Money Management

The February 2006 issue of SFO Magazine published Manage Your Money, Build a Pyramid…Trade, That Is by Jaime Johnson, an ok article for beginner traders.

Its conclusion:
  • "Preventing Loss Is Key
    A single trading decision can end up with one of three results. You can be very wrong, you can be wrong, or you can be correct. Using a stop-loss and money management prevents devastating loss if you are very wrong. Trading multiple units can give you profit when you are wrong and help you buy that condo in Hawaii when you are correct. Well that’s the idea, at least"
 
I have resolved...
  • That the more money you have, the bigger the trade
  • The less money you have the smaller the trade.

The wins and losses and their strings.....kelly, frm, optimal, fixed, fractional....its all too "canned"....

The only valid use I could find was to rank your set ups...but I do not use this currently.

I am back to basics and size my "tier one" trades very small and my average down entries increase slightly based on number of days in the trade....

I trade from a spreadsheet with Retail Spot Forex instruments that have a positive interest carry. The dealer/marketmaker I use pays me the interest earned daily and direct to my balance or at the completion of each trade second by second.

1/3rd of my profits come from interest earned while 2/3rds of my profits come from trading. So my balance is increasing thus my trade size....everyday....(I have only had one losing day in the last 82 days)

By the end of the year my initial start capital (fixed amount) shall see the yield of 36% or more....everything stays in proportion to the balance...so I can trade any amount of money, if I widen the columns in my spreadsheet :) (I have 21" monitors just now)

Michael B.
 
I have a limited risk per position (i.e. 2%) and a limited risk per account (i.e. 6%). If my cummulated risk would exceed 6% I can't open more positions. If this happens repeatedly, I'll start changing my position sizing algorithm to reduce my per position risk limit to 1.5%, or 1%. If this was a singular situation, I'll not change anything.

One more word: you open a position with 2% risk, so you have available 4% for more positions. Then the position goes your way, and your new stop loss determines a risk of only 1%. You have now available 5% for new postions.
wrote on 03-06-06 12:36 PM:
Hey cnms2,

I was wondering if you have any good insight on how to handle overlapping trades when using fixed % money management.

Say for example you are risking 1% per trade and you have one trade open. Then another signal fires. Put on the second trade without closing the first and you are now risking 2%. Don't take it and you are not following your system which will change the statistical characteristics of your system.
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Risk? It always, as a word, paves the way for a chat and and a cigarette! And maybe a drink....who knows?

1%, 2% it doesn't matter. What type of trader are you? Do you search the earth for single stock deals or are you an index trader? Do you specialise in a certain subject, one of the above or maybe another.

1-2%? 10% on 5-10 positions? It all depends on what you are looking at and your ability within the instrument/market you want to engage in.

If you realise everything, except, realising how good you are at everything.......risk means nothing to you!
 
Thank you.

<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1023036>
Quote from Multioption:

Thanks so much for your enlightening contributions on this board. You are a blessing!
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