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A clever money management system wanted

  • Post #1
  • Quote
  • First Post: Feb 18, 2007 3:18pm Feb 18, 2007 3:18pm
Everybody is talking about how important the money management is, but still there's only threads about EMA5 crossing over EMA13 and so on with 30 pips stop and 60 pips limit.

I guess there should be much more about money management than some stop loss, limit order, trailing stop, trade per 1% of your account.

So please share some clever ideas for my money management, thanks.
Quoting yakumojpn
Everybody is talking about how important the money management is, but still there's only threads about EMA5 crossing over EMA13 and so on with 30 pips stop and 60 pips limit.

I guess there should be much more about money management than some stop loss, limit order, trailing stop, trade per 1% of your account.

So please share some clever ideas for my money management, thanks.
No one knows the future of the price unless you are aboout to dump or buy billions worth of instruments ( you know you will move the price then)-

But for us little fish:

1. Do not risk more than you can afford
2. Run your wins so you can afford the more frequent losses
Take some profit and then let the rest run ... according to your confort

each to his own on TP and loss amount

just my 2 pips-

I'm sure others will come up with best advise, and I will wait and learn from them



May the pips be with ya
Pipology 101 student
Check out TKimbles MM in his Weekly scalping thread.
my advice on MM is to KISS. i have studied and developed MM strategies extensively. not just developing my own stuff, but also reading the best books out there on the subject and putting the theories into practice. i started trading using the simple %R method, and i ended up doing a huge 1 year research circle that brought me right back to %R. and %R is where i have stayed ever since. i am not saying use %R and be satisfied, by all means you should do your own research. it is a healthy journey to take. but in the end, you will probably end up trading %R

if you want to get serious about MM, here is a list of books you should consider reading, in the order they should be read to build your foundation....

1. Trade Your Way to Financial Freedom by Van K. Tharp
2. Elementary Probability by Edward O. Thorp
3. Quantitive Trading and Money Management by Fred Gehm
4. The Mathematics of Money Management by Ralph Vince
Relax and be happy.
  •  markt
  • | Joined Jan 2007 | Status: Would be... Full time trader | 88 Posts
Merlin.... sorry,can you tell me what %R is? thanks.. call me stupid too!!
Just use fixed fractional and don't get crazy with the leverage.
Quoting markt
Merlin.... sorry,can you tell me what %R is? thanks.. call me stupid too!!
Since Merlin recommended keeping it simple, I'd suggest that he's saying to limit your risk per trade to about 2% of your equity.
I'm a trend trader, so which kind of money management would you suggest by your experience:

1) Aggressive - adding more money into a winning position.

2) Passive - taking out some profits first and then letting the trend ride rest for a longer time with example half of the initial position?

3) Trailing stops - I guess trailing stops are no good, because there's always whipshaws on a trend, so it will often get stopped out when you should actually enter.

4) Something else? - would be nice to hear what kind of other ways is there to manage a trade?
yakumojpn:

I know it doesn't address your protective stop management questions, but the attached MSWord document may be of some help. It has served me well over the past several years.

Re your "Aggressive vs. Passive strategy" post:

  1. I see nothing wrong with adding to a position (scaling in) IF your increased risk and margin is covered by your increased equity in the trade.
  2. Personally, I am a big fan of your passive (#2) approach and trailing stops (#3).

...\larry.bye

Attached File(s)
File Type: doc RISK MANAGEMENT.doc   27 KB | 839 downloads
keep margin lv above 7000, it is the safest thing i ever think
Quoting merlin
my advice on MM is to KISS. i have studied and developed MM strategies extensively. not just developing my own stuff, but also reading the best books out there on the subject and putting the theories into practice. i started trading using the simple %R method, and i ended up doing a huge 1 year research circle that brought me right back to %R. and %R is where i have stayed ever since. i am not saying use %R and be satisfied, by all means you should do your own research. it is a healthy journey to take. but in the end, you will probably end up trading %R

if you want to get serious about MM, here is a list of books you should consider reading, in the order they should be read to build your foundation....

