Impressive !
Can money management alone create any edge?
- Thread starter Ricter
- Start date
Impressive !
Well, my "edge" is my intuition - I don't really think of it as an edge though - more of a feel, a combo of how much confidence and potential I percieve in any market move. This changes every day as does my money management.
For example, I know that a stock I trade might take me $.XX into the negative before it turns and I also know that it can move a certain amount in a day.
I risked .50 for the trade and I know it could easily go 1pt plus in my direction. If it is hanging out -.30 from my entry, sometimes I'll cut it if nothing is happening, sometimes I'll wait it out. It really depends.
Overall though, I don't think Money management on its own can create a profitable strategy, but I do think that knowing how to excersize proper money management when a trade moves in your direction will make you profitable and hence is the most important aspect.
Test the water with a test size position and add if the move continues (press the winners) but never go beyond a certain monetary stop for any trade no matter the scale.
Anyway, this stuff is all personal risk tolerance and cannot really be quantified IMO.
Mike
For example, I know that a stock I trade might take me $.XX into the negative before it turns and I also know that it can move a certain amount in a day.
I risked .50 for the trade and I know it could easily go 1pt plus in my direction. If it is hanging out -.30 from my entry, sometimes I'll cut it if nothing is happening, sometimes I'll wait it out. It really depends.
Overall though, I don't think Money management on its own can create a profitable strategy, but I do think that knowing how to excersize proper money management when a trade moves in your direction will make you profitable and hence is the most important aspect.
Test the water with a test size position and add if the move continues (press the winners) but never go beyond a certain monetary stop for any trade no matter the scale.
Anyway, this stuff is all personal risk tolerance and cannot really be quantified IMO.
Mike
I don't know, but you can lose all your money in a 70/30 environment if your money management sucks. I think that's the point.
Every trading methodology is subject to a certain amount of losses. MM is making sure you have enough money so that you can keep trading despite those losses. The problem for many traders is that they don't have any idea what losses they could expect so MM isn't an issue.
OK nitro, you helped removing the fuzziness.
Don't forget to include the binary case 0 or 1, i.e. "strategically" to trade or not to trade.
Works very well (if done in a competent manner)
So if the definition of money management is changing the size from one trade to the next trade to control risk exposure in the market...
Those that say money management has no edge...
Are their NOs based on that definition or on another definition ???
NihabaAshi
Those that say money management has no edge...
Are their NOs based on that definition or on another definition ???
NihabaAshi
I think it is grey area.
Risk on a trade should be a monetary risk, but position sizing determines said monetary risk. Monetary risk and position size should not be constant IMO.
For example, you can have a reversal strategy where you keep buying on broken supports (not a good strategy IMO, but a strategy nonetheless) and wait until the trend reverses. All the while you know that 1k is the most you would want to risk. So you enter a 1 lot and then keep entering again and again for a better average (lower) price, if the trade ever moves against you to a monetary stop then exit. The price reverses and you should have a good overall entry where your R/R potential will be better. Just an example where money management doesn't really mean anything other than total risk. The real "edge" lies in the trade management as others have stated previously.
Mike
I agree with you, but the problem is that I believe what you are saying is tautologous.
In other words, if you knew when to change to size x from size y, that is an equally as hard a problem or perhaps not even different than knowing when to enter/exit/revese/etc.
At least I think so...You would think that a system should/would be able to output a probability of win, the way that when you put an options position you get a probability of it being in the money. Then and only then do I think that you could scale your bet size accordingly...
nitro
In other words, if you knew when to change to size x from size y, that is an equally as hard a problem or perhaps not even different than knowing when to enter/exit/revese/etc.
At least I think so...You would think that a system should/would be able to output a probability of win, the way that when you put an options position you get a probability of it being in the money. Then and only then do I think that you could scale your bet size accordingly...
nitro
Well, you are right, I am saying the same thing, its just phrased differently. Sizing a trade is a "feel" for the potential move IMO. Note I am discretionary and I don't have a thorough understanding of the many options strategies.
Doesn't experience teach us what moves are almost sure things as compared to moves that are more risky? And can't we based on that knowledge increase size towards the less risky moves and "test" with small size the riskier moves?