Money Management
- Thread starter SProbability
- Start date
Here is the convention and in non compounded terms.
Use 8 losses as the standard.
25% is the loss standard as you have been told. We will see how profits relate to this soon. That has not been stated in this thread.
Use replacing the losses as a requirement to continue investing.
That is a breakeven year.
You have a knowledge base from which you work to excell.
Use doubling your money each year as the trial run standard. The real one is less, as we know, for most people. But we are doing a proift requirement assessment to see how to design trading approaches as a major normal task.
Here is the maths.
Add to 1 the decimal persent of annual profits. 34% would be 1.34. Fro doubling it is 1. plus 1 equal to 2. Take the reciprocal. divide by 8. This is the % per draw down allowable when you double you money each year. You will find the value is over 6%. it is 6.25%. That is your trade protection value to assure the doubling your money case breakeven after 8 consecutive or cummulative failures.
To double in 12 months you divide 12 into 100% and get about 6%. (.25%)
You design a system and it doubles. You work further and you get better than 6.25% a month. By not letting drawdown exceed the 6% or so 8 consecutive times you have a good recovery situation.
So you are investing accordingly.
Here is reality for some people who do not double. They do the maths and they find that their stop is tighter. They learn that tneed to be sure to work on their approach to minimize false entries. They must line up thier ducks flawlessly. That is what I personally must do. If I have a bad looking entry, I do not wait till stop time. I look for other possibility and exit the poor thing I entered. This means no drawdown and cash on hand to succeed.
I sort a universe so carefully that I do not have flaws in opportunities. This proactive time spent. Helps the longterm monthly average.
Below you see in the PnL a 40,000 account, that is risk minimized by using 4 streams (25% each). I really have to keep the monthly profit above 6.25% and I have to get out of stocks that are headed into drawdown. this is the only way to compensate for not money management.
Money management demands that I divide the 40,000 into many small investments and sheppard each of those as best as is possible.
I have to work on the two things above (Quality stocks and wash exits) to get it to work out. There are four streams of money.
you can see three of them are close in their capital appreciation. In the month of September, each of the three 10,000 dollars streams goes to 13,000 dollars. that is above the 6.25% minimum I need. The orange stream of 10,000 is only 4% and it is struggling: you see the 8 consecutive trades that pooped out.
I bought three stocks today and they will work I feel.
So the PnL shows that the money management is stinko. And I, therefore, have to compensate with a good method. I do that in two big ways. Buy stocks at the right time (volume break out ,then price break out of top 100 stocks of 16,000) and I wash (I do not keep stocks that do not rise 20% in 6 to 8 days).
If a person is making annual profits that are poorer than 100%, then they see how they are doing. They calculate max DD for their skill level and follow it to survive until they learn how to invest and trade better. At 25% a month I have a little cushion. If I get my orange thread working then things will look up. I will not fool around though. I have to maintain my performance.
You can see SNIC is on the ball today. Buys in the works were DRIV, SCHN, ENBT and SCUR. I pop them in the correct stream.
Hey man,
I never thought of it that way!
8 losses is definitely not inconceivable for even the best systems, & 34% is indeed a very decent return for non-daytraders.
Good food for thought.
Keep it coming guys.
It is a good idea not to directly cut & paste copyrighted material. They may not come after you, but on the other hand, they may file a complaint against Baron's host servers. Why tempt fate or possibly create problems for the site? Doesn't matter where Linda may or may not have gotten her material from, that's not the issue.
Instead of direct copy may I suggest that one can just paraphrase the thought you want to pass along and give credit to the author. That seems to be an acceptable norm.
Instead of direct copy may I suggest that one can just paraphrase the thought you want to pass along and give credit to the author. That seems to be an acceptable norm.
That's true, but the point I was trying to make is that her
writings aren't original,(at least not what I read before it was deleted) and that does matter.
Also, there's something called a fair use law that allows
a person to copy an excerpt from a text if the sole purpose is for criticism or comment.
And third, the poster intended in no way to profit personally.
Maybe an attorney can clear it up, but it doesn't look to me like any wrong was done.
(Hell, she probably appreciates it. A little free advertising for her book.)
For Grob:
My average investment of capital during the month is difficult to say:
The mechanic systems are daytrading systems, but they do not always trade every day. If one trade comes up a day then the investment of capital is between 50% and 100% of capital. If two trades come up I have to use margin to take the two trade's. Then my capital is invested for min 150% to 190%. If a third trade comes up, I can still take it because this will be a hedge trade against the other two and it depends on timing if/or all trades will make money. That's for stocks... Futures margins are no problem at all...
I hope this is clear enough...
My average investment of capital during the month is difficult to say:
The mechanic systems are daytrading systems, but they do not always trade every day. If one trade comes up a day then the investment of capital is between 50% and 100% of capital. If two trades come up I have to use margin to take the two trade's. Then my capital is invested for min 150% to 190%. If a third trade comes up, I can still take it because this will be a hedge trade against the other two and it depends on timing if/or all trades will make money. That's for stocks... Futures margins are no problem at all...
I hope this is clear enough...