1. Trade Your Way to Financial Freedom by Van K. Tharp
2. Elementary Probability by Edward O. Thorp
3. Quantitive Trading and Money Management by Fred Gehm
4. The Mathematics of Money Management by Ralph Vince
Just finished reading "
1. Trade Your Way to Financial Freedom by Van K. Tharp ".

Is there any book out there that's better than this one to lay a sound foundation for trading?
try to read The Disciplined Trader and Trading in the zone by Mark Douglas, i read them both and i think they are a must read for a newbie trader.
also try to find the other 3 books from merlin's post.
Quoting yakumojpn
Everybody is talking about how important the money management is, but still there's only threads about EMA5 crossing over EMA13 and so on with 30 pips stop and 60 pips limit.

I guess there should be much more about money management than some stop loss, limit order, trailing stop, trade per 1% of your account.

So please share some clever ideas for my money management, thanks.

It sounds like you are thinking that SL has something to do with MM
When designing a system the only thing important is getting something that makes money.
(besides that it fits your personality etc)
If that means a 1 pip SL or a 1000 pip SL is of no importance.
If it requires 1 lot or 50 lots is of no importance either.
When the system is ready the MM part starts.
MM *never* has even the slightest influence on your stops or when you open or close trades.
Only on the size of your trades.
If you take 2 traders that both use the same system and MM method the size of their trades is closely related to their account size.
Trader 1 may end up trading 1 mini lot and trader 2 ends up trading 10 full lots.
But they trade exactly the same system parameters.




BTW when you wrote Money Management I assume you mean Money and Risk Management.

Without RM your account will get killed just like it gets killed without MM
May the pips be with you.
Quoting merlin
my advice on MM is to KISS. i have studied and developed MM strategies extensively. not just developing my own stuff, but also reading the best books out there on the subject and putting the theories into practice. i started trading using the simple %R method, and i ended up doing a huge 1 year research circle that brought me right back to %R. and %R is where i have stayed ever since. i am not saying use %R and be satisfied, by all means you should do your own research. it is a healthy journey to take. but in the end, you will probably end up trading %R
Yes, %R ("fixed fractional") is simple and effective. It means that absolute dollar amount risked decreases with the account balance, and conversely allows gains to be compounded exponentially; all while risk is kept consistent, percentage-wise.

The purpose of MM (position size) must be to preserve capital, allowing a positive expectancy method to prevail.

Merlin, I expect that you've reached the same conclusion that I have, namely that no matter what MM method we use, it doesn't affect expectancy.
______________________________________

Quoting yakumojpn
So please share some clever ideas for my money management, thanks.
IMHO there is no "clever" system of MM.
______________________________________

Quoting TraderSeven
It sounds like you are thinking that SL has something to do with MM
When designing a system the only thing important is getting something that makes money.
(besides that it fits your personality etc)
If that means a 1 pip SL or a 1000 pip SL is of no importance.
If it requires 1 lot or 50 lots is of no importance either.
When the system is ready the MM part starts.
MM *never* has even the slightest influence on your stops or when you open or close trades.
Only on the size of your trades.
Exactly! The best post I've ever read on MM.

David
  •  MPP
  • Joined Jun 2007 | Status: Be yourself, everyone else is taken | 2,734 Posts
Auslanco's strategy page 1


