Post your MM strategy here. I feel we have lots of threads on trading systems and psychology, but not too much on how to handle your money while trading. Let it rip!
Working towards CME membership
Money Management Strategies 21 replies
Money management for CHOROS and other strategies 2 replies
Which Money and Risk Management Strategies do you know? 6 replies
Money management strategies 5 replies
Money management strategies 2 replies
Dislikedyou need more then just random risk percentages. you need to know how much your system can stand (and how much you can stand)
I keep a running average of my last 100 trades (as systems do change)
you need your winrate and your payrate (profit loss ratio). from there you can do basic fixed fractional betting plan. there are others that work better but this is a standard.
Example
if in 100 trades 40 were correct and the average gain on those trades were 22 pips and the average loss of the 60 incorrect trades were 13 pips then we have:
40% winrate
1.69 payrate (22/13)
from there you can figure out your kelly
Kelly % = winrate – [(1 – winrate) / payrate ]
Kelly % = 0.40 - [(1-0.40)/1.69]
Kelly % = 4.497
course after that you need to find your streaks and drawdowns and risk of ruin and settle at a betsize you are confortable with. usually kelly/3 works out pretty well for this.
for this system at first glance using fixed fractional i would risk 1.499% (4.497/3)
A real life example
i have been forward live testing pipboxer with 0.01$ pips for about 2 months now. so far i only have 33 trades so its not complete yet, but here are the stats
total trades: 33
wining trades: 21
average pips in win: 41.71
avarage pips in loss: 58.91
winrate: 63.63%
payrate: 0.71
Kelly % = winrate – [(1 – winrate) / payrate ]
Kelly % = 0.6363 - [(1-0.6363)/0.71]
Kelly % = 12.4%
Kelly/3 = 4.13%
initial post example
winrate: 95%
payrate: 1.00 (assuming)
Kelly % = winrate – [(1 – winrate) / payrate ]
Kelly % = 0.95- [(1-0.95)/1.00]
Kelly % = 90%
Kelly/3 = 30%
i wouldnt bet 30% even on that system, dont think i would like the 3 loss streak lol.
just risking 1% or 2% because that is a random number you picked can break your bankroll or put you on the freeway to nebraska at 10mph. your system should tell you your betsize, dont just make it up . there are several better MMs that you can use that work better and take into account streaks, drawdowns and chance of wiping out your account, saving money, distributions ect, but kelly is always a good startingIgnored
QuoteDislikedi do believe what 'trading in the zone' said that each trade is a unique occurance tha doesn't relate to the past. If your system show's a 50% win rate, and you have lost 50 trades in a row. There's no guarantee that the next trade is a winner. That's also why i keep it to 2% maximum
DislikedGreat thread...does anyone use a spreadsheet or anything at all for their money management?
I'm trying to figure out the best approach for goal setting and managing my trades somehow.
Any feedback would be much appreciated.
Thanks..
MarcIgnored
DislikedPost your MM strategy here. I feel we have lots of threads on trading systems and psychology, but not too much on how to handle your money while trading. Let it rip!Ignored
DislikedI've been doing monte carlo analysis on my trades with various money management mthods. and I've realised that the traditional fixed percentage method wasn't really for me. as my capital increasese, I'd like my risk to get smaller.
suppose your system's largest drawdown is 50%, you might be able to stomach a losing streak of 16 losses to the amount of $5,000, if your capital is only $10,000. but if you've worked hard to bring your account to more than $100,000, will you be able to see it go down in half? even though you know that it's happened before and you'll eventually recover, the stress will still be very hard to bear. if you think $100,000 is not a big deal? what about $1,000,000?
therefore I chose a method that enables me to take more risk while my capital is small, and gradually reduces its exposure as it grows. it's profit-based and quite simple.
suppose you've a $10,000 account, and you trade 1 standard lot. you decide that you'll only increase your trading size if you've a $5,000 profit. this $5,000 is your profit base. see following table for more details:
Nr. of Lots Total Profit Equity Account Risk (with a 100 pip SL)
1 0 10,000 10%
2 1*5,000 15,000 13.3%
3 3*5,000 25,000 12%
4 6*5,000 40,000 10%
5 10*5,000 60,000 8.3%
6 15*5,000 85,000 7%
7 21*5,000 115,000 6%
8 28*5,000 150,000 5.3%
9 36*5,000 190,000 4.7%
10 45*5,000 235,000
there is actually a formula for this, but I've found that it's a lot easier to just build a table like this and check every time when you've a profit whether or not it's time to increase your trading.Ignored
DislikedThere was some paper about this; from some place like Sweden or Norway.. That covered this. I have it somewhere in my halls of forex docs.. That said, it really is just much easier to make it on excel..
I however want to press upon you that when your money is "big" it is the time to let it hatch more eggs for you. And so while decreasing the % seems prudent, I'm not sure if that's prudent for long term goals.. debatable but definitely not good if your system is consistent and your goal is to accumulate as many digits to the left of the decimal.Ignored
This is a work in progress.
any suggestions you may have would be good.
cheers