easy money management advice?

News. Remember how I was at 4000 when I started this thread? Now I am at 6,600. It's coming along as planned.

In the meanwhile I made progress on my excel sheet with the money management formulas. Basically now to compute the number of contracts for each system I don't use the available capital anymore, but the "cashbalance" (id name on the IB "account" sheet), in other words the total capital, also including the part used as margin.

I am too exhausted from work (my brain deteriorates from colleagues talking loudly around me - I am becoming more stupid by being around rude and stupid people) to be able to explain or understand exactly what new concept I introduced, nor to explain what problems I had that made me change the formula. All I can tell you is what my formula does now (and clarify my own ideas in the process).

Now I have my favorite system (the ZN) which will trade about two times as many contracts the other systems are trading. But this was true before as well. The news is that now - believe it or not, it took me this long - the favorite system won't take up all the capital, ever (even if no other systems are trading), and viceversa. All futures will have enough capital to trade at once, and no future will ever invest the whole capital (this is to be more conservative in money management since so far I went broke twice in the past year, trying to overdo it).

Now, this does not mean that I won't be investing all of my capital at once, because there could be so many systems being used that the capital gets all used. But it does mean that I won't ever push it as far as using the whole capital as margin for just ONE system. This is part of the past. If I did so, I know the past, and the past says that in a bad sequence of trades I could bring my capital down to zero in less than a month.

Roughly, the ratio of the whole capital (cashbalance, including even the part invested), will be as follows:

Premise: Allocate 100% of capital on overnight systems, and 100% of capital on intraday systems.

Now, for the OVERNIGHT part: Allocate 50% of capital as margin on my favorite system (the ZN) and the other 50% on the other systems.

Now, for the INTRADAY part: Allocate 50% on any single system trading at that moment. I know it doesn't sound reasonable because ANY system is not equal to the best system... a lot of other problems still to solve, all due to the fact that I am bad at formulas and that I am too tired from work to become good at them. I wish I had done it at school, but my dad pushed me... so I started resenting school... I failed everything... and so on...

If I was really good with formulas, instead of writing pages and pages of posts, I would have just written one simple formula, and wasted no time. I know I have limits. One day, once I quit my job, I'll get down and learn some math. I guess at the moment I am working like a musician who can't read sheetmusic, by plays by ear, with a lot of imperfections and limits.
 
Money management for dummies - risk 0.5% per trade, no more. Once you are more experienced and have at least 1 profitable year with minimal drawdowns (less than 10% max peak to valley equity drawdown), then as long as market conditions are normal, you can up that to 1% per trade.

If a 1 lot contract or 100 shares with a reasonable stop would amount to more than 0.5% risk for you, then you don't have enough capital to trade with.

I would not go above 1% risk per trade until you have experienced at least one market crash, major bear market, and bubble - this can take 5 years sometimes more. Also, keep your risk back at 0.5% whenever markets are volatile, such as now.

If you follow this simple 0.5% risk rule, you will i) never go broke ii) never get taken out by a long losing streak iii) never stress about your positions or losses iv) find it easy to follow your rules. You will almost certainly break the rule out of greed, a mistake, impatience etc. But if you aim for 0.5% risk and break it, going up to 2-3%, that is much better than if you start with 2-3% risk, and break it by going up to 10-20%.
 
Quote from travis:

Today, I had such a huge regret that I had to step away for a couple of hours not to risk getting mad and trying a revenge trade (that would have made me lose). I made a small profit of 300 euros instead of 4000 because I was a few seconds late in getting rid of the take profit (see attachment for details).
More...

This tells me you should stop trading. There was a Fed announcement that was widely advertised in advance in the financial press for that exact time. Why on earth would you have a position over a Fed announcement, unless you are a news trader and felt you had some edge (clearly not the case here). You could easily have had a short position into the announcement and you would have lost your entire account in 1 minute.
 
Yeah, ok, but 0.5% of my initial capital is just 20 dollars. I could never get anywhere if I didn't take bigger risks. The minimum margin for one of the futures I am trading is about 2000 dollars.
 
Well, no, I never go against the trend, so there was no way I could have been short. You are right - it's bad to ignore the news, but I totally ignore them. There is no way I could follow the many news that are given out every day. That is why I developed an automated system. I can't automate the news into it so I won't follow the news. I will take the risk.

If my system - rare event - had been against the move a few days ago, I would have lost exactly what I didn't make, about 2000 euros per contract, but since the system's money management only allows me one GBL contract per 10,000 dollars, I would have lost 2500 dollars on 10,000 in the worst possible scenario. That's only 25% of my account, not the entire account.

Also, my theory is that the news only holds the market for a few hours and then releases it in the direction it would have gone anyway, so basically most news would make the market go in my direction, so I am ok with taking this risk.
 
Quote from travis:

(I have always been a bottom picker, so I never go with the trend, which had been downward-sloping until then).

More...

Quote from travis:

Well, no, I never go against the trend, so there was no way I could have been short.
More...

Not that I care, but don't these contradict each other?
 
Totally. I made a mistake. The systems do whatever they're supposed to do (and so they also go with the trend), but when I do discretionary trading, I am quite incapable of going with the trend and always try to pick tops and bottoms. That is why I lose so often, but in that case I wouldn't have been short because the GBL had been falling for five full days in a row. There was no way I would have ever gone short. If anything I might have made the mistake of going long two days early.

Thank you for mentioning that mistake and thank you for taking the time to read.

----------

Anyway, news on my money management for the few readers who are interested. I have decided that instead of making up vague formulas that have no clear concepts behind them, I'll try to produce a clear formula finally.

Listen to this. This will be my new excel table for figuring out how many contracts to trade per system.

28 rows, one per system.