Money Management & Trading habits:
Maximum 2% risk per pair. What that means is when you calculate your stop losses your stop loss amount has to be within 2% of your account .If the trade goes against you, the maximum you will loose is 2% of your account. This way it also prevents you from getting panic attacks when the trade retrace against you resulting you close the trade pre maturely. If your desired stop losses do not come within 2% of your account don’t take that trade. As I always say, you may miss one trade but there are millions more to come.
You always have to calculate your risk every time before you enter your trades.
Your risk to profit ratio has to be minimum 1:1. That means if you are taking a 2% risk on a trade make sure your profit target would be at least 2%.
Always have realistic targets. My aim is 300 % capital growth per year. The lesser your target is lesser the risk of losing your own money. Even if you have 50% capital growth per year you are doing better than 90% of the worlds biggest hedge funds.
More trades you take the more you expose your account for losses. No trader in this world can profit from every single market move.
Patience plays a big part in trading. Take the trades only if you are at least 90% sure of profiting from it. If you are not sure stay away from the trade. Staying on the sideline is as good as winning.
Never trade against the trend. Specially with a high volatile pair like GBP/JPY. It may give you couple of winning trades. But it’s going to get you in the long run.
Always have a trading strategy ... make a habit to stick to it doesn’t matter how desperate you are. Always trust your strategy but not bloomberg or some statement from citibank. Don’t go with your gut feeling because 95% of the time your gut feeling is wrong.
Your charts are your forex bible. Everything what you need to know about forex is on your charts. You will learn something new everyday from you charts.
Specialize in one or two pairs. Every single pair has it’s own characteristics. No two pairs are the same. Don’t trade all the pairs your broker can offer. If you specialize in one or two pairs very soon you will be able to read the pair like a road map .
Stay away from the ranging markets. There will be enough of trend break outs on this pair than you ever want. Why take any extra risks trying to chase 20 pips on a ranging markets when you can grab 200 pips on a break out.
As Monarc mentioned traders are a greedy bunch. Less greedy once are the most successful once.
Don’t try to chase every single pip or market movement. Have a realistic weekly or monthly target as a percentage of your account . Not the number of pips. If you have already achieved that target stay away from the market. As I mentioned before.. the more you trade there is more risk of losing your money.
The losses are part of the game. Do not try to cover all your previous losses from your next trade. First your trading plan has to include at least 50% of losing trades. Then you can cut down on the number of losing trades while you gain experience and confidence.
When you start you must demo trade at least for the first 3 months to build a trading strategy. Then for the next 3 months trade on a demo account or a micro account and test your strategy coupled with a good money management strategy. When you are fully confident then trade with your real account.
Use minimum account leverage. Don’t abuse it. My recommendation for new traders is maximum one mini lot for every $2500 or one full lot for every $25000.
At last ... remember there is no easy way to become a good consistently profitable trader. No one can become a profitable trader overnight. As everything else in life it takes time, patience lots of sacrifices and learning. Don’t be afraid of mistakes.
It took me 8 months to make my first consistent $100 per week. Since then making money is like a walk in the park.
  • Post #16
  • Quote
  • Edited 7:19am Sep 8, 2007 7:08am | Edited 7:19am
Quote
Auslanco's strategy page 1

Money Management & Trading habits:
 Maximum 2% risk per pair.

Your risk to profit ratio has to be minimum 1:1. That means if you are taking a 2% risk on a trade make sure your profit target would be at least 2%.
Always have realistic targets.

More trades you take the more you expose your account for losses. No trader in this world can profit from every single market move.

Patience plays a big part in trading. Take the trades only if you are at least 90% sure of profiting from it. If you are not sure stay away from the trade. Staying on the sideline is as good as winning.


Always have a trading strategy ... make a habit to stick to it doesn’t matter how desperate you are. Always trust your strategy but not bloomberg or some statement from citibank.


Your charts are your forex bible. Everything what you need to know about forex is on your charts. You will learn something new everyday from you charts.
Specialize in one or two pairs. Every single pair has it’s own characteristics. No two pairs are the same. Don’t trade all the pairs your broker can offer. If you specialize in one or two pairs very soon you will be able to read the pair like a road map .

Stay away from the ranging markets.

Don’t try to chase every single pip or market movement.

the more you trade there is more risk of losing your money.

remember there is no easy way to become a good consistently profitable trader. No one can become a profitable trader overnight. As everything else in life it takes time, patience lots of sacrifices and learning. Don’t be afraid of mistakes.

Very good.

I'd only add: use 1% instead, there's no rush. 2% for me is a lot to digest.

