Optimal risk/money management method - fixed stop-loss

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Peblo

To those of you who trade intraday - what do you think of placing a hard stop-loss at a fixed distance, say 10 points, but just varying position size according to the drawdown/profit for the day/week?
Say your loss limit for the week is $2,000. You decided to use a stop-loss of 10 points as that is the approximate recent ATR for the timeframe you would have patience to stare at a loss (say 10-15 minutes) and it is a fraction of daily ATR (let it be 90 points).
You take 10% of your limit left, divide by 10 points and come to a point value of $20 and open a corresponding position size. You lost $200, now your limit is $1,800, so your next trade is at $18 per point (i.e. smaller position size) and so on. Your stop-loss, however, always stays at 10 points, so you sort of disregard where the last high/low was.

Does this combined risk/money management method make sense? I know the answer is: if it does make sense to ME, then I should just use it as there are a million ways to make money in this business. Still, I am interested if anyone has tried something like that and what their thoughts are.
 
Thinking risk and money management first makes a lot of sense. Your system makes sense to me even if I am not a fan of ATR, intraday.
You could also try your formula with "True Range" (as Welles Wilder thought about it) with intraday volume charts and see the difference.
 
reward to risk is about 1.5:1, win rate 53% so far. I also scale in starting with about half of intended position size and then quickly add the rest (i.e. when market is about 5 points in my favour) moving stop so that I can lose only 10 points from the average price.

This way the market has to move MORE than original 10 points against me counting from the average price if my stop was to be hit. So, sometimes I lose only half R (about 70% of cases) sometimes full R (about 30%).

I also scale out in the target range but the profit is unknown as such. Usually around 10-15 points from the average price. Sometimes more, sometimes less.
However, I always know what I can lose so I like that feeling of being in control of risk but not totally in control of profits. I find this system perfect for my personality. I believe it will continue to work.
 
and you increase exposure on the upside im assuming?

sounds like a standard positive progression scheme. good for growth (long run basis) but in the short term it will suffer from vol drag
 
Peblo said:
reward to risk is about 1.5:1, win rate 53% so far. I also scale in starting with about half of intended position size and then quickly add the rest (i.e. when market is about 5 points in my favour) moving stop so that I can lose only 10 points from the average price.

This way the market has to move MORE than original 10 points against me counting from the average price if my stop was to be hit. So, sometimes I lose only half R (about 70% of cases) sometimes full R (about 30%).

I also scale out in the target range but the profit is unknown as such. Usually around 10-15 points from the average price. Sometimes more, sometimes less.
However, I always know what I can lose so I like that feeling of being in control of risk but not totally in control of profits. I find this system perfect for my personality. I believe it will continue to work.
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directional? run some sims and you'll see that strategy is suboptimal. directional trades perform best when you enter strong with your full allocation.

if its a mean reversion strategy the opposite holds true. you should add to your losers... to a point. cc liu & longstaff (2004).
 
TREMPER.com said:
This all makes sense! The most important key is you protect your asset (account).

You might like to look at the Discipline Manager concept for money/account management at
https://www.tremper.com/indicators.php
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I would say the most important thing is to actually make money. Sounds dumb, and maybe reckless. But it assumes you are not going to go destitute if you blow your account. You are here to make money in the long term.

Sure you want to stay in the game, but don't be so gun shy you spin your wheels. Like the person who posted about 1:1 R/R at 2% on a 2K account. At that rate you are talking about less than one days' work at minimum wage. You got to risk something and you don't trade to only break even. Your time is valuable, despite the pandemic time warp.

Think about opening a food truck. You need the truck (used), equipment (used), the permits. Then the actual product. When you buy the ingredients, say 800.00 in food, you are down 800. But you make it back and then some when you sell it all. Sure you got waste, shrinkage, spoilage etc. But the point is you were down and ended up positive. No truck makes money without some money at risk to buy the food. Likewise with trading, you need capital and you have to risk it. And it has to be a reasonable amount. Not reckless, but cool calculated.

A lot of people work on R:R but they should be working on their positive outcomes. Cart before the horse.
 
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If you can come up with Stat's on the odds on your trading not hitting SL, to vary the size of your trade, surely you should just not take the higher risk trades ??

NQ for instance, some times 10pts is a lot 2x's short term range, other times it's below short term range, so you need to either vary your SL size to volatility or only take more optimal trades where a 10SL is all you need.

I have a calculation for my SL and my code automatically places it and updates to reduce risk only ofcourse, get a big move and I'm better off walking away as it'll go 100pts but no way I can hold that long.

SL Calcuation......... ( for Long trade )

SL = 12LWMA LOW * 0.9993

MT4 code

extern double Average=12;
double slb=NormalizeDouble(iMA(NULL,0,Average,0,MODE_LWMA,PRICE_LOW,0)*0.9993,Digits);

I very between 12 and 24 depending on market condtions.
 
ducatista said:
directional trades perform best when you enter strong with your full allocation.
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Yes, but unfortunately there is no way of knowing in advance if we are indeed joining a strong trend or a fake "trend" (reversal)... :cool:
 
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