Good Money Management techniques revealed.

I have heard various traders say how money management is the most important aspect of trading. Can the sucessful traders out there share their money management techniques with the rest of us. Here's a few that I have heard.

Never trade over 5% of your account on any given trade. This is done so when your system has a series of loss's you will still be able to have a bairable drawdown.

Martingale will blow out your account eventually if you keep doubling up.

Ride your winners, cut your losers. (The most difficult thing if you ask me)

Demo trade for 2 years until you are still profitable. Then trade live.

Trade a mini account for 2 years and then start trading larger funds if you are still sucessful. (Since most traders can make high returns but the truly sucessful can keep the returns with a good equity curve.)

You can lose some or all of your account so trade only money that is descretionary.

Only add more lots once your account has doubled in size.

Please share what has been working for you for AT LEAST A YEAR!!! I don't want theories here. Let's share the knowledge!

I don't use any special money management techniques but only the simple risk management to not risk more than 2% of my capital per trade.

Demo trading is a good thing, too, but don't overrate it. Even if you are very profitable in demo, trading with real money is completely different. But of course, if you don't succeed in demo, you won't in real...

Regards - Xaron

One thing many people fail to plan is how to manage their account when in a drawdown. There needs to be limits and thresholds for when things go wrong, whatever the reason may be. The point is to conserve your capital when you start losing. I have loss limits for the day, week, month, quarter, and year. I've hit them all, except for the yearly, at one point or another. It's the other side of the coin.

I am always amazed at the number of martingale type money management schemes that pop up on this and other forums.

I think everyone knows better, but there is a temptation to think that "this one is different- it will work".

If you have a 60% + win/loss ratio on your trades i don't see a blowout with martingale... Of course you can't double your positions everytime...

I never had more than 4 loosers in a row and my martingale MM let me loose more than 15 times, so a martingale has been very good to me, but there is many good MM, and we should keep the one we find better for us

I like to think that, if something exists. It has a reason to.
The problem however is in the varied ability in people to accept it and take advantage of it properly.

Just as one trader can annihilate a perfect system, another can make a fortune of it. Where is the missing link?

I was introduced to Martingale by a prospective student of mine today.
I must say i was surprised to see that they do have quite a lot in common with what i trade, i believe my system has the missing component to making trading any Martingale based system profitable, and when i say profitable, i mean with literally almost no losses.

I posted my monthly trading report to show this today detailing the last trading month. All these trades have been made with NO Stop Losses set.

I know there has been a lot of debate about this Martingale thing, but the fact is i use something that encompasses its whole philosophy and much more, but still relative enough to give Martingale the authority it needs to stand on its own as a definite system enhancer or optimization tool.

This strategy or philosophy or theory, whatever you wanna call it, has been given a very bad name by people who have been unable to utilize it properly. Look at the forex market as an analogy how many people make it ? 5% ? - why can we not consider then, that 95% of forex traders fail to apply Martingale "theory" properly. I use the word "theory", because after researching this today i've concluded that what is predominantly available on forums and on websites in regards to this are publications from traders who have been unable to or have applied its concepts insufficiently. I think this theory's pseudo-failure has become such a self fulfilling prophecy that people don't even consider to mildly assume the possibility of profit with it, more enhancing the fact that only few people actually manage to take advantage of it efficiently and in unison with the right tools and strategy to catalyze its potential.

I think this trading report should show that Martingale or whatever it is actually works when used in complex with other trading tools and knowledge.

Report

Regards,
E. Lang

I agree that martingale helps put the odds in our favor. As it was profitable for me for about 4 months until I hit a series of losses. It seems to me that every system will have a loss of 10 trades in a row sooner or later. If not we would all be billionaires.. right? your thoughts?

After your series of losses , did you still believe it put the odds in your favor?

One of two things will happen using a martingale:

1. You will hit that series of X losses that you thought was impossible. When you do, it will either effectively blow out your account, or give you a drawdown that makes it next to impossible to show a final profit.

or

2. Your system is accurate enough and maintains a sufficiently high win rate that hitting the X loss threshold is virtually impossible. In this case you have been forced to trade such small basic units (in case you hit a series of losers) that you have made much less than you should have.

