Need advice on trading and money management technique

D

Darvas2

I would appreciate some feedback from other traders.

I started trading around 1997. Evolved a way of working where I only traded if the overall market trend was up, bought stocks in strong industry groups, wanted the 1, 5, and 30 minute trend to be up, bought when I saw massive volume coming in and prices were moving up quickly (example Ebay). If the trade didn't continue upwards and I couldn't get a break even stop I cut the trade immediately--sometimes I was in a trade for less than 30 seconds. If I got a breakeven stop then I rode the stock up with trailing stops until the stock turned and I was stopped out. I put all my money on each trade and when the traded ended I looked for another stock and risked all of my capital.

I reduced everything to a game where when I lost I lost $20 and when I won the amount was open ended. I started with $2,000 and figured I would have to lose 100 times in a row to be wiped out and that random chance would give me some wins before that happened.

Sorry for the long windedness. Here is the question: I am going to start trading again but now I have a substantially larger bankroll. I liked my way of working but the market was roaring up at that time. I never even thought of a day when the market might gap down. If I only risk 2% of my trading capital (that's what many books recommend) on a single trade then the growth is too slow. If I bet the farm, then there is the risk of a gap down overnight. I am not so much worried about a gap down on an individual stock, but more concerned about some unknown event that causes the entire market to go into a tail spin.

What are the ways that you guys "protect" your capital or do you just live with it. I would be interested in any comments anyone has to make.

Thank you.

Sincerely,
Darvas2
 
I would say if 2% per day is not enough then go direct to the casino.
Really, it is better to move ahead steadily rather than over leverage your account. Everyone is different and if you system is pretty good then this is what you are leveraging.

So, think about protection.
I trade Forex so here are some ideas to consider in equities:

- you can use a stop loss
- you can have a counter position as a waiting order so you are at risk for the difference in price. Addding a second counter position can be used to bridge this gap should the price not behave as hoped. So, if it goes your way, take the profit on the main position. If it goes against you either take a profit if you haven't involved your first position (use entry orders), or use the counter positions and target break even. This will give you another chance to trade.
- take a position and buy options in the other direction so that you have a win if it goes against you with the options and if not you win on the original positions. This will take some practice and you may need to find some formulas to balance your positions.

Manage your risk first and then manage your profit.

If you only think profit first, it can get turned around you can get a hit that is hard to recover from. Better to win slow and steady than to win home runs and risk strike outs.

I target a specific percent per day.
Then as the account grows it is the same daily job to get it done.

I have a trading friend that has his household expenses, food, rent and so on broken down to where he needs x pips for food, y pips for the mortgage and so on. Excess gains only help the equity to grow.

Look into a compounding spreadsheet. Run a look at like 2% per day over a year. It seems small on a daily basis....but by being steady what is your outcome?

Money management and risk management are why the small trader is less likely to win. Take the time to study these in earnest and you will be rewarded over time.

Hope this helps,

Forex5x
 
Quote from Darvas2:

I would appreciate some feedback from other traders.

I started trading around 1997. Evolved a way of working where I only traded if the overall market trend was up, bought stocks in strong industry groups, wanted the 1, 5, and 30 minute trend to be up, bought when I saw massive volume coming in and prices were moving up quickly (example Ebay). If the trade didn't continue upwards and I couldn't get a break even stop I cut the trade immediately--sometimes I was in a trade for less than 30 seconds. If I got a breakeven stop then I rode the stock up with trailing stops until the stock turned and I was stopped out. I put all my money on each trade and when the traded ended I looked for another stock and risked all of my capital.

I reduced everything to a game where when I lost I lost $20 and when I won the amount was open ended. I started with $2,000 and figured I would have to lose 100 times in a row to be wiped out and that random chance would give me some wins before that happened.

Sorry for the long windedness. Here is the question: I am going to start trading again but now I have a substantially larger bankroll. I liked my way of working but the market was roaring up at that time. I never even thought of a day when the market might gap down. If I only risk 2% of my trading capital (that's what many books recommend) on a single trade then the growth is too slow. If I bet the farm, then there is the risk of a gap down overnight. I am not so much worried about a gap down on an individual stock, but more concerned about some unknown event that causes the entire market to go into a tail spin.

What are the ways that you guys "protect" your capital or do you just live with it. I would be interested in any comments anyone has to make.

Thank you.

Sincerely,
Darvas2
More...

How many trades per week are you looking at?
 
Thanks executioner for your advice on puts. I don't know anything about options so I will have to look into this.

kiwi trader wanted to know how many trades per week. When I was trading before it just depended on how the stock was doing. If the trade went against me I cut it immediately. If it was going up I stayed in until I was stopped out so I can't answer how many trades per week.

forex5x had a lot of interesting information. I love to go to Las Vegas but it is for the food and the shows. I don't gamble (well I maybe put $5.00 total into the nickel slots). I don't like to lose. Since I don't have the mind to memorize proper play for blackjack or count cards etc. I confine my risk taking to the stock market.

You made a comment I don't understand. You said that if I had a good system then 2% would be what I was leveraging. How do you determine that?? I think the way I was trading worked great for me. I was able to turn 2K into a bit over 20Kin about 1 1/2 years--but of course the market was roaring up at that time. I feel I did well for a beginner considering all the mistakes I made.

When the books say not to risk more than 2% on any one trade does that mean:
1. Say a person has 20K, do you only use $400 (2%) to trade with or
2. One uses the full 20K but sets their stops so that the most they can lose on the trade is $400 (2%).

Thanks for all the advice.

Darvas2
 
Quote from Darvas2:

I would appreciate some feedback from other traders.

I started trading around 1997. Evolved a way of working where I only traded if the overall market trend was up, bought stocks in strong industry groups, wanted the 1, 5, and 30 minute trend to be up, bought when I saw massive volume coming in and prices were moving up quickly (example Ebay). If the trade didn't continue upwards and I couldn't get a break even stop I cut the trade immediately--sometimes I was in a trade for less than 30 seconds. If I got a breakeven stop then I rode the stock up with trailing stops until the stock turned and I was stopped out. I put all my money on each trade and when the traded ended I looked for another stock and risked all of my capital.

I reduced everything to a game where when I lost I lost $20 and when I won the amount was open ended. I started with $2,000 and figured I would have to lose 100 times in a row to be wiped out and that random chance would give me some wins before that happened.

Sorry for the long windedness. Here is the question: I am going to start trading again but now I have a substantially larger bankroll. I liked my way of working but the market was roaring up at that time. I never even thought of a day when the market might gap down. If I only risk 2% of my trading capital (that's what many books recommend) on a single trade then the growth is too slow. If I bet the farm, then there is the risk of a gap down overnight. I am not so much worried about a gap down on an individual stock, but more concerned about some unknown event that causes the entire market to go into a tail spin.

What are the ways that you guys "protect" your capital or do you just live with it. I would be interested in any comments anyone has to make.

Thank you.

Sincerely,
Darvas2
More...
:cool:


This fella only has 6 posts... SPAM ALERT!!!!

Deputy Barney Rennick Fife out

ps. hey Baron, if I'm going to have to police these forums for spammers I want mods pay.
 
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