I've done a research on the trading system I trade with, the risk management rules are:
1. The trading system is really not important ONLY something that gets reward by going with the trend is good.
2. Trading starts from the beginning of a period looking for a target (The "Reward:Risk Goal") will stop IF not met it after three trades.
3. The PERIOD is defined by your character (day trader, short term trader, swing trader, ... so it could be a trading day, a week, a month or anything)
--> The ONLY thing I call it the holy grail is the "TARGET". How much should I look for? IF you have been trading for awhile you know that the hardest part is: "Where to get out? How much profit is enough?"
Now,the results for me: (I have attached a Excel file for better understanding)
Reward:Risk | 2 3 4 5 6 7
(Goal)
----------------------------------------------
Oct. 2010 | 2 3 4 1 1 1
Nov. | 2 3 2 1 2 2
Dec. | 2 3 4 1 1 1
Jan. 2011 | 2 3 4 5 6 7
Feb. | 2 3 4 2 2 2
Mar. | 2 0 0 0 0 0
Apr. | 2 0 0 0 0 0
May | 2 3 4 5 6 7
Jun. | 2 0.5 0.5 0.5 0.5 0.5
Jul. | 2 3 4 5 6 7
Aug. | 2 -1 -1 -1 -1 -1
Sep. | 2 3 4 5 6 7
Oct. | 2 3 4 5 6 5
Nov. | 2 3 -1.5 -1.5 -1.5 -1.5
------------------------------------------------
Totally | 28 29.5 32 29 34 37
-The result means that:
IF R:R target for the period=2 & Risk per trade = 2% ==> My Total expose is 2% * 3 = 6% per month, All months will be profitable + 14 month result is = 28 * 2 = +56 %
IF R:R target for the period=7 & Risk per trade = 2% ==> My Total expose is 2% * 3 = 6% per month, There will be loosing months but 14 month result is = 37 * 2 = +74 %
As you can see when you increase the Reward:Risk target without increasing your risk the final result is hugely different.
I was surprised myself!!! Now I understand that how much emotion (not controlled Fear or Greed) is BAD in this business.
Regards
1. The trading system is really not important ONLY something that gets reward by going with the trend is good.
2. Trading starts from the beginning of a period looking for a target (The "Reward:Risk Goal") will stop IF not met it after three trades.
3. The PERIOD is defined by your character (day trader, short term trader, swing trader, ... so it could be a trading day, a week, a month or anything)
--> The ONLY thing I call it the holy grail is the "TARGET". How much should I look for? IF you have been trading for awhile you know that the hardest part is: "Where to get out? How much profit is enough?"
Now,the results for me: (I have attached a Excel file for better understanding)
Reward:Risk | 2 3 4 5 6 7
(Goal)
----------------------------------------------
Oct. 2010 | 2 3 4 1 1 1
Nov. | 2 3 2 1 2 2
Dec. | 2 3 4 1 1 1
Jan. 2011 | 2 3 4 5 6 7
Feb. | 2 3 4 2 2 2
Mar. | 2 0 0 0 0 0
Apr. | 2 0 0 0 0 0
May | 2 3 4 5 6 7
Jun. | 2 0.5 0.5 0.5 0.5 0.5
Jul. | 2 3 4 5 6 7
Aug. | 2 -1 -1 -1 -1 -1
Sep. | 2 3 4 5 6 7
Oct. | 2 3 4 5 6 5
Nov. | 2 3 -1.5 -1.5 -1.5 -1.5
------------------------------------------------
Totally | 28 29.5 32 29 34 37
-The result means that:
IF R:R target for the period=2 & Risk per trade = 2% ==> My Total expose is 2% * 3 = 6% per month, All months will be profitable + 14 month result is = 28 * 2 = +56 %
IF R:R target for the period=7 & Risk per trade = 2% ==> My Total expose is 2% * 3 = 6% per month, There will be loosing months but 14 month result is = 37 * 2 = +74 %
As you can see when you increase the Reward:Risk target without increasing your risk the final result is hugely different.
I was surprised myself!!! Now I understand that how much emotion (not controlled Fear or Greed) is BAD in this business.
Regards
Attached File(s)
Manage probability while following the TREND.