Can money management alone create any edge?

[nitro]

I think some people can, and I think most of us that have been around for a while get this sixth sense when danger is in the air or there is a buying frenzy and shorts are on their heels.

But I can tell you that at least for me, I have never been able to quantify it.

For a system designer, that sixth sense is almost worthless unless you have a hybrid system, a cyborg per se, where the computer takes the direction, but a human trader would assign the size to the given trade.

While I have never seen a system done this way, I would not be surprised to learn that they are out there.

nitro

Quote from Mike805:

...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?

 

[LoosenUp]

Quote from NihabaAshi:

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

I do not know what is the consensus but Dr. Tharp in his book defines money management as that aspect of trading that determines how much to bet per equity level or account size. In other words, money management is position sizing and has nothing to do with trade management, which is about size of stops or targets, trailing stop, partial exits etc.

So, yes, we need to agree on the terms first.

 

[science_trader]

I would tend to define trade management as all methods designed to enhance performance and money management as all methods designed for risk management purposes.

 

[TSGannGalt]

No. MM is an optimal form of betting based on whatever you're looking at, in most terms based on general trading books, it's usually the equity curve / distribution.

As in any optimal form of any kind of model, it will fade. Finding the right MM is more difficult than developing systems, in itself.

 

[angelitazul]

The boss at my trading firm did an experiment a few years back on money management. He flipped a coin and entered a trade accordingly (heads for going long and tails for short) with a trailing stop and good money management. Guess what? This system made him a lot of money.

 

[H2O]

Quote from LoosenUp:

I do not know what is the consensus but Dr. Tharp in his book defines money management as that aspect of trading that determines how much to bet per equity level or account size. In other words, money management is position sizing and has nothing to do with trade management, which is about size of stops or targets, trailing stop, partial exits etc.

IMO this is the only correct description. Although I would like to take it one step further :

Money management is NOT position sizing in a way that it sets rules for the size of an individual position, but rather sets the part of your account you can use for a particular system that creates the best R/R (Risk of ruin vs. Results)

Each system you trade has rules that use position sizing to set the different trade sizes depending on the expectancy of your system.

Than comes the part of trade management, which is about size of stops or targets, trailing stop, partial exits etc.

 

[science_trader]

Quote from angelitazul:

The boss at my trading firm did an experiment a few years back on money management. He flipped a coin and entered a trade accordingly (heads for going long and tails for short) with a trailing stop and good money management. Guess what? This system made him a lot of money.

Why did he stop ?

 

[ElectricSavant]

Yes

Quote from Ricter:

Say you're operating in a 50/50 environment, are there money management methods that can keep you in the black?

 

[ktmexc20]

I haven't read this thread and I'm not an "edge trader". But, I believe that any decent strategy requires it to pass random entry testing.

IOW, if it can't hold up under random entry scrutiny, it's not a viable strategy.

Then, when scrutinized entry criteria is employed, with the now viable MM/exit aspects, you have yourself a robust sys.

 

[angelitazul]

Quote from science_trader:

Why did he stop ?

He found a better system which increased the odds of 50/50 in his favour and made him even more money. He's a multimillionaire trader who had nothing to do so our top Chicago boss hired him as our new boss cuz the old boss (London boss) is going to Hawaii to set up his own hedge fund!!