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Money Management Theory

  • #21
  • Feb 4, 2019 4:03pm Feb 4, 2019 4:03pm
Quoting hellsbells
{quote} MM is def as important as the strategy. For me I find entering a trade super easy , in fact my entries tend to be impulsive and poor (which is an embarrassing admission and one I am working on) . For eg confirmed 5min full candle break out boom enter trade when if I wait for a few minutes there's bound to be at least a partial retracement which could possibly mean the difference of 1pip to my trade. So most of my stress is then waiting an extra 15min-30min for 3-4 pip move in my favour before I can tighten my SL to say 1pip in loss and then...
Hello hellsbells,

Thanks for replying.

Thanks also for being candid and honest. We could use a lot more of that around here. Now scalping is not my thing anymore. I will say I did used to scalp for about a year. For me, the stress was way high. I was running about a break even on a ROI basis during the last several months of scalping but man that stress was killer and I just couldn't take it. Everyone has to find the right fit in trading. For me scalping was not it LOL. Not saying your wrong just saying for me, I cant hang. I know some scalpers who love it and do well. They laugh at me and call me old man because I trade daily charts LOL.

I agree that in scalping, retracements are the death of a trade. My scalping was based on market opens. Each time a new market would open, I would try and take advantage of 10-20 pip average spikes in the first 2 hours (at the time in early 2004) of USA, JPY and GBP market openings. My money management skills where not like today however. Basically I used to risk 7 + spread to capture 10 + spread. It was hit or miss. Like I said I ran about break even for most the time. My issue was feeling like I had to take a trade or I missed my opportunity. I came to realize that feeling was baked into the "strategy" I was using.

Never stop learning or trying different things. You never know what you might find you are better at.

Thanks again,

- Ric
Be humble or get humbled
  • #22
  • Feb 4, 2019 4:32pm Feb 4, 2019 4:32pm
Quoting IenDzi
{quote} If you have a loosing system, money management doesn't create winning system from it. And if you have a winning system and take overleveraged trades, that system can easily fail. So winning system with bad MM can fail. Most of my created and testing systems has expectancy per trade -1*spread. Every time you take a trade, you loose spread. And a few profitable systems return was so small, that it doesn't make sense to trade. So for now I am thinking that profitable trading is impossible. And if it is possible, you need to be very lucky and...
Hello IenDzi,

Thanks replying.

I can understand your frustration. I am sorry you can not find anything that works for you in this market. I might suggest you just keep trying. There are so many different ways to trade you may find something. Do not get stuck on the same ways of trading or thinking. Of course maybe trading just isn't for you and that is OK too. It is not for everyone. However, I disagree that because you can not find a way that works for you that you can use a blanket statement like," profitable trading is impossible. And if it is possible, you need to be very lucky and make an astronomic effort" is incorrect. Either way thanks for replying and I wish you luck in your future projects.

- Ric
Be humble or get humbled
  • #23
  • Feb 4, 2019 7:25pm Feb 4, 2019 7:25pm
Quoting riclater211
{quote} Hey Havo, Thanks for replying. I understand what you are getting at and I even agree in the way you phrased, however, I still maintain that every trade, every set up is completely different than any other trade ever executed.
For sure !! unless you are stacking trades in the same place/move, every single trade IS NOT connected with past trades, thats why the win/lose ratio compared with the past its just plain dumb.. same as "backtesting" a strategy for X years to see if its "profitable" !! that practice its just cruve fitting the settings TO THE PAST and NOT the future..



thats why the ONLY 2 thing that matters its naling the market direction and th optimal place to enter, that alone can give you a huge probability of ending positive in every trade

Quoting riclater211
How can I have any idea how a trade will go, despite my EDGE? At any time everything can change. I do like what your saying though. That is the point of this thread.
Because its a every specific set of conditions that if you take a trade there you will ride the market in the direction its going (end positive eventually no matter what) with very little draw down (small stop loss because it was the optimal place to enter before the price resume its direction).. THATS a real edge

BTW 1 thing everyone needs to abandon its the silly concept of "Risk reward" thats the dumbest thing ever created by god knows who; the cold hard truth its that you NEVER know how much the market its going to move in your favor, no matter how many lines/support/resistance/indicators etc and all the crap you can imagine.. all of those are just "attempt to make an educated guess" at best..

your minimum target should be the same stop loss x1.2 + spread/comission (if you are using % based positions) so in case you lose a trade you can recover easily with the next one (BTW, the ONLY way i could achieve that was using a different type of chart that the traditional time based "japanese" charts)

I never know exactly how much im going to win, sometimes i hit a home run and got a nice runner trade OR i get the 1:1.2 trade OR i break even.. that should be the real focus of a trader (im my opinion and practice)

Quoting riclater211
To see how this community thinks and does things. I am not looking for help or advice, just honest conversations that might spark a change or even guide each other by thinking in a different way. Traders in general tend to run off ego, especially if they see a bit of success. We stay, and I was guilty of this when I was younger, entrenched in our ways and will fight our position till the end. I try not to do that anymore. As best as I can anyway. I will keep what you say in mind. Thanks again, - Ric
Those are funny.. until the reality hammer hits them lol
  • #24
  • Feb 4, 2019 9:32pm Feb 4, 2019 9:32pm
Quoting havo
{quote} For sure !! unless you are stacking trades in the same place/move, every single trade IS NOT connected with past trades, thats why the win/lose ratio compared with the past its just plain dumb.. same as "backtesting" a strategy for X years to see if its "profitable" !! that practice its just cruve fitting the settings TO THE PAST and NOT the future.. thats why the ONLY 2 thing that matters its naling the market direction and th optimal place to enter, that alone can give you a huge probability of ending positive in every trade {quote} Because...
Hey Havo,

It seems we mostly agree on the money management points. Yea I love it when people talk about win/loss or risk to reward. I learned early on that all that stuff does not matter. I see stuff all the time through this site that is just plain wrong. I know people have an opinion at that is fine. We all do. It is even OK to argue your position. But for example, telling a new trader that they should NEVER hold a trade over night, or over the weekend and trying to make it sound as fact is not only wrong, but stupid. I hold positions for weeks or even months sometimes. So that person is obliviously wrong. All situations and strategies as well as money management methods are different. There are as many different ways to trade as there are people trading them.