Don't have more than 5% total risk open at any one point(that's already 5 pairs at 1%!!!!!).

Also - if you move your stop to break even your exposure drops back to 0.

You can now make a new entry with 1% if you want. But do you want to?
Do you have a reason?

Fixed %. There's a thread about this in the beginner thread since the original poster complained there weren't any threads about it.

Just looked.
Actually there are at least 2. Very hard to find, they're the two sticky first posts in the beginner section

Sticky mega-intro http://forexfactory.com/showthread.php?t=6948 and http://www.forexfactory.com/showthread.php?t=39514 PeterFM's. Seriously, if this hasn't been read yet, I recommend reading it..

There should also be a Fiji post buried somewhere.
Trust price. Know yourself.
  • Post #17
  • Quote
  • Edited 10:45am Sep 8, 2007 10:29am | Edited 10:45am
Quoting yakumojpn
Everybody is talking about how important the money management is, but still there's only threads about EMA5 crossing over EMA13 and so on with 30 pips stop and 60 pips limit.

I guess there should be much more about money management than some stop loss, limit order, trailing stop, trade per 1% of your account.

So please share some clever ideas for my money management, thanks.
Use a fixed % of exposure in each trade.
Let's say you choose 2%

If you have USD 100 ... you risk USD 2 (calculate appropriate stop loss that's equivalent to this USD 2). If your fund is small, consider using brokers like Oanda (you can even buy 1 unit).

Let's say you lose ... you are left with USD 98.
Next trade, you risk 2% of USD 98 ...

If you notice, when you are on a winning streak (experienced trader has more winning streaks than newbies do) .. you will be betting bigger and bigger each time ... this has the compounding effect. You bet more and more with the "markets" money. Many traders in Market Wizards "trades bigger and bigger when they are on a winning streak".
Fixed % risk is easy and it gets the job done. If you dont trust me on this, trust Merlin .. LOL.

If you use a broker that allow 1 unit lot size, it's very difficult for even a newbie to completely destroy his account if he follows this fixed % rule. Imagine this situation:

You have a fund and for every person you meet, you tell them to take 2% of the fund. Guess how many person you need to meet to finish the fund? Answer : the fund will never finish (ideally).

What happens if you tell everyone to donate 2% of the fund instead ? The fund will grow again exponentially no matter how much money has been taken out before.

In this business, as long as you survive the battle, you will most probably win. It's just a matter of time.
I am looking fo EA which deal with money management which will control my manual trade as follow:-

(a) If i set it to 5%, the EA will block/denied any order (single order) in the account that exceed 5% of the of the equities.

(b) For example equities balance is 10,000 usd, the EA will block/denied any order which use more than 500usd and will allow only order which is below than 500usd.

Most of the time, I can follow this rules, but once a while i thend to break this rules.


Is there any EA then can do this or is there any suggestion.


Thank You

ARIS
  • Post #19
  • Quote
  • Edited 3:08am Sep 10, 2007 2:36am | Edited 3:08am
Quoting MPP
Auslanco's strategy page 1

Money Management & Trading habits:
.....
Take the trades only if you are at least 90% sure of profiting from it.
.....
How do you calculate this?
David
  •  MPP
  • Joined Jun 2007 | Status: Be yourself, everyone else is taken | 2,734 Posts
Quoting hanover
How do you calculate this?
David
Purhaps we should invite Auslanco for comments.

My view on this is about Gut feeling, it's not a calcualtion. basically when you open your charts and look at your plan it will give you one of three calls - long, short and no signal. the gut feeling is how confident are you in the system's results.

90% would be, my plan says long and it rarely lets me down also i've looked at FF and most of the others agree with me and there are no Fundimentals due out today that could upset.

10% would be, i am the only one going long on a new system and the news says short.

Build your plan, trust it and use this site for reference.

hope your on demo, if so you will know the 90% feeling very soon, and you will find out about the 10% - why did i do that feeling very soon too.

happy trading

MPP
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