Triggerfish
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But not the most important.....Is there anything more important than money management?
But not the most important.....Is there anything more important than money management?
Of course there is... A good/profitable strategy, the written trading plan of the system, back tested by yourself (very important to back test the strategy yourself), discipline (no early profit taking, SL movement or hesitation of any sort) and then the money management... That's why I want to drive the point home for money management. Once you have all those things you do need to take a look at money management.
If you have anything to add tot his list then let me know.
Maza.
Would you suggest I trade eur/gbp or usd/mxn to make these 200 pips?
For eur/gbp 200 pips is a 2.3% move but for usd/mxn it is only a 0.15% move.
Neither I would suggest trading the GBP/JPY or EUR/JPY because if your swing trading you can make 200 pips in a day if you get into the right trade... btw this was sarcasm if you didn't realize it...
Why do you get hung up on details... I was only giving an example not giving you a specific strategy or a specific pair to trade!!! If you do want to sound smart why don't you read the .pdf file I posted and then give an informed commentary on what should be changed what are your opinions and how can it be improved that is a commentary on the subject that is being discussed not on semantics.
Your time could be better spent reading up on money management than calculating what % of a pair is a 200 pip move. (FYI I used approximately $1 a pip when trading 0.1 lots... I'm pretty sure that USD/MXN doesn't give you $1 a pip when trading 0.1 lots)
Hi Maza
Thanks for the article and sharing it with us. I have downloaded it and will have a read later.
I am currently re-reading "The Trading Game" by Ryan Jones as I am looking to get back into doing a bit of trading.
I am currently looking to trade stocks, with a momentum system a friend and I have developed over the last few months. Each winning trade lasting about 14 days and losers about 5 days.
I have been looking at the "Fixed Ratio Trading" concept as opposed to the usual "Fixed Fractional Trading" method usually advocated by books on trading that is of course, when it is mentioned at all.
My research in this area suggests, that "Fixed Fractional Trading" is still good to use when trading odd lots like stock trading, I can see your point in regards to future trading though as the minimum amounts may be larger. What’s your take on this?
I am currently trialing some “Money Management” software, I won’t mention the name as I know there’ll be a few out there that will accuse me of touting a product and raking in commissions..
I totally agree with you comments on how important it is to prioritize “Money Management” if one wants to be successful at this game. The only time you don’t need it is if you never back a loser – so everybody should learn about it!
The software I am using tells you every performance statistic in the book; some are obviously more useful than others. One great feature is the ability to randomize the trades thus allowing you to see how the system performs with a different trade sequence.
How dependable historical track records are in revealing future performance is a question for another day, but for now it’s all we’ve got.
If anyone out there thinks they can be successful without money management techniques, I suggest you read the book “Fooled by Randomness”. You may find however that you are using some form of money management, just not realizing it.
Happy trading
Thanks for the article and sharing it with us. I have downloaded it and will have a read later.
I am currently re-reading "The Trading Game" by Ryan Jones as I am looking to get back into doing a bit of trading.
I am currently looking to trade stocks, with a momentum system a friend and I have developed over the last few months. Each winning trade lasting about 14 days and losers about 5 days.
I have been looking at the "Fixed Ratio Trading" concept as opposed to the usual "Fixed Fractional Trading" method usually advocated by books on trading that is of course, when it is mentioned at all.
My research in this area suggests, that "Fixed Fractional Trading" is still good to use when trading odd lots like stock trading, I can see your point in regards to future trading though as the minimum amounts may be larger. What’s your take on this?
I am currently trialing some “Money Management” software, I won’t mention the name as I know there’ll be a few out there that will accuse me of touting a product and raking in commissions..
I totally agree with you comments on how important it is to prioritize “Money Management” if one wants to be successful at this game. The only time you don’t need it is if you never back a loser – so everybody should learn about it!
