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Money Management..keeping the money...

  • #21
  • Jun 11, 2007 9:49pm Jun 11, 2007 9:49pm
Same story different scenarios...only that mine got a margin call, twice hahaha. Learnt my lesson then and there...thanks for sharing!

Quoting Rabax
Well...

From my point, I haven't thought about this. So far I was doing everything right, risking between 1 and 2% on each trade, scaling in positions, etc. Everything was good, nice returns, small drawdowns... until last week.

GBP/JPY was my executioner and of course - my greed and "conviction" that I was right and knew what the market will do.

I read tons of articles, books, topics on MM, capital preservation, psychology, planning, etc.

It just so happened I stayed at home sick since last Tuesday. With nothing better to do I was keeping the trading platform open and checked prices every now and then out of boredom.

On Wednesday the party began. I decided to lower stops, because of course, GY is going up to break 243, I knew it, it was inevitable. On Thursday morning I was in profit above 242, but it wasn't enough, I wanted more. I was due to prepare a report (I manage small funds for a group of investors, with a new load ready in the bank account for a transfer to the broker - this was luckily not yet done). The balance on the trading account was not very high, thank god.

After Asia on Thursday the correction began, we all know how much it dropped till Friday. When I got to a couple % drawdown, I said, no, it's going to start going up, I'm certain... it didn't. I started to hedge, only to get out too soon, get more negative balance.

In the end it was me, my account, my stupid decisions and greed and a 70% drawdown.

The hardest thing was writing the monthly report for the investors. It is a lession I will never forget (I hope). Never again will I be on the computer with the platform open and watching the price action go (I don't scalp, I trade intraday, but even better I like long term positioning).

What is done is done, there is no way to mend it, only to start again, with a huge % to gain, before getting a +/- account balance, then we start accumulating profits again. It hurt and it hurt bad. The worst was that some of the investors are very heavily banked so to speak and could have been my future in the long term if I proved them with good long term (at least a year or two) results.

Anyway... it seems I had to learn it the hard way...

But still I think that compounding gains is the way to go, you can risk less to earn the same sum of money or risk the same % and get more money (keep the investors happy in both situations).

But I have decided to keep the new investment money in the bank account for a week or so and to inform all other (new) investors what happened and if they still want in...
  • #22
  • Jun 12, 2007 6:51am Jun 12, 2007 6:51am
Quoting blueruby
The scenario is similar to situations given to traders by Van Tharp.

Fellows, if you don't take the car you're choosing a 90% chance of ending up with nothing. Choosing an almost sure loser instead of the Porsche......

Most traders make this mistake. In fact, that's what has been ruining my trading lately and I'm just getting a handle on it again.

When you don't close the trade and take your profit, it's like seeing a $10 bill laying on the sidewalk, the person who lost it is obviously long gone, all you have to do is pick it up. But you walk on and say, no, I don't want it, there might be a $20 around the corner.

I know that's not what this thread's about, but that is what the Porsche scenario is addressing.
The way I see it, I have zero risk... so if I don't get the $1m, what did I lose? Nothing... what's the big deal?

But trading doesn't really work that way: every time we enter the market there is the potential of losing money at any time. Saying that Leonardo's test applies to trading is like comparing apples to oranges.

Now if guy with Porsche said, "Hey! If you save my kid I'll give you a $75,000 car or 10% chance at $1m," before you saved his son, then this is a situation more like trading since the risk here is that there's a potential that you could lose your life.

Heck... if that happened, I'd probably think the guy's nuts and let the kid get run over. And if he sued me... well that's a smaller risk value than losing my life, isn't it?
  • #23
  • Jun 12, 2007 7:08am Jun 12, 2007 7:08am
This is all quite interesting, the over-riding mantra that I abide by is "make pips, keep pips, repeat".

The next part relates to how you build your capital and retain it. I adopted a very clear financial plan from day 1. This involved only making 10 pips per day at 10 mini lots ie $100. Then, when successful and proving my strategy I gradually increased in the folowing way :

Wk1 10 pips per day at $10 each = $500
WK2 15 pips per day at $10 each = $750 bal $1250
WK3 15 pips pd @ $15 each = 1125 bal $2375
WK4 20 pips pd @ $15 each = 1500 bal $3875

I continued this strategy in principal and am now at week 12 running 30 pips per day at $40 per pip and have a substantial balance. I will eventually get to $100 per pip trades and always have the comfort of enough in the pot to cover the inevitable bad trading day and recover.