I agree that martingale helps put the odds in our favor. As it was profitable for me for about 4 months until I hit a series of losses.

The problem is that the Martingale concept is applied while relying entirely on luck. When you combine it with basic market principles however. You have a sure winner.

I have never seen 10 loosing trades, trading with this system.
I'm not going to say how many i've seen because the natural human reaction would be ridicule, so i'll keep it to myself and a close circle of people as with most things i do and teach.

If not we would all be billionaires.. right?
I like to take advantageous pleasure in the fact that people think that what fails is in fact what makes the most money.

I will post another months results next month.
I expect the questions to become less, as i post a months' results.

It's extremely exhausting answering so many questions, so i'm just going to let the reports speak for themselves each month.

Nothing beats raw statistics.

Regards,
E. Lang

I have always believed that Money Management (leverage, max drawdown, risk-per-trade, martingales, etc) is not nearly as important as In-Trade Management (cut lossers short, let winners run, partial exits, trail stops, adding up to a position, etc). I myself pay much more attention into the later than the former.

I think they're both important.
You can have the best system in the world and money manage it into a loser. I think that happens more than we realize.

The biggest mistake I see people make is taking a loser and believing they can money manage it into a winner. I don't think it can be done.

Thank you E Lang for your comments. . I believe we all have a lot we can learn from you. Thank you for sharing! And would that be the 25 system that you are using?

I'd limit risk to 1 or 2% per trade, 5% is crazy. 10 losing trades and there goes half your account, (50%). To just breakeven you will now need to make 100% return! And believe me, 10 losing trades in a row is not that uncommon.

I suspect that the amount of capital you should risk depends on your trading system. The conservative approach to risk (don't risk more than 2% at once) assumes that ALL trading systems see the same amount of failure, no matter what, and we all know that this just isn’t the case. Even though all trading systems must see some kind of failure, at one time or another, not all trading systems are equal in terms of their failure rates. The second assumption is the over all value that a trader gives to his initial capital. Does a $1000.00 deposit mean as much to a millionaire as it does to a regular 9-to-5 working Joe? Of course not. In this scenario a millionaire could actually risk 50% of his capital on a single trade, without a sweat, while it would be foolish for the regular working Joe to do so.

Also, as was mentioned, excessive demo trading (trading well after you have found your right system) is pointless. You can't practice real trading until you use real money (sounds oxymoronic, but it's true.) There is an entire dynamic of greed and fear that the FX trader must master, and it can not be taught by any book or online course.

to make loss rarely happened in a row, trade in less frequency, the market will change it's pattern, so the system will takes it's chances
or trade in rush while the pattern/trend still last, and gives you chance to shot a winning trade. (between waiting the tide to change, or chasing the wind)

MM should be kept until the trade is closed, never change it when it is in effect, conflicting command may occur, but we may split an account to have several MM or system, just decide it beforehand.

martingale takes no loss as answer, and since winning is on pips, we don't need to double it all the way down.

spare money never hurts, but it may haunts your itching hands

to hold your losses, means to trade in very very long term, adjust it as such, or it may never have a chance to win.

remember, your deposit is not a fixed price, it can be added & subtracted
should risk % is ignored, at least don't ignore how fast a deposit can arrived. especially wire transfer, you may mistakenly write something else in time of distress.

never use margin call in MM, unless you only has 1 trade with no pending and no backup plan. i guess in boxing some call it royal rumble?

EXACTLY! Which is why proper in-trade management is crucial in order to realize when you're positioned in the wrong side of the market and thus you gotta exit ASAP.

In-trade management is basically "cut your losers quickly, let your winners run". That principle in itself will make you more money than all the Money-Management-engineering in the world.

Well you've got the point. I've used the term "money management" as an umbrella expression. In-Trade management yep. That is the most important.IMHO. In short where the hell you exit.??? And I've thought position management = money management. Why? I tell a little secret. Your position IS your money. Cash is cash it is money. But it is sleeping. Your real money is your position so when the cash is going out (loosing position) it has to becut short.... WTB rocks