The software I am using tells you every performance statistic in the book; some are obviously more useful than others. One great feature is the ability to randomize the trades thus allowing you to see how the system performs with a different trade sequence.
How dependable historical track records are in revealing future performance is a question for another day, but for now it’s all we’ve got.
If anyone out there thinks they can be successful without money management techniques, I suggest you read the book “Fooled by Randomness”. You may find however that you are using some form of money management, just not realizing it.
Happy trading
But at the beginning of account you do not know if your trading is going to make any money. This is one reason the trading wizards used small percent fixed fractional. Anything else can lead to ruin fast.
Hey The Pro,
Firstly I would like to thank you for taking the time to read what I wrote and t write this comment.
The .PDF file that I put together is more or less what Ryan Jones wrote in "The Trading Game" but in much more simpler terms and with a lot less examples
. My document is more the facts behind the story's that Ryan Jones wrote in his book, don't get me wrong "The Trading Game" is still a great book to read and it helps you understand the power and thought process behind the concept of "Fixed Ratio" and "Fixed Fractional" money management.Now I do have to point out that I have 0 (zero) experience in the Stocks and Futures markets and I pretty much am clueless about sizes of contracts and the rough contract number trader in them. I'm sure it's not hard to learn it's just I haven't bothered to search for it, I'm still stuck in my Forex bubble
.Now to your question: "My research in this area suggests, that "Fixed Fractional Trading" is still good to use when trading odd lots like stock trading, I can see your point in regards to future trading though as the minimum amounts may be larger. What’s your take on this?" If you want to PM and we could probably find a way to chat about this idea because it's too much to write in a comment and there are too many unknowns for me to give you an informed answer. Plus a live discussion is always better than a written one
.Thanks again for taking the time to read and reply to my post.
Maza.
Hey Solas0077,
Firstly I would like to ask you a question: Why in gods name would you put your hard earned money into trading unless you know for sure that you have a profitable strategy? Seriously!!! This goes out to everybody that is thinking of putting live money into trading without having a strategy (a set of rules that help you sift through the billion trading opportunities out there and choose only the highest probability trades) that is back tested BY HAND!!! (none of this compute testing crap) and then forward tested at least 2 months before putting any live money into trading said strategy.
Now this is not an attack on you personally Solas0077 it's just it really winds me up when people donate willingly to the market. Now Solas0077 if you are in this group of people that don't have a solid "Trading Plan" that is tested and proven to be successful, please I beg you to stop trading right now and send me a PM so I can help you develop this plan, it won't cost you a dime, all you have to do is bring an open mind and a pen and paper. Just please stop trading with your hard earned money and trade with a demo account till your trading plan is written and tested.
Maza.
So how do you test a trading system to find out if it is successful? Paper trading?
Are you going to charge me for the plan? How much?
M
malaguti
Seems to me he has answered your questions.
on your first point
Not sure I agree with the computer crap part, but thats irrelevant
on your second point
was that really too difficult to understand?
Yes "paper trading" (it's more excell spread sheet trading) with historical data (it's called Back Testing). Plus I will not be writing the plan for you, I will be giving you pointers on how to write the trading plan and what to look for when you are back testing.
All this is for the huge price of... nothing
L
Liquid validity
Correct, its called risk of ruin:
Risk Of Ruin Definition | Investopedia
Minimizing your risk of ruin
Risk of ruin - Wikipedia, the free encyclopedia
I've seen some bizarre things mentioned in this thread.
1. Risk more when account is at its lowest point (the start - increases risk of ruin)
2. Forward test for 2 months...
2 months is nothing unless its doing 50 RT's per day
For swing trading you could count the trades in the forwards sample on one hand.
6 months to a year, or preferably 500+ trades.
If 2% or better yet 1% or 0.5% per trade isn't enough to grow the account,
the problem is simple - the account is too small - undercapitalisation.
If the account is too small, quit while its still intact, even if a sequence of losers
doesn't wipe the account, the drawdown will be more severe at 3-5% risk.