This is a long term end game, not a quick win strategy nor is it a way to immediately supplement your salary or replace it.

  • #24
  • Jun 12, 2007 7:09am Jun 12, 2007 7:09am
At the end of the day its not how many pips you make, but how much per pip you make !
  • #25
  • Jun 12, 2007 7:32am Jun 12, 2007 7:32am
Quoting Rabax
Well...

From my point, I haven't thought about this. So far I was doing everything right, risking between 1 and 2% on each trade, scaling in positions, etc. Everything was good, nice returns, small drawdowns... until last week.

GBP/JPY was my executioner and of course - my greed and "conviction" that I was right and knew what the market will do.

I read tons of articles, books, topics on MM, capital preservation, psychology, planning, etc.

It just so happened I stayed at home sick since last Tuesday. With nothing better to do I was keeping the trading platform open and checked prices every now and then out of boredom.

On Wednesday the party began. I decided to lower stops, because of course, GY is going up to break 243, I knew it, it was inevitable. On Thursday morning I was in profit above 242, but it wasn't enough, I wanted more. I was due to prepare a report (I manage small funds for a group of investors, with a new load ready in the bank account for a transfer to the broker - this was luckily not yet done). The balance on the trading account was not very high, thank god.

After Asia on Thursday the correction began, we all know how much it dropped till Friday. When I got to a couple % drawdown, I said, no, it's going to start going up, I'm certain... it didn't. I started to hedge, only to get out too soon, get more negative balance.

In the end it was me, my account, my stupid decisions and greed and a 70% drawdown.

The hardest thing was writing the monthly report for the investors. It is a lession I will never forget (I hope). Never again will I be on the computer with the platform open and watching the price action go (I don't scalp, I trade intraday, but even better I like long term positioning).

What is done is done, there is no way to mend it, only to start again, with a huge % to gain, before getting a +/- account balance, then we start accumulating profits again. It hurt and it hurt bad. The worst was that some of the investors are very heavily banked so to speak and could have been my future in the long term if I proved them with good long term (at least a year or two) results.

Anyway... it seems I had to learn it the hard way...

But still I think that compounding gains is the way to go, you can risk less to earn the same sum of money or risk the same % and get more money (keep the investors happy in both situations).

But I have decided to keep the new investment money in the bank account for a week or so and to inform all other (new) investors what happened and if they still want in...
That must have been hard to type that here...I'm sure it will help you in the long run. Thanks for sharing.
  • #26
  • Jun 12, 2007 1:02pm Jun 12, 2007 1:02pm
rabax,

think about victor niederhoffer and how he must have felt the day he was forced to close his fund...now hes up again and runing....

or take mediamanic jim cramer...a couple or downdays more back in 89 and he would have been broken down ...it was just pure luck
  • #27
  • Jun 12, 2007 2:28pm Jun 12, 2007 2:28pm
Quoting Rico Warez
..., I think there are other factors to consider. The fact that Bob would be engaged in a partnership with this businessman would add value to the second option, beyond just the 1,000,000. Establishing a connection with such a person, and also learning a bit from him, could be very valuable. The first choice would depreciate in value (if you kept the car), and the second could potentially appreciate in value a lot. I'm probably reading waaaaayyyy too much into it.
I absolutely agree with you.

Life is a trade.

Whatever situation you are in..., it is how you deal with the situation is what propels you to greater or lower success levels.

TheRealThing
  • #28
  • Jun 12, 2007 3:36pm Jun 12, 2007 3:36pm
Quoting bluebuddha
But trading doesn't really work that way: every time we enter the market there is the potential of losing money at any time. Saying that Leonardo's test applies to trading is like comparing apples to oranges.

Now if guy with Porsche said, "Hey! If you save my kid I'll give you a $75,000 car or 10% chance at $1m," before you saved his son, then this is a situation more like trading since the risk here is that there's a potential that you could lose your life.

