Money Management

Quote from ChartingMarkets:

No problem Seth ARB I will answer in public. Without a doubt the years of 1997-1999 were much more profitable than years 2000,01,02. That goes without saying we were going parabolic to the upside during the mania. With an environment like that anybody's returns per year would be supercharged and mine were as well. During the start of what we know now to have been a brutal bear market starting in March 2000 my returns per year have been very good. I have probably grossed between 2000-2003 (midway) about 460K gross. I purchased a 3 bedroom apt in Manhattan over a year ago as well and gone on many trips etc etc. basically my account has grown slightly but I am mainly eating my seed corn due to high living expenses. However this is my lifestyle choice (as well as my wifes). I trade short as easily as I trade to the long side only but only when the overall market conditions warrant it. My trading philosophy has always been "SEE THE BALL HIT THE BALL". Never over think trading..its hard enough as it is. The base of my pyramid so to speak that solidifies all my trading decisions is that I trade in the direction of the overall trend of the Dow, Spx and Comp. I trade where the money is flowing day to day or week to week. Why make it any harder? I trade mainly equities with a little dabbling in the Eminis recently and only because I realize it is silly to hold 5000 qqq and tie up money when you can just hold 5 naz emini contracts instead for a fraction of the capital. Now through the years I have seen many different types of markets and many things come and go but the one thing that remains the same is that we are just trading against people. I think the best traders and trades are made when you are in tune with the stock all that means is being able to read the other players at the table (aka stock). It is a game of Probabilities and losses are part of the business. I get no more emotional over a loss than I do over a win. I know when I'm a hot streak that eventually I will turn cold and give back some. I just know that through years of trading that I have a rising equity curve and with my experience and Money Mgmt skills I know how to never be taking out of the game unless I decide to quit by my own free will.
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WOW! That was the most sincere and down right poetic thing I've ever read on ET. Very well stated DUDE. Thank You.
 
I forgot to mention that in order to share ideas of how I trade and methods I utilize...I will do so by simply startng my own trading journal. This trading journal will not bore you with the day to day details of my gains or losses, instead it will be a journal of trading styles and trade setups that illustrate how I find and what I see as the best ways to trade in this market. It will cover equities and indices for those interested in futures trading. I will utilize lots of graphs in these presentations..I will do this after the market for the next day, time permitting during the week. If you have any questions regarding any posts that I make in this thread please ask them in the thread so that all can see the answers and learn from them. If they are very private and you dont want a whole world to see them then feel free to PM me but as I said I am doing this to help those out and convey my experiences of 10 years. I will open the thread in a few days I just need to get my ideas and my presentation together so its useful for all.
 
Quote from ChartingMarkets:

I have probably grossed between 2000-2003 (midway) about 460K gross. I purchased a 3 bedroom apt in Manhattan over a year ago as well and gone on many trips etc etc.I just know that through years of trading that I have a rising equity curve and with my experience and Money Mgmt skills I know how to never be taking out of the game unless I decide to quit by my own free will.
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C'mon, throw us a little crumb. What's your favorite setup?
Don't tell us you just go long or short on feel...:p


EDIT: I posted just as you did. Looking forward to your journal!
 
Ok one crumb....I utilize 3 techniques.
1. Technical Analysis....I REPEAT i am not a systems trader.
2. Market and Crowd psychology some might called this Momentum Analysis.
3. Combo of Technical combined with the best Fundamental stocks.
4. Put this all together and some might call it intuition but its really experience working at a very fast pace. No different than a black belt in any style of Martial Arts who cant even tell you why he can block 5 punches thrown at him via mental and physical reflex when 10 years earlier he was fumbling to to even block one slow punch thrown his way.

Trust me when I say that there are so much to explain that I could write a book about it...but let it be said that over time I will deliver it via the thread.
 
Quote from SProbability:

Many writers advise that a disciplined trader should risk no more than 2% of their trading capital on any one trade. On the other hand I have read (here on ET) some people opine that that rule is only really applicable to professional traders (read those that trade other people's money).

What do you think? Is 2% too restrictive for a retail trader?

Personally, I think that at 5% you have AT LEAST twenty bites at the cherry b/4 you are wiped out. In reality it will be much more than 20 b/cos if you start with $10K & lose $500 on your first trade, on your next trade you should risk $475 (not $500) & so forth.
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Create a spread sheet that has parameters similar to your system and do a Monte Carlo analyses and I think you will be shocked at quickly you go broke at 5% risk.

If you want send me your parameters (avg trade PL, avg trade std dev, and %wins) and I'll do it for you.

I risk about 0.5% on any given trade.

DS
 
As to getting rich starting with $7500, yes, it can be (and has been) done. But not if you have to live off of your trading. I started not much bigger, traded and worked another job (or two) for about 5 years while I slowly built my equity up to the point where it was a real income to trade. Prior to that, I blew out about a half-dozen small accounts over a 15 year period (always via overtrading and poor risk management) until I finally learned the one secret that every sucessful trader has learned, whether quickly or slowly and painfully like I did. The "secret" is that it is really risk management, not great trading that is the key. As has been said here by others, if you can stay in the game long enough, you will learn and eventually prosper. It would take you 5 years or more to become a good plumber or mechanic, should trading be quicker and easier? Trading professionally for a living is a job like any other, and it takes time to learn like any other complex profession. If you try and go too fast, or think that somehow finding a magic "edge" is what will make you rich, you will crash and burn. Keep from losing, and the wins will take care of themselves. That is why the notion of trading "too" small is SO important, especially for a beginner. And patience. Lots and lots of patience.
Good Trading,
Jessie
 
yes..a monte carlo analysis is illumaniating but it doesn't represent reality given that trades have serial correlation.

a monte carlo analysis gives a random distribution but the markets are certainly not random, so mc only be used as a guide.

If the markets follow a fat-tailed, thin middle distribution( what sort of animal is that???), then I think the drawdown periods should be longer/deeper(given comission and slippage) than a random walk would suggest simply because there is nothing happening most of the time. How would u go along and quantify that is totally beyond me, but it say a lot about being conservative in your estimates..0.5% is good start..I take 0.25%..
but my positions are highly correlated, so I MIGHT be still taking too much risk..
 
Quote from dougcs:



Create a spread sheet that has parameters similar to your system and do a Monte Carlo analyses and I think you will be shocked at quickly you go broke at 5% risk.

If you want send me your parameters (avg trade PL, avg trade std dev, and %wins) and I'll do it for you.

I risk about 0.5% on any given trade.

DS
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what i would like to know - is if anyone here has (or knows somebody else who has) gone broke risking 5%.

my instinct tells me that with a positive expectancy system, 5% is a reasonable amount to risk. but i would like to know if i am being naive.

thanks guys & gals. u r a g8 bunch!!!
 
Any more than about 3.2% risk per trade and the you're heading for a wipe out.

The 2% rule isn't just a figure pulled out of thin air. It's a time proven figure to give you maximum chance of survival. Any more and you're really showing disrigard for the laws of probability

Runningbear
 
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