Money Management
- Thread starter SProbability
- Start date
hoodo, most mm talk is based on margin trading. And slim futures margin at that. I see no point in holding back on Rydex, (if they are margined at all it is only 50%,) unless you are dollar cost averaging.
Not sure why you are using Rydex, unless it is a tax sheltered account. Pretty sure you'd come put way ahead on taxes and costs using NQ and putting the difference in bonds.
Apart from the fact that 2% (or less) limits your 'risk of ruin' to virtually nil, I don't know of any empirical formula for arriving at that number.
For instance hypostomus' 13% figure is based on back-testing his system...
For instance hypostomus' 13% figure is based on back-testing his system...
Thanks for the reply.
I got the rydex account because I thought that I could time the market sectors and I also wanted a simple vehicle to short the treasury bond. About 80% of my account is in fixed income now and has been since 99.
Now all that I do is daytrade equities and swing trade the rydex funds. My money management in the funds has been abismal.
I don't trade futures because I don't know enough about them.
However, I know a super successful futures trader that also has a rydex account, so I don't see why I shouldn't have one as well.
regards
I got the rydex account because I thought that I could time the market sectors and I also wanted a simple vehicle to short the treasury bond. About 80% of my account is in fixed income now and has been since 99.
Now all that I do is daytrade equities and swing trade the rydex funds. My money management in the funds has been abismal.
I don't trade futures because I don't know enough about them.
However, I know a super successful futures trader that also has a rydex account, so I don't see why I shouldn't have one as well.
regards
Actually, lots of big houses (and many small traders too) arrived at the 1-2% figure empirically, but the work is generally proprietary, as it relies on proprietary models of the kurtosis in market price distributions. That back testing and empirical work is why the figures are so generally used among the big quant & arb houses. And you are right, it reduces risk of ruin to nearly nothing, But when you run the numbers, it also allows a surprisingly high level of profit to be retained with low volatility.
Good Trading,
Jessie
Good Trading,
Jessie
Lovelitera
Guest
Actually the two percent loss per trade rule is used by futures managers when adding positions in uncorrelated markets.
Adding a string of positions in the same market with max 2% risk could be dangerous.
Adding a string of positions in the same market with max 2% risk could be dangerous.
Good point. Most of the folks I know talk about committing 1-2% to any one "idea", taking into account intermarket correlations, which is even more restrictive, e.g. for risk management purposes, going long corn and long wheat would really only be one "idea", not two, as the two are at least somewhat correlated, especially in the case of extreme moves. Similarly, long 30 year and long 10 years would be one "idea", as even though the spread may move around a bit, if there is a huge, ruinous move, they will both be going in the same direction.
Good Trading,
Jessie
Good Trading,
Jessie
Large institutions who trade tens of millions of dollars use that 1-2% rule. But the average Futures daytrading account according to the NFA & the CFTC is about $7,500.00. 1-2% of that is about $75.00 - $150.00..........However, the average true range for the past 14 days is about 4-5 times that amount???????
Hmmmmmmmm?????? Is this academia or macadamia???
Hmmmmmmmm?????? Is this academia or macadamia???
It's true that big institutions use it, but most of the floor traders I know (and off floor traders) who trade for a living and who keep maybe 50-100K in their trading accounts use it as well. I suppose that with a $7500 account that might be difficult (depending on trading methodology and markets traded) but I could also argue that somebody with a $7500 trading account and risking 10+% of it per trade will probably become one of the 90%+ of traders who blow out, for exactly that reason. I have been trading for a while now, and in my experience, overleveraging and undercapitalization are two of the primary reasons why traders fail. And the $7500 accounts are usually the province of inexperienced traders who have not become sucessful yet, so there is even greater risk because of their inexperience. Can it be done? Sure. But the numbers say that most people who try it that way fail. But if you really want to trade, and just have $7500, you can trade a variety of minis and keep your risk below 2%. Good Trading,
Jessie
Jessie