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Request for risk/money management critique for optimization

  • Post #1
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  • First Post: Dec 18, 2016 7:16am Dec 18, 2016 7:16am
I am currently looking to optimize my risk and money management. Could anyone critique it and optimize?

I am conservative but active trader, so I am looking for low draw-down, and using compound interest to increase account with small gains.

Strategy is breakout + trend following on M5 time frame.
Win rate is 49%.

1. Scaling in:
Currently I risk 1% of the account and divide position in two equal parts of 0.5% risk.

When signal to enter has no follow up, I exit position. If there is follow up in next candle I add second position.

2. Scaling out:
I scale out first position when TP is hit: somewhere around 2 times risk (depends on weekly pivots, S/R, price action).

I let the second position run until it breaks 1 standard deviation back of MA50. Like here:
Attached Image (click to enlarge)
Click to Enlarge Name: 332Screenshot1.png Size: 131 KB


Theoretically it could run into infinity, if trend is sustained. This part must be part of the system to maximize rare occurrences.

I am trying to optimize:
1. Division of the trade. Some are using 2-1-1 (50%+25%+25%). How mathematically calculate which is the best? What is the probability of position running beyond daily ATR?
2. Size of the trade. Especially I am trying to use 25% of Kelly criterion. Currently on EUR AUD I have such result:

Attached Image


but 10% is too much for me. Maybe 12.5% of Kelly (5% risk) would be more manageable. EUR or GBP + commodity pairs are trending more than majors.

Please critique the money/risk management so all can benefit.
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
According to attached PDF by http://www.forexfactory.com/pipmeup
there is no need to scaling out or in. It decreases the expectancy.

Quote
We proved that taking partial profit only destroys the potential of the winners. They may no longer cover the losses.
Trailing the stop to BE increases the risk of being unduly stopped out and it costs more than it saves because some risk
was taken for no reward. If the SL is at a given place it is for a reason and as long as it isn't hit the trade is still a
potential winner and that if this isn't true the SL is not at the right place.

Anyone has more information on multiposition entry/exits with heavy mathematics?
Attached File(s)
File Type: pdf Expectancy management.pdf   948 KB | 225 downloads
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
Or maybe direct me to relevant link?
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
Quoting Ramadas
According to attached PDF by http://www.forexfactory.com/pipmeup there is no need to scaling out or in. It decreases the expectancy. {quote} Anyone has more information on multiposition entry/exits with heavy mathematics? {image}
This conclusion is wrong.
It asumes that in all 3 cases "p" is the same value. But it is not, because with taking partial profits and trailling stop ( second and third case) you increse "p" (win rate)value.
Math and trading are two different things.

EDIT:
I noticed this in 3 seconds, so it looks like a fancy math, but the writer of this PDF is very poor mathematician.
PVSRA
PVSRA+TLs M5-H1 Forward Test All Time Return: 33.8%
Quoting Ramadas
Or maybe direct me to relevant link?
Attached Image (click to enlarge)
Click to Enlarge Name: ScreenHunter_676 Dec. 05 15.15.jpg Size: 179 KB

Tis much better trading math...
PVSRA
PVSRA+TLs M5-H1 Forward Test All Time Return: 33.8%
Quoting Fisher755
{quote} This conclusion is wrong. It asumes that in all 3 cases "p" is the same value. But it is not, because with taking partial profits and trailling stop ( second and third case) you increse "p" (win rate)value. Math and trading are two different things. EDIT: I noticed this in 3 seconds, so it looks like a fancy math, but the writer of this PDF is very poor mathematician.
Thank you!
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
Quoting Ramadas
{quote} Thank you!
I have extreme live trade example that might give you better idea...
Attached Image (click to enlarge)
Click to Enlarge Name: NZDUSDiDaily 26.12..png Size: 70 KB
PVSRA
PVSRA+TLs M5-H1 Forward Test All Time Return: 33.8%
Quoting Fisher755
{quote} I have extreme live trade example that might give you better idea... {image}
You must have been very sure that after first red candle, price would not go up for good...
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
Quoting Ramadas
{quote} You must have been very sure that after first red candle, price would not go up for good...
A bit more sure than average trade setup yes...PVSRA, H&S support + FA on the side of USD, but that is not so important here. In normal conditions it would be half less EPs max on the table.
What is important is calculation in PDF does not asume basic things- like win rate change with more than single EP ( much easier trade managemnet) and swaps calculation on higher TFs.
I mentioned that this is extreme case, but the setback with single entry here is very well visible.

Universal risk management is made by Sisse and represents best risk management in all kinds of situations ( post above my NU extreme)
PVSRA
PVSRA+TLs M5-H1 Forward Test All Time Return: 33.8%
Quoting Ramadas
According to attached PDF by http://www.forexfactory.com/pipmeup there is no need to scaling out or in. It decreases the expectancy. {quote} Anyone has more information on multiposition entry/exits with heavy mathematics? {image}
Hi, Ramadas. I also take partial positions before I go to bed (after London close) and ride on the rest of position for overnight. Your M.O. is similiar to mine. But I usually don't make a specified T/P target for intraday trading. It depends.

I want to make several points of my opinion for your reference.

1. Take partial profits and ride on the rest of them, in fact, I am using TWO systems. One is intraday or shorterm, the other is a medium term/time frame system(several days to several weeks.) . I think your situation is quite similiar despite that your systems are made of intraday and a shorter time frame system.
2. In a trend market, buy and hold (ride on) system obtains higher expected return than intraday system.
3. But in sideline market condition or a correction is happening, intrayday is better.
4. Intraday s/l is different from S/L of medium term, becaus swing is different. Conditions for close are also different. Surely they are two trading systems.
5. how big the positions? I think the max drawdown shall not exceed 5% considering that it may occur 2 or 3 times consecutively. If you are OK with more risk maybe 10%? If you are quite risk-aversive, maybe 3%.
Hi Ramadas, I see U a logical trader and I am a newbie. I think your scaling in/out is good and all you need MM & Risk Management. all you need just stick with your rule and your equity will growht...


Sorry for my english


Best Regards
Quoting StrikeBack
{quote} Hi, Ramadas. I also take partial positions before I go to bed (after London close) and ride on the rest of position for overnight. Your M.O. is similiar to mine. But I usually don't make a specified T/P target for intraday trading. It depends. I want to make several points of my opinion for your reference. 1. Take partial profits and ride on the rest of them, in fact, I am using TWO systems. One is intraday or shorterm, the other is a medium term/time frame system(several days to several weeks.) . I think your situation is quite similiar...

Thank you. Did you try other ways of managing the risk/money and did you have worse results? How did you test it?
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
  • Post #13
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  • Last Post: Dec 27, 2016 1:50am Dec 27, 2016 1:50am
Quoting Ramadas
{quote} Thank you. Did you try other ways of managing the risk/money and did you have worse results? How did you test it?
You are welcome. The most effective of way of risk control/money management is position size, I also tried to follow other pinciples.
First, only long in an up-trend market, only short in a down-trend, ie, no conter-trend trading. Some times I did try to catch an opportunity of major top or bottome but with a very high caution.

Second, nobody can catch every single move, so some trading shall be passed which also depends on experiences.

Thirdly, I saved some profits for a black swan event bu transfering partial profits to another sub-account.

Maybe other trading friends can make some contributions here?
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