For some of you Money Management is simply placing a stop, for some it is placing a limit. But for me it is much more than that, it is playing trading for what it is, a numbers game. It all comes down to probabilities and all else fades. Your method needs to be sound and repeatable, your stops and limits need to be defined, you have to pull the trigger but in the end the numbers don't lie. This is why I created the this formula, it is what I use for all my accounts and one I hope can be a major help to you traders who seem to win with 1 lot but not with 5. Remember there is always the human element in any trading, this seeks to harness that power by providing a simple basis for managing money. Also all "systems" mentioned in this forum have no relation to any system I trade, although my statistics could be similar for my accounts I chose to use some slightly different examples
This system all started with the proposition: "How much is my Max. Drawdown" to me max drawdown is simply defined as this: How many pips is my av loss, then take my losing percentage Av [lets say 40% chance of loss and 25 pips per loss]. What I then do is calculate Max D: How I calculate it is as follows:
I take the losing percentage and I multiply it by itself until the number is below 2%. What this does is makes sure that the chance of a "Max D" is below 2%. For 40% that is 5 times (.4 x .4 x .4 x .4 x .4=<.02). Thus we can conclude that our Max D is (5 losses times 25 pips, thus we lose 125 pips in Max D). Whether that is $12.50, $125, or $1250 I don't care my Max D is 125 pips.
The ultimate aim of this strategy is to move my account forward (by trading more lots) as my account gets bigger, BUT I wanted to gurantee I certain sum of money for every number of lots that I go forward. The end formula's also contain the formula for Margin and calculate the GV (Guranteed Value of account in Max D).
So here it goes guys I'm going to try my best not to confuse you but just follow me this is pure gold:
The symbols are as follows:
Max. D: Max drawdown as the number of losses in a row times Av. Loss.
GV: Gurranteed value of account during Max. Drawdown
GGV: Gurranteed value of account during Max. Drawdown x 2 (during bad times of trading where you disobey your system rules and trade erratically)
Median: The Av value between the GV and the C value (to be defined later)
C: The Tier value of YOUR account. This is the value of your Account when you want to start trading more lots
Margin: The total amount of margin needed to trade your amount of lots
Okay so what I'm going to do is attach a example spreadsheet at the bottom demonstrating a $1500 account with a 65% win av and a 35% loss av it loses 12 ticks per loss and I know I can make 45 ticks per week, the lot size is in dollars per pip my preferred measuring stick. It will look like greek but just follow the C value as it progresses, and follow the GV. Essentially what I do is plot my lots first, then I take my Max D and calculate it. I then take my starting account value, the next "tiers" are calculated as you see in the spreadsheet.
Disclaimer: These results are not guaranteed because trading is risky. Therefore don't risk money you can't afford to lose. Trading is not suitable to all. We don't want you taking risks so you can make money, we are wall street not the village idiot.
I just laugh when I get to post that disclaimer lol. Seriously though this is a money management strategy
I call it my Super Shot System so I can refer to it that from here on out. Hoping to lead this into further discussion on money management and share with ya'll a video or too on how to apply this to your own account. Made a few youtube videos with a free video capturer so I don't have to confuse anyone with my words.
This system all started with the proposition: "How much is my Max. Drawdown" to me max drawdown is simply defined as this: How many pips is my av loss, then take my losing percentage Av [lets say 40% chance of loss and 25 pips per loss]. What I then do is calculate Max D: How I calculate it is as follows:
I take the losing percentage and I multiply it by itself until the number is below 2%. What this does is makes sure that the chance of a "Max D" is below 2%. For 40% that is 5 times (.4 x .4 x .4 x .4 x .4=<.02). Thus we can conclude that our Max D is (5 losses times 25 pips, thus we lose 125 pips in Max D). Whether that is $12.50, $125, or $1250 I don't care my Max D is 125 pips.
The ultimate aim of this strategy is to move my account forward (by trading more lots) as my account gets bigger, BUT I wanted to gurantee I certain sum of money for every number of lots that I go forward. The end formula's also contain the formula for Margin and calculate the GV (Guranteed Value of account in Max D).
So here it goes guys I'm going to try my best not to confuse you but just follow me this is pure gold:
The symbols are as follows:
Max. D: Max drawdown as the number of losses in a row times Av. Loss.
GV: Gurranteed value of account during Max. Drawdown
GGV: Gurranteed value of account during Max. Drawdown x 2 (during bad times of trading where you disobey your system rules and trade erratically)
Median: The Av value between the GV and the C value (to be defined later)
C: The Tier value of YOUR account. This is the value of your Account when you want to start trading more lots
Margin: The total amount of margin needed to trade your amount of lots
Okay so what I'm going to do is attach a example spreadsheet at the bottom demonstrating a $1500 account with a 65% win av and a 35% loss av it loses 12 ticks per loss and I know I can make 45 ticks per week, the lot size is in dollars per pip my preferred measuring stick. It will look like greek but just follow the C value as it progresses, and follow the GV. Essentially what I do is plot my lots first, then I take my Max D and calculate it. I then take my starting account value, the next "tiers" are calculated as you see in the spreadsheet.
Disclaimer: These results are not guaranteed because trading is risky. Therefore don't risk money you can't afford to lose. Trading is not suitable to all. We don't want you taking risks so you can make money, we are wall street not the village idiot.
I just laugh when I get to post that disclaimer lol. Seriously though this is a money management strategy
I call it my Super Shot System so I can refer to it that from here on out. Hoping to lead this into further discussion on money management and share with ya'll a video or too on how to apply this to your own account. Made a few youtube videos with a free video capturer so I don't have to confuse anyone with my words.