williams used a very similar money management technique when he turned $10k into $1 mill in a year

 

[JonnyT]

Waveriders technique is hardly unusual, infact its the normal bog standard Fixed Ratio

There may be better ways.

JonnyT

 

[TheBramble]

Waverider - any system which helps inexperienced traders (and some experienced ones!) hang onto their capital longer is a good thing. The graduated method you suggest is good for setting limits on stake size and as you say (and as per your own trading mechanism) is good for SBing.

Setting the £/pt max is just one angle of money management. What I'd add to it is the need to address the total risk per trade as well.

This has been debated endlessly elsewhere so no need to reiterate all of it, but basically, setting a max risk based on total trading capital is also a good idea. I think most traders who use this as a basis for the trading risk between 0.5-1% max per trade.

So in your example trading a £3k pot you'd be risking a max of £3/pt and £30/trade. This factor of 10 wouldn't give you much room on your stops. So I'd suggest making the £/pt amount biased slightly more toward a 'sensible' (whatever that is for the instrument/market being traded) stoploss amount rather than geared toward total trading capital.

 

[waverider]

Pyramiding

Yes, I can see how this approach COULD acheive those sort of returns because of the pyramiding effect - eventually you would be placing huge trades. The danger of course is the exponential effect I pointed out where your losses at each new level would take you closer to zero quicker than your winnings might take you away from it. For this to work well you'd need a trading system that provides smooth consistency with a good ratio of wins to losses (by value, if not by number of trades) - and it needs you to stick to the rules when dropping back down (v hard).

I haven't found one yet, when I do I'll post it here - but only after I've taken my million out first

Thanks for the feedback.

Waverider

Hi Waverider
I believe larry williams used a very similar money management technique when he turned $10k into $1 mill in a year

 

[waverider]

Fitting stabilizers on your bike

Hi Bramble. Would certainly agree with your comments.

My post was very much geared towards beginners, and to spreadbetting, and is concerned primarily with handling the psychological issues when learning, while endeavouring to protect the finacial for when they 'graduate'.

When we discover trading and dip our toes in there's one thing that us more experienced traders (now) know is certain - we'll have a big learning curve, and we're going to make frequent losses (ok, two things). But as beginners we always want to move things along quicker than we should and so tend to trade bigger sums than we should, and end up making bigger losses, and quicker. So anything that can get us through the learning curve without too much damage to our capital is a good thing.

If, as a beginner, you start with capital of £10,000 and put it in a trading account it is immediately at risk from over-trading, trading too large etc. Hence my suggestion of just putting £1,000 in your trading account. It brings the day of the first 'wipe-out' (i.e. the £1000) closer, which is a good thing to have to experience. We only learn from our losses. The learner then goes through the process of transferring the next £1000 (and hating it), and is much more aware of what's happening to his capital.

You're comments were right, Bramble, that running a small account doesn't enable the correct use of the percentage money-management schemes. These are very important once you have learnt to ride the proverbial bike and are preparing to risk your total available trading capital.

My suggestions are for those new traders who come to these message boards who are smart enough to realize there's a high-risk learning period for them to have to get through first, and who want to make their capital last the course. Be clever enough to start with stabilizers on your bike.

I also liked the effect of having levels to aim at, which gave me a 'reward' in terms of satisfaction over and above any financial gains. Each new level achieved told me that I was becoming a better trader, and when I dropped back it warned me to review my techniques - it's a very simple rating system. It's a lonely business we're in with only ourselves to pat us on the back.

I know many of you people will have heard most of this before - so apologies for filling up your screens - but there are new traders joining all the time who can't possible read every past post, so reiterating occassionally (and building upon) is no bad thing.

Waverider

Waverider - any system which helps inexperienced traders (and some experienced ones!) hang onto their capital longer is a good thing. The graduated method you suggest is good for setting limits on stake size and as you say (and as per your own trading mechanism) is good for SBing.

Setting the £/pt max is just one angle of money management. What I'd add to it is the need to address the total risk per trade as well.

This has been debated endlessly elsewhere so no need to reiterate all of it, but basically, setting a max risk based on total trading capital is also a good idea. I think most traders who use this as a basis for the trading risk between 0.5-1% max per trade.

So in your example trading a £3k pot you'd be risking a max of £3/pt and £30/trade. This factor of 10 wouldn't give you much room on your stops. So I'd suggest making the £/pt amount biased slightly more toward a 'sensible' (whatever that is for the instrument/market being traded) stoploss amount rather than geared toward total trading capital.

 

[rdstagg]

Larry uses (Account size x risk percent ) / largest loss

But this is position sizing and newbies ought to realise this is the HOLY GRAIL.
there - now you have found it you can stop looking ;-)

Russell

Hi Waverider
I believe larry williams used a very similar money management technique when he turned $10k into $1 mill in a year