I perceive this very differently than you.

I see Leonardo's Trading Test as perfectly applicable to trading.

Trading is about dealing with existing opportunities, and making the correct decision mathematically and rationally for your situation. However you ended up in the favorable situation doesn't matter--- what you do once you are there determines your likelihood of future survival.

Successful traders are decidedly opportunistic in nature. How you deal with good breaks is just as instrumental in your future success as how you deal with the bad ones.

Example:--------------------------------------------------------

Imagine going to sleep one night in your suburban home, all well with the world.

You wake up the next morning to find that you, your wife and your next 98 neighbors around you have all been indelibly tattooed with some obnoxious picture over half of your foreheads. (Yes, this sounds outlandish--but read on)

Of this 100 individual subset, the actions that are taken, and how soon by the unwitting recipients--- will inevitably determine how they succeed financially over the next 20 years, relative to the 100 person subset and society in general.

Those who get the tatoos removed the fastest will suffer the least harm. Those who just accept the tattoo as "well, I didn't ask for it, and I shouldn't have to do anything about it," will not fare as well. The worst outcomes would likely come to those who determine that they like the tattoo.

The ramifications of this scenario, and optimal corrective actions are very predictable, even though the likelihood of the attack wasn't predictable; any more than you could predict that you would be saving a child today. It is what people do with the unpredictable occurrences in their lives that increases their ultimate utilities.
--------------------------------------------------------------------

As some have mentioned, they believe that obtaining success is achieved by closing their eyes to any opportunity but a specific daily goal. The next 10 pips..., never mind that a trade goes 150 pips further straightline after taking those 10 pips. And again, and again.

This is great for them if it works. Best wishes on that working for a significant time period. Try a year or 2.

Life is a trading cornucopia. With numerical odds and real consequences for all the actions taken.

That's why it matters (to our ultimate utility expectation) what we do, say, think; and risk. And why it is better to be right more than not, or be more right on the things that matter most.

If a person has a decent trading method and $10,000, how much he puts on each trade as a percentage of his wealth will make a HUGE difference after 100 trades. If the system's frequency of trades is 2/week, a 1% risk per trade might make just a third of the profits that would be gained by risking 1.5%.

Numbers matter. Actions matter. How you spend your resources and opportunities that you possess, regardless of how you got them, determines future potential.

TheRealThing
  • #29
  • Jun 14, 2007 8:48am Jun 14, 2007 8:48am
Quoting bluebuddha
The way I see it, I have zero risk...
I disagree. You have a $75K Porsche in your hand. That is your risk. Play on for the million, you're almost sure to go home with nothing.

That's like the "playing with their money" mentality. No, if you made a profit, it's your money. If you lose it, you lost your money!

You deposit 10K, you double it, you play a hunch, ignore money management, and lose half on one trade. "Oh well, I haven't lost anything, I'm back where I started."

Guess what? Keep thinking that way and in 10 years you'll still be where you started. Actually you'll probably be totally broke.
  • #30
  • Jun 14, 2007 3:19pm Jun 14, 2007 3:19pm
Quoting blueruby
I disagree. You have a $75K Porsche in your hand. That is your risk. Play on for the million, you're almost sure to go home with nothing.

That's like the "playing with their money" mentality. No, if you made a profit, it's your money. If you lose it, you lost your money!

You deposit 10K, you double it, you play a hunch, ignore money management, and lose half on one trade. "Oh well, I haven't lost anything, I'm back where I started."

