Money Management
- Thread starter cnms2
- Start date
Ah, yes, you're right, you said to
1) Not lose any money
2) Don't forget rule #1
Wow people. Please someone stand up and give Nononsense a standing ovation + medal of honor for his 'help' on this thread.
Now if you have something real to contribute to the discussion, please do it. Here's tip in case you don't have the mental capacity to understand what a contribution is, consider what Oddtrader just posted, or what Chaffcombe posted earlier for examples of how to actually be of help to readers of this thread.
If you can't post something good, take a hike because you are a major annoyance.
I happened to be quoting Warren Buffet. You missed the "(freely after wb)". Careful, detail can be important in trading!
Thanks anyhow for the ovation.
nononsense
Probably right, as not many professors/ experts/ authors in maths/ finance known to us are trading for a (good) living, and also write papers to tell us their details/ secrets. ?
Perhaps there are so many practical aspects/ details of risks (such as execution, directional, non-diversifable, leverage, etc.) the practitioners in trading don't want us to learn and understand them all easily from theories, but through practices.
OddTrader,
When speculating in markets, you are in truth competing with the more nimbler ones, i.e. against the "smartest" brains money can buy.
Whippersnappers acting like mathematical clowns are no good at all neither in markets neither in institutes of learning. To be a good speculator or for that matter, to be a good mathematician, you have to start out with a VERY healthy dose of skepticism. Difficult to get this from forums, sucker's books and the like.
Your sensible observation about "practitioners in trading don't want us to learn and understand ..." has come up a number of times on these boards. This is quite fundamental to grasp if you want to get anywhere. Loeb, a legendary trader tycoon and prolific writer put it for all generations to come after him: "What's known to everybody ain't worth nothing on Wall Street".
Pretentious MM quacks and Trend clowns come cheap at ET's and other places. Winners not.
Be good,
nononsense
I hope I understood you correctly, and I fully agree: you can learn from books, and you can learn by trying or mimicking others, but the fastest and less painful way is to combine these two approaches. The theory allows you to better define your framework and to reduce some learning pains, but practice will improve and polish your skills.
You'll probably never fully learn just from books, but to learn only through practice is the hard and stupid way, and you'll probably never fully learn either (IMHO).
You'll probably never fully learn just from books, but to learn only through practice is the hard and stupid way, and you'll probably never fully learn either (IMHO).
Oddtrader,
There is no single correct answer to your question about how much leverage someone should use, beginner or not. Also using leverage to determine trade size is, I think, mistaken thinking. However no matter how you calculate trade size, the resulting figure obviously calculates back to a 'leverage' value, so I'll get back to your question!
If you have a profitable system you will find that due to asymmetric leverage issues increasing leverage increases end profitability to a certain point, and then profitability falls away rapidly. Personally, I find 'going over the falls' destabilizing, so I try not to go there. I therefore lean to the conservative, and in practice probably trade at around 12:1 on average. This may not sound high enough to some, but the key to high profitability (IMO) is consistency, limited drawdowns, darn good money management and daily compounding, not outrageously risky positions that could do anything on the day.
For those not yet convinced of the power of daily compounding (or those who truly want to make extra-ordinary returns), download my Compound Calculator and have a play with it. My long-term goal is to do 1% a day, which translates into silly numbers very quickly. This calendar year (2005), I'm presently doing a little over 0.8% per day, which still converts into some pretty amazing figures â I just hope I can keep it up! But heck, you get what you focus on, don't you!
Anyway, it's here if anyone wants it: http://users.bigpond.com/morleym/Compounding.htm
Cheers
~chaffcombe
There is no single correct answer to your question about how much leverage someone should use, beginner or not. Also using leverage to determine trade size is, I think, mistaken thinking. However no matter how you calculate trade size, the resulting figure obviously calculates back to a 'leverage' value, so I'll get back to your question!
If you have a profitable system you will find that due to asymmetric leverage issues increasing leverage increases end profitability to a certain point, and then profitability falls away rapidly. Personally, I find 'going over the falls' destabilizing, so I try not to go there. I therefore lean to the conservative, and in practice probably trade at around 12:1 on average. This may not sound high enough to some, but the key to high profitability (IMO) is consistency, limited drawdowns, darn good money management and daily compounding, not outrageously risky positions that could do anything on the day.
For those not yet convinced of the power of daily compounding (or those who truly want to make extra-ordinary returns), download my Compound Calculator and have a play with it. My long-term goal is to do 1% a day, which translates into silly numbers very quickly. This calendar year (2005), I'm presently doing a little over 0.8% per day, which still converts into some pretty amazing figures â I just hope I can keep it up! But heck, you get what you focus on, don't you!
Anyway, it's here if anyone wants it: http://users.bigpond.com/morleym/Compounding.htm
Cheers
~chaffcombe
Yeah, that's cute:
"The theory allows you to better define your framework and to reduce some learning pains ..."
If you want to tackle a problem in physics or engineering, and, if you're not too dumb, you might indeed find something like your "The theory".
If you want to make money by speculating in the markets, what do you call "The theory". The MM clown stuff peddled in the present thread? Of course, risk of ruin theory is very well known from probability theory since tens of years. To make a long story short, studying these matters should have made it clear that the underlying hypothesis are far from verifiable in markets: "garbage in, garbage out". I wrote a lot about this in the past. You could perhaps get some feeling for the game out of it. My previous observation on staying poor or becoming poor is as valid in markets as anything a math clown will produce. If you don't buy this, tell us something about "The theory".