Column A: name of system
Column B: margin required by broker per contract (traded by system)
Column C: max drawdown of system per contract
Column D: capital required per contract = B + C

In other words, D will guarantee that even after the worst drawdown, I will still be able to trade that same initial contract.

Column E: Total Net Profit
Column F: Return on account = E / D

I'll attach the excel sheet later.

---------

I guess this was everything tradestation gave me from the start, but I had to redo it all by myself, or I couldn't get it. Anyway, what do I do once I come up with Return on Account? Since I already have the number of contracts to trade, why and how should I use the performance of a system in my money management?

Ok, I got it maybe. Column D tells me only how many contracts I can trade at the most with a given capital. Now, there might be a problem since all systems trade on the same capital. That wouldn't be a problem if they all traded at different times, but the problem is that they often trade at the same time.

Now if the drawdown was huge, it would require so much capital per contract that I could still trade them all at once without them stopping one another from trading (unless of course they all incur in the max dd at once, in which case I am screwed). But if the drawdown is small, then all they need is the margin, and then... how do we do it?

I tell you what. I am gonna double up the drawdown, so I make sure that no such drawdown will ever happen. That also allows me to trade all contracts at once, in case the signals are near one another.

So now I have a money management table that covers twice the drawdown + the margin required by the broker. Things could only go wrong if they all incurred the drawdown at once. But then I also haven't found out a way to decide which system to invest the most on. I'll do this. If I decide to be more conservative in my trading, I will decrease the ones with the lower "return on account".
 
Ok, I finished it. It still doesn't do everything I want it to do, but for now it's a great step ahead.

What's missing is that when the trade for the ZN is taken a few minutes before the trade for the JPY, despite both systems being as good, that ZN trade will use all the capital available, and I can't figure out a way to allow some capital to be shared with the other system, other than by only using half capital all the time, which is not good because sometimes the trade for the JPY doesn't go through and in that case it doesn't make sense to not bet everything allowed by money management on the ZN.

Still have to learn. As I said before, my mind would be quicker if I didn't have to take the emotional beatings from colleagues at work, who stress me out just by being there and talking loudly. I can't take it anymore. Go, system, and take me out of this exhausting situation!
 

Attachments

Ok, in case anyone cares, here's the latest development in my trading. After finishing all the formulas on risk and money management (I don't know the difference), I tried some more discretionary, and overall lost money from it.

Then I realized that the IB Trader Workstation didn't actually need the page with quotes to let excel get data from it. I removed (after exporting it), the page with all the symbols and now I am all in the dark, the system is doing everything by itself, and all I have to do is turn it on and off at night.

I think this method will work and keep me away from my habit of losing money with discretionary trades, because my moments of madness only last a few seconds and it would take minutes before I'll be able to put all the symbols back and trade them. Besides, if I don't start looking at the charts, I don't even come up with ideas of trades to make.

Interestingly enough, I was able to do this mainly because this work I did on money management has perfected the system enough to make me feel confident that it will do fine on its own, without my help. I used to try and "help" it make money, but now I'm having to admit - with self-disappointment - that this thing I created does better without me.

I thought that being the creator I could always come up with better ideas than the system, but all the things to weigh when making a trade cannot be weighed in a balanced way, when the creator of the system is craving for money and action. And the system is immune from this - it has infinite patience, alertness, and no craving for money and action.
 
Ok, in case anyone cares, I have yet another money management question, but I have no formulas to provide nor am I asking for formulas, because I not very good at understanding them. As in the title of this thread, I am asking for very simple money management advice.

The problem this time is the following. As I explain it, I will also clarify things to myself (so I'm fine even if no one answers, also because I'll also keep a record of my doubts).

I have now been fully automated for now 52 days.

Started with a capital of about 4000 dollars. Now I have about 5000.

Why do I seem to be getting nowhere, since I was expecting 100% returns every month?

The reasons are two.

Partly I let some of the worse systems run (I didn't know it until it happened) and I lost about 1000 dollars because of them.

But also, even more important, despite the fact that I could run 30 systems, I only ran a couple of the good ones (besides the bad ones I mentioned), because the capital was not enough to run anything more.



Now, having premised that I totally disabled the systems I was talking about that didn't perform well, I have three options.

1) Wait patiently till my small capital of 5000 will rise, by only trading those two systems, to a capital of 9000, which will then allow me to run a much larger number of systems and from there everything will take off quickly.

I discarded this possibility (number 1), because it could even take me 4 months to get to 9000 from 5000. I can't afford to waste 4 months just because of 4000 dollars that I am missing.


2) Borrow 10,000 from my bank, and then, with a capital of 15000, my capital will go up really really fast, making the % I am expecting, paying back the loan within a two months, but obviously there will also be a very small risk of losing everything and being more than broke for the next two years (since I took a loan).


3) Having made sure which systems I can trust the most (with a lot of live experience), I could momentarily ignore my own money management rules, and buy as many contracts as possible, which twice as much as I've been buying for the past two months.

My estimate is that number 3 is the best solution, because I am not going through the trouble and danger of borrowing money. The only problem is that I am increasing my risk, because in case of a simultaneous (worst) drawdown on both systems (but they are my best ones) I could quickly lose everything. But if that doesn't happen I will most likely get to 9000 in a little bit more than a month.

Now, ultimately, my question could be summarized as follows - is it better to play it safe with borrowed money or to risk a little more (if you get a max drawdown on both systems at the same time you lose everything) but with your own money?

I am thinking the second one is better. It would make me sleep better for sure (obviously, since I think it's better).

Of course, if I lived forever, number 1 would be the best, which means to play it very safe from the start no matter how long it takes you.
 
You must log in or register to reply here.
Back
Top