Guess what? Keep thinking that way and in 10 years you'll still be where you started. Actually you'll probably be totally broke.
If this is a one-time occurence, maybe it would be better to take the car. If you were presented with this choice ten times or more, however, you would probably profit more from taking the %10 chance at a million bucks. Also, the more you encountered this scenario, the more you would profit from taking the second choice (the money). I'm not sure what the best trading comparison might be, but I don't think it would have to do with poor management. I would say more like: you are in profit, and you set your stop to break even. It appears the market is starting to go against you, and you are currently looking at (to keep it simple) $75,000 profit. Suppose you thought there was a 10 percent chance that the market will continue in your desired direction in the long run, giving a profit of $1,000,000. I know it probably doesn't really work this way, but again, just to keep it simple.... The more you found yourself in this situation, (and if you had to choose one or the other,) the more you would profit from trying for the million. Am I right? I could be wrong; someone help me out.
  • #31
  • Jun 14, 2007 8:08pm Jun 14, 2007 8:08pm
Go for the Porsch

That was easy

Roulette red or black bets have far greater odds than 10% and it's not even a smart game to play.
  • #32
  • May 25, 2008 10:41pm May 25, 2008 10:41pm
  •  FxChi
  • | Joined Dec 2007 | Status: Cash Rules Everything Around Me | 749 Posts
Quoting TheRealThing
Many traders confuse trading method money management systems for their own personal utilities.

Utility Theory and Prospect Theory are closely allied, in that they allow one to understand how people make choices in situations where they have to decide between alternatives that involve risk, as in financial decisions.

This is very useful knowledge if you plan on continuing trading Forex for serious money.

I have enclosed below a trading test that was on a futures trading forum 8 years ago. It was extremely popular, and had hundreds of replies.

By its continued existence and the variety of personal responses of different traders as to why they would make such and such of a choice, it helped other traders see the reason "why" there is so much diversity of motive and style in trading. Also, why you have a very good opportunity to reap profits because of another guy's personal utility.

(Note: there is no absolute correct answer to the question below. Perhaps a more correct one for people in certain economic strata. (Think of the situations you've witnessed on Deal or No Deal. Everyone's circumstances are unique, hence why there are markets.)


LEONARDO'S TRADING TEST


One day when trader Bob was shopping downtown, he saw a child running across the busy street without looking, just about to be creamed by a bus. Dropping his packages, Bob runs out into the street, grabs and saves the child in the nick of time.

It turns out that the child saw his father get out of his new Porsche on the other side of the street and was rushing to get to him.

The father of the child, a wealthy Wall Street arbitrageur; seeing Bob's display of selfless courage was effusively thankful to the stranger and insists on offering him a reward.

Either he would give Bob his new Porsche right now, (worth $75K) or if Bob would be interested; a free partnership in a small deal that he's working on ---which he makes clear that there would be a 10% chance of returning $1,000,000 in a couple of months. (This is a theoretical value of $100,000.)


Which reward do you think Bob should take?

It would help if you would mention why you think your's would be the best choice.

Me? I've always been a sucker for a nice Porsche. Which makes this question a challenge.


TheRealThing
Go for the partnership. There's a reason why the guy is driving a porsche.
"Wishful thinking dies hard." Igor T.
  • #33
  • Jul 20, 2011 4:28pm Jul 20, 2011 4:28pm
Quoting blueruby
The scenario is similar to situations given to traders by Van Tharp.

Fellows, if you don't take the car you're choosing a 90% chance of ending up with nothing. Choosing an almost sure loser instead of the Porsche......

Most traders make this mistake. In fact, that's what has been ruining my trading lately and I'm just getting a handle on it again.

When you don't close the trade and take your profit, it's like seeing a $10 bill laying on the sidewalk, the person who lost it is obviously long gone, all you have to do is pick it up. But you walk...
I thought this was excellent analogy and post in case anyone else needs to read it from this dated thread - about closing profitable trades.
  • #34
  • Jul 21, 2011 10:00am Jul 21, 2011 10:00am
I am a risk guy, but I would have taken the porche, may be
go go go
  • #35
  • Sep 18, 2011 11:51pm Sep 18, 2011 11:51pm
I like the car, and know that I can sell it and convert it to money. But then I know that I might not be able to use that money to grow it to a mil. Therefore I will take the chance of 10% in getting 1mil, also the fact that I might not get a second opportunity for a mil like this again.....

