I don't know how to do that kind of math. I know my money management system has not already been built. I build it every day, sometimes every hour. It is constantly being tested, and all I ask of it is, "Does it cut my losses short and let my profits run?"
Dark underworld of forex trading: "A-books" and "B-books"
- Thread starter OddTrader
- Start date
There is a semantics issue here. Money management has nothing to do with cutting losses and letting profits run. Those are done by you trading strategy, i.e., the thing that produces your edge.
Money management is position sizing: "How much do I put on my next trade?" This is ultimately governed by your expectation, which in turn is determined by your timing strategy (knowing when to enter and when to exit a trade). If your expectation is positive (as determined by recent trading history), then you have an edge and you can proceed to determine your position size. If your expectation is zero or negative, you should stop trading and fix the problem.
FINALLY! I will agree with you. It is just a matter of semantics. What I call guessing you call expectation. What I call "money management" you call "position sizing."
But, I would never trust a money management system that tells me when to take a profit.
My strategy is very open ended. I always know how much I can lose, but I never know how much I can make.
How do I know when to take a profit? Beats the heck out of me. That's why I say 10% is reading the market. But I am a human being with limited intuition, and I only have to rely on that 10% guessing intuition when I am putting it on or sitting on a rare huge profit. All the rest is handled by a mechanical money management system that I designed when I was flat and of sound mind and body.
and when I am not flat, you can kiss that sound mind and body goodbye. That's why you need a sound money management program that you trust and can stick with through thick and thin. Because in the depths of a drawdown, you are not going to be thinking clear like you were when you were flat.
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*sigh*
Let's try this from the top.
There are three questions every trader must answer before trading:
"When do I enter my next trade?"
"How much money do I place on my next trade?"
"When do I exit my next trade?"
The first and last questions are about timing. This is what people usually mean when they talk about trading strategy: knowing when to enter and when to exit trades. This is what determines whether you cut losses short or let profits run. Timing strategy is almost never based on absolute time (time of day or day of week). Timing strategy is usually based on conditional time: enter when condition X appears, exit when condition Y appears. X and Y may be simple or very complex, it's up to the trader.
The middle question is Money Management: how much.
When has nothing to do with how much. How much has nothing to do with when.
You have to answer the first and last questions first. This is your timing strategy. This is your edge ... hopefully. If not, keep developing your timing strategy until you have an edge (positive expectation).
Once you have an edge, then you can work on money management (position sizing). As I said, the formulas have already been worked out, or you can stick to the 2% rule.
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Courage
Patience
Flexibility
these are the three keys to success in any endeavor (man, I got to get a speel checker)
Courage? No problem, I trade so small you don't need any of it.
Patience? That's my cup of tea. My favorite thing to do is sit around and wait and do nothing.
Flexibility? Well now, that is a problem.
Patience
Flexibility
these are the three keys to success in any endeavor (man, I got to get a speel checker)
Courage? No problem, I trade so small you don't need any of it.
Patience? That's my cup of tea. My favorite thing to do is sit around and wait and do nothing.
Flexibility? Well now, that is a problem.
my timing has never been good enough to know when to enter or when to exit, I'm not that good
I have a very good money management system that gives me consistent advice (and it's not always good advice.)
otherwise, time is money. Once you're pretty sure you can make x amount of dollars, then the next question is, "How long will it take?"
in the end, every day (or every tick) is just a coin flip. But you are no longer betting on heads or tails, you are betting on how the gamblers will bet.
A lot of us became traders because we don't like people, but if you want to make money you need to bet on what they will probably do.
Like most traders, I love the market, but it is not a very good vehicle to bet on, about the same as spin on the wheel or a coin toss. But betting on what people will do based on what the market does could be profitable.
A lot of us became traders because we don't like people, but if you want to make money you need to bet on what they will probably do.
Like most traders, I love the market, but it is not a very good vehicle to bet on, about the same as spin on the wheel or a coin toss. But betting on what people will do based on what the market does could be profitable.