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If you have really read the whole thread then you would know that I mentioned in nearly every instance that you need to BACK TEST!!! for swing trading at least 5 years back... the forward test is just so you get used to the strategy running in real time and not miss any (or as little as possible) trades... Plus if you know roughly what your maximum drawdown will be, you can also see how much of your account you will lose if that happens and unless you are retarded (no offence to mentally handicapped people) you will not make that % be more than 50% of your total account so then you can see what position size to trade at that time... after which with this MM strategy you will decrease the amount risked per trade as you increase in position size and implicitly decrease your risk of ruin and the percentage of the account you will loose if the maximum drawdown will happen...
Really next time read everything properly before commenting.
Maza.
Shakone
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Good response "Shakone" I'm glad you have shared your thoughts and feelings on this subject
L
Liquid validity
I did read the whole thread.
Over reliance on back testing is dangerous, which is why I posted in the first place.
Forwards testing is the real test.
Back testing is just an execution test.
Forwards testing gives a more accurate view of the effects of slippage, spread
and technical issues such as server outages.
Back- vs. forward testing: Test twice (or more), trade once
Without forwards testing, how can you know its not curve fit garbage...
50% drawdown
Not many people could handle that in practice on a decent sized account.
On a small account, excessive drawdown and excessive risk per trade
mean its just gambling.
So you decrease size as risk of ruin decreases.
That misses the whole point of risk of ruin...
No thanks, as long as you post ill informed crap I'll post where and when I want OK?
I did read the whole thread.
Over reliance on back testing is dangerous, which is why I posted in the first place.
Forwards testing is the real test.
Back testing is just an execution test.
Forwards testing gives a more accurate view of the effects of slippage, spread
and technical issues such as server outages.
Back- vs. forward testing: Test twice (or more), trade once
Without forwards testing, how can you know its not curve fit garbage...
50% drawdown
Not many people could handle that in practice on a decent sized account.
On a small account, excessive drawdown and excessive risk per trade
mean its just gambling.
So you decrease size as risk of ruin decreases.
That misses the whole point of risk of ruin...
No thanks, as long as you post ill informed crap I'll post where and when I want OK?
I agree with you that Forwards testing is the testing that accounts for slippage and spread and shows you how you perform with the strategy (not just taking every trade like you would with back testing).
Back testing, if done properly, is not just an execution test, when back testing you can also look for the optimal place to put, stops, targets and help you better understand the strategy itself without having to sit for 1 or 2 years in front of the computer and watch charts.
Also if your back testing for the last 5 years then you get a good sample test, unless your testing the 240 min charts and up, while covering all market conditions, because in the last 5 years the markets have been trending up, down and have gone sideways as well. So it wouldn't be curve fitting.
Also if your forward testing for 1 year how ca you know it's not curve fitting garbage as well... It's only 1 year worth of data... For example if you had a 60 min trend following system and you forward tested it from the 1/1/2013 till now on any AUD cross you would have made a killing...is that not curve fitting garbage?
I didn't say that everyone should risk 50% of their account, the percentage of the account risked if maximum drawdown happens depends on each person and should be chosen by each individual according to their risk tolerance.
I don't even know why I bother typing since you DON"T read everything... i said "you will decrease the amount risked per trade as you increase in position size and implicitly decrease your risk of ruin"
and you respond "So you decrease size as risk of ruin decreases".
Just so I clarify this for you as you increase in position size, so from 1 lot to 2 lots and so on, your the percentage of your account risked per trade decreases, so at 1 lot you risk 2% per trade at 2 lots you risk 1.5% per trade and so on... This was only an example I'm not advocating any risk per trade that is mentioned above.
"No thanks, as long as you post ill informed crap I'll post where and when I want OK?"
How do you know it's ill informed crap IF YOU DON'T READ EVERYTHING THAT I HAVE POSTED!!!