I guess in a way is seeing which opportunities cost is higher to you as an individual. Guess that's why the market is so dynamic.
  • #36
  • Sep 19, 2011 2:09am Sep 19, 2011 2:09am
How come no body ever looked at their own circumstances before making the decision? as in, their financial reward to wealth ratio. This is the most IMPORTANT FACTOR TO DECIDE about your choice , not whether you like your porsche or not. this is how you grow your wealth.


if 75k is ALOT to you, as maybe you come from a Poor family, making only 1k per month. Then 75k is a good start. it is 75 times your salary and may get you out of your rat race. since it is a one time opportunity.


however if you are making 75k per month, why bother with that 75k just go for the 10% of 1 million which net present value is 100k which is more worth it.



Also someone mentioned that if this opportunity was a one time he would take the car and not the money, i disagree with this.

If you were given 10% of 1 million 100 times compare to 75k 100 times, this is a basic math question we only need to know which one is more worth it as the more times the opportunity occur the more the luck element falls. so the NPV of 10% of 1 million is 100k > 75k come on guys. all of your answers needs to be realistic in terms of trading not about business opportunity or crap. compare wealth to wealth, value to value and know what is more worth to make decision in trading. common sense tells us that we will go with the guy as he owns a Porsche as a business partner DUH. but this is not what this thread is about ! so please reply in trading sense.


There are two type of traders one who take 10 pips per day without caring how much more the market will rally, they care about hits to miss ratio, if they can hit more than they miss, taking more pip than they can per day, they are growing their account consistently , this needs a very sound scalping/swing trading system. (IE:Boris schlossberg)

another trader type analyze the market and enter position with good RR but try to take as much pip as they can depending on market analysis (IE: Raghee Horner)

fact and history tells us both work, MM is more important than system, any crap system works with proper MM. this is from experience i've seen new traders make it with good MM . but if you take a great system and apply zero MM knowledge, over trading, it, you are bound to lose it all and you wonder why.


BTW this is a 3 YEAR thread, props for bumping it, MM is important
  • #37
  • Oct 23, 2011 11:11am Oct 23, 2011 11:11am
Quoting Greenstar
I thought this was excellent analogy and post in case anyone else needs to read it from this dated thread - about closing profitable trades.
So what about divide entries into two or three smaller ones and then have a rule to close one after reaching eg 33% of tp and second after reaching 66%?
  • #38
  • Nov 14, 2011 10:35am Nov 14, 2011 10:35am
Quoting TheRealThing
LEONARDO'S TRADING TEST

Either he would give Bob his new Porsche right now, (worth $75K) or if Bob would be interested; a free partnership in a small deal that he's working on ---which he makes clear that there would be a 10% chance of returning $1,000,000 in a couple of months. (This is a theoretical value of $100,000.)
[/size]

Which reward do you think Bob should take?
TheRealThing...
I think you've all missed the point here ! it clearly says that the theoretical value of 10% out of 1.mil$ is 100.K$ (two months from now) respect to 75.K$ (now) ! it's not just about the risk factor here, it's also about the time value of money ! the trick is right there in the text : "in a couple of months" !!!
SO, again : the question here is not just about risk, but also about the time value of money (take the money now or take the money later) !

just watch this video : http://www.investopedia.com/video/pl...#axzz1dhHAdtrU

The answer is pretty easy in my opinion : take the money NOW !
  • #39
  • Nov 17, 2011 4:43am Nov 17, 2011 4:43am
Quoting svtnick
Im just curious, but I have learned from past mistakes(and other peoples) to take out a profit from your account when you reach a certain point. For example, I always keep a balance of 10000 in my account. When I make a 30% profit, out it comes. I do this because I know that I am sometimes tempted to let a trade go(dont ask, but i sometimes get carried away and hedge currencies against each other to manage risk), even if its going against me thinking it will bounce back(ive been lucky)..its my way of risk management...and its a way to keep your...

No doubt, that the mentally aspect of trading is the most important thing among the different elements of trading. I believe its weight is over 70-80%. About the problem that you brough up- I had the same problem by myself- did not withdrawal my profits and eventually lost them all. I actually did what you suggested, which means that I set a level in which I automatically send a withdrawal form to my broker, without any questions. That is the only way…
  • #40
  • Last Post: Sep 12, 2018 2:28am Sep 12, 2018 2:28am
It’s fun to go back after all these years to read ones old posts to see if they are still relevant......I’m still in it...so they must be....
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