Best Money Management Sources

[darkhorse]

Originally posted by daniel_m

For those who've read Tharp's "Trade your way..", you know the first two position sizing "strategies" he talks about, "One Unit Per Fixed Amount of Money" and "Equal Value Units"...who the f**k would ever trade that way??

Daniel

It's been a long, long time since I've cracked that book. But if I recall correctly, he used "units" simply to represent a fixed percentage of capital.

For example, my typical risk per trade is around 50 basis points give or take (one half of one percent of my total equity). 50 basis points could be considered one "unit" of risk, as the actual dollar amount fluctuates as capital increases or decreases day to day.

That number plays no role in my trading other than how many shares to take at a shot. Nothing more.

I agree w/ you that position sizing is not magic, it's just straightforward common sense. No more or less important than the pistons in an engine. It won't get you anywhere in and of itself, but you ain't going anywhere without it.

 

[Breakout]

Originally posted by skrilla
Thanks, have you read these books? Did you find them helpful. The reviews on amazon weren't very flattering.

Sorry, didn't answer the second part of your question. Did I find the book helpful. Yes.

 

[TriPack]

I read The New Money Management by Ralph Vince. Either this book or the other one by Vince contains the formula for optimal f. I don't use anything from this book in my trading. However from a learning standpoint I would say it was useful in the same way that some of my non-applicable college courses were useful.

Trading with optimal f as the position sizing alogrithm is like walking along the edge of a cliff and hoping a small gust of wind doesn't knock you off balance. In other words, nobody trades that way.

However, some do take the optimal f percent and divide it by a constant like 10 or 20 and use that as a basis for their position sizing.

 

[vikana]

After reading a lot about money management and implementing several strategies, i have found that the most important thing is to "equalize" risk across trades. i.e. make sure that all trades risk the same amount of your capital.

Risk can be calculated in many different ways, such as standard deviation of closes, Average true range and so on. Which you use makes little difference. The real issue is to make sure that no individual trade adds risk beyond your parameters

 

[Breakout]

Originally posted by skrilla
Could someone please tell me a few good sources for learning about money and risk management in day trading. Are there some good sources on the internet?

Thanks

I guess I'd add just one more thing skrilla. Tripacks right, you probably won't have much use for Vinces books, especially since you're question pertains to day trading. I don't mean to sound pompous, but probably most traders would agree that you just need to keep 2 things in mind when you make a trade.


1.Never risk more than 2 or 3 percent of your capital.

2. Shoot for at least a 2 to 1 and preferably a 3 to 1 risk/reward
ratio.

 

[DayTraderNYC]

What if you don't have a set amount of capital to work with...like at a prop firm where you're limited by share size / position size, not $$ amount?

 

[vinigar]

ORIGINALLY POSTED BY SKRILLA
Could someone please tell me a few good sources for learning about money and risk management in day trading. Are there some good sources on the internet?

THE BEST SOURCE ON THE INTERNET IS : WWW.TONYOZ.COM

THE BEST BOOK ON RISK AND MONEY MANAGEMENT IS THE BOOK WRITTEN BY TONY OZ "HOW TO MAKE MONEY FROM WALL STREET"

WHY DO I LIKE IT AND USE IT? BECAUSE IT IS SIMPLE, NOT COMPLEX, EASY TO UNDERSTAND, NOT FULL OF FANCY mathematical COMPUTATIONS AND STRAIGHT forward.

YOU ASKED FOR A GOOD SOURCE....THIS IS IT.

 

[Jim Bartley]

John Sweeney has written some good articles along these lines. I believe he popularized MAE (maximum adverse excursion). This tells you where to set your stop for maximum effect. Many new traders will use too tight a stop, which basically just garantees you a bunch of small losses. He used to write for Technical Analysis of Stocks & Commodities.

 

[m_c_a98]

go here http://www.tradelabstrategies.com/ and download the marble game.

 

[sharper]

Decide for yourself, but no system is perfect and everybody has to decide for themselves what system works best for them. Beware of the hypsters.

Check out this interesting news: http://www.naplesnews.com/01/04/naples/d614520a.htm