Money Mangement
- Thread starter BKcurrency
- Start date
The point is guys, that with good money management skills, you can profit from a system that is profitable 40% of the time.
The way I see it htere are four possible scenarios.
1) Bad system bad money management - You blow up in spectacular fashion
2) Good system bad maney managment - You tread water until a large loss takes you to an unrecoverable drawdown
3) Bad system good money management - You get a slow bleeding to death of you account.
4) Good system good money managment - You make money, how much depends on how good your system and money management are.
Note: When I say system, it can be either discretionay or mechanical.
1) Bad system bad money management - You blow up in spectacular fashion
2) Good system bad maney managment - You tread water until a large loss takes you to an unrecoverable drawdown
3) Bad system good money management - You get a slow bleeding to death of you account.
4) Good system good money managment - You make money, how much depends on how good your system and money management are.
Note: When I say system, it can be either discretionay or mechanical.
I agree with your general guidelines and they are all common sense. However
The question is how to describe a good system?
What is good and what is bad?
Then you can really make sense out of your guidelines.
The question is how to describe a good system?
What is good and what is bad?
Then you can really make sense out of your guidelines.
.....But surely Money Management should be a PART OF your system? Not just an after-thought, but an integral part of the whole system....
Also, re the compairson to a casino... There is a huge difference between gambling and trading. In trading you have control over the size of your losses (& wins), in gambling there is no control available once the dice is thrown, wheel is spun, card is dealt etc..
Also, re the compairson to a casino... There is a huge difference between gambling and trading. In trading you have control over the size of your losses (& wins), in gambling there is no control available once the dice is thrown, wheel is spun, card is dealt etc..
You do have control over your loss, your stake is your loss.
"You do have control over your loss, your stake is your loss."
I beg to differ. Once the dice has rolled (card is dealt, etc) you no longer have any control. The amount you will either win or lose is totally out of your control. You cannot make a sudden decision to retract your bet and get out at breakeven. It is true that your risk is your stake, but you cannot change your stake.
When trading, you do have the opportunity to affect the outcome by moving stops, changing position size etc.
Nevermind. It is good that we have different views on this. The markets wouldn't work if we all thought the same way!
I beg to differ. Once the dice has rolled (card is dealt, etc) you no longer have any control. The amount you will either win or lose is totally out of your control. You cannot make a sudden decision to retract your bet and get out at breakeven. It is true that your risk is your stake, but you cannot change your stake.
When trading, you do have the opportunity to affect the outcome by moving stops, changing position size etc.
Nevermind. It is good that we have different views on this. The markets wouldn't work if we all thought the same way!
Oh yeah? Proprietary? More like some regurgetated, modifed stuff from someone else.
quote from another website:
Money Management:
It's something that most people spend very little time on. The most important aspect of trading is not sexy, exciting, or easy to describe, so who would want to spend time on it?
Who cares if I have 8 losers in a row for $500.00 each? It might only take a few trades to make back my $4,000 and more.....
I would suggest a 1% parameter per trade. If you have a winning method, the only way you can lose is by running out of money. Why take the chance? Never risk more than 20% of your account on your total current trades (cumulative risk, remember, all of the trades you are in, can and at some time (!), will be losers)
Trade long term to cut down on the costs of slippage and commission. Roughly 20% of an average account is spent on those costs per year.
If you want to be more advanced, I would devise a sliding scale of initial risk that was quite small when the original starting capital is at risk and increases if one has profits over a self-chosen Mendosa line of acceptable returns. (ie At the beginning of the year or when down for the year while original capital is at risk, the risk would be .5%. Profits between 1-10% would be risked at a 1% rate. Between 10-20% 2% etc. The numbers used are
for example only.)
In a long term trading situation where the market often gets away from the stop creating unenviable situations, I suggest peeling off contracts, but never below 1, to smooth volatility. (i.e. $100,000 account. Buy 5 Silver at 5.00 on the entry signal. Original stop is 496, 1% risk. [¢470,0 - ¢471,0 = $50] At the close several weeks later the price is 600, but the stop has only moved up to 580. The account is now worth $125,000, and the risk, close to stop, is $22,500 or 18.0%. My 'peel off level' is 3%, this is higher than initial risk because it is dealing with open profits. I can risk $3,750. The risk per contract is $1,000; therefore, I can only have 3 contracts. I cover two.)
This will smooth volatility without adversely affecting returns in the long run.
It will hurt returns in massively trending markets, which number one or two a year, but it will help returns on an 'average' move. It will cut the volatility by over 50%.
By combining the sliding scale of initial risk and a sliding peel off %, both per trade and depending on the initial risk, one will see that money management has much more to do with returns than entry exit decisions. However, the best money management in the world will not work if one's methods do not have an edge over the market.
Have a nice day
Peace
