A clever money management system wanted

Thanks MPP for your reply.

I didn't know it was possible to enter a trade with anything like 90% certainty (hence the after my comment). Would be interesting to get some of the 1KT guys' views on this.

With a system that offered anything like a 90% win rate, we could compound leveraged gains (using a simple fixed fractional MM approach) to turn $1,000 into several million in just a few years!!

Let's drink to that !

David

Well I'd like to chip in a few things. Although the fixed fractional system is the basic premise for money management, the best way to implement it can differ from system to system, and I feel depends very much on the statistical performance of that system. For example, if you are using an agressive trend following system, that looks for accurate entries into large trends, and aggressively adds to winning trades you're likely to have a low probability for entry, (lets say 1 in 8) but due to the compounding effects of winners your average risk reward is an amazing 1:10. If you use 2% total equity on each entry, you are going to have one painful drawdown before that big winner comes in. And if you miss it? Whereas if you have some solid data as to the average win size in pips, you can divide up that 2% equity according to your scale in schedule, and reduce that drawdown significantly. On the other hand, if you have a trading system with which signals are 80% accurate, but come say twice a year, with a solid risk reward (based on solid performance data) why risk only 2%, you could fairly safely use 5%

On the other hand, lets take the position of a daytrading scalper, who takes between 2-8 pip hits but with a 60% hit rate and a risk reward varying from 1:2 - 1:10. Is it wise for him to risk two percent equity per trade? Personally I would say not, since he probably makes 5-10 trades per day, and drawdowns are likely to occur on a weekly basis. Its easier dividing up that two percent equity over the trades for the day, knowing that with a solid system in place at minimum he can make a 1% return on equity most days, which is 1300% annuallised. Why risk two percent per trade in this situation?

Of course all this is assuming you have a tested winning methodology with solid statistics behind it. Otherwise, no amount of money management will stop the inevitable loss of capital.

Just my 2 pips.