Sure there are times when the person in that example can be right, but to say never.... it just shows most people on here have no real clue on how to trade or what it means to do so. Just because you cant do something or you do not think something will work does not make you right. I see it time and time again. People giving out wrong advice and other people giving them worse advice. Those egotists are the best entertaiment by the way....

Anyway. I will stop now lol.

Thanks

- Ric
Be humble or get humbled
  • #25
  • Feb 28, 2019 7:01am Feb 28, 2019 7:01am
Risk management is similar as like money management ? there is any big different between tow things ?
  • #26
  • Mar 2, 2019 5:31am Mar 2, 2019 5:31am
Money management can make your trade profitable only in a case you suffered it through. I mean you need to work on your own money management, adjust it, to go through all kinds of challenges and finally to come up with something which works just for you. There is no one unique strategy for all.
  • #27
  • Mar 9, 2019 1:05pm Mar 9, 2019 1:05pm
Money management is like the house’s foundation, without it nothing holds.
LDFX Trading Ltd
  • #28
  • Mar 14, 2019 7:52pm Mar 14, 2019 7:52pm
Quoting NathanAstel
Risk management is similar as like money management ? there is any big different between tow things ?
No they mean the same thing
Be humble or get humbled
  • #29
  • Mar 14, 2019 7:54pm Mar 14, 2019 7:54pm
Quoting FurgotoGo
in other words, forex using the feeling of a trader. is it correct that?
I would say what works best for your trading style. What you can live with.
Be humble or get humbled
  • #30
  • Mar 14, 2019 7:54pm Mar 14, 2019 7:54pm
Quoting Infassen
Money management can make your trade profitable only in a case you suffered it through. I mean you need to work on your own money management, adjust it, to go through all kinds of challenges and finally to come up with something which works just for you. There is no one unique strategy for all.
100% agree
Be humble or get humbled
  • #31
  • Mar 14, 2019 7:54pm Mar 14, 2019 7:54pm
Quoting LDFX
Money management is like the house’s foundation, without it nothing holds.
100% agree
Be humble or get humbled
  • #32
  • Mar 14, 2019 11:17pm Mar 14, 2019 11:17pm
Quoting riclater211
{quote} Hello hellsbells, Thanks for replying. Thanks also for being candid and honest. We could use a lot more of that around here. Now scalping is not my thing anymore. I will say I did used to scalp for about a year. For me, the stress was way high. I was running about a break even on a ROI basis during the last several months of scalping but man that stress was killer and I just couldn't take it. Everyone has to find the right fit in trading. For me scalping was not it LOL. Not saying your wrong just saying for me, I cant hang. I know some scalpers...
Hey Ric thanks for your response. I have to say it's nice popping into a thread where people have given pleasant reasonable responses. It's a shame theres so much toxicity on FF. If people spent more time simply posting their trades and being polite FF would be so much better. Happy trading everyone.
  • #33
  • Mar 18, 2019 9:54pm Mar 18, 2019 9:54pm
Quoting hellsbells
{quote} Hey Ric thanks for your response. I have to say it's nice popping into a thread where people have given pleasant reasonable responses. It's a shame theres so much toxicity on FF. If people spent more time simply posting their trades and being polite FF would be so much better. Happy trading everyone.
Hey hellsbells,

I agree 100%. Forex Factory is full of haters, trolls and wannabes. It also has a bunch of folks who just refuse to be wrong. Lots of EGO all over the place. It does make it not worth it most times to post or try to have a real conversation. I know that some of it is language barrier but not all of it. I can name a dozen "High Impact Members" off the top of my head that fit what I am talking about.

Good luck,

- Ric
Be humble or get humbled
  • #34
  • Mar 19, 2019 1:13am Mar 19, 2019 1:13am
Quoting riclater211
{quote} Hey hellsbells, I agree 100%. Forex Factory is full of haters, trolls and wannabes. It also has a bunch of folks who just refuse to be wrong. Lots of EGO all over the place. It does make it not worth it most times to post or try to have a real conversation. I know that some of it is language barrier but not all of it. I can name a dozen "High Impact Members" off the top of my head that fit what I am talking about. Good luck, - Ric
Dear Ric,

Lucky for us we can simply ignore those that constantly cause disruption. I wanted to thank you for making this thread as there are some nice points in the discussions.

I notice that havo mentioned one of his outcomes is 'break even'.

Do you think that having break even rules for executed trades as part of a money management strategy is a good idea?

What about taking partial profits? and letting the rest run?
An interesting example I have come across was from Etienne Crete, he trades Bollinger Bands for a living apparently. He targets 1:1 RR for a partial take profit and then closes the left over position at 1:3 RR, with a success rate of ~40%.

My thoughts were that if there is 3 trade outcomes (TP , SL or BE) vs 2 outcomes (TP or SL). The one with 3 outcomes may have greater variance in profitability, while the one with only 2 outcomes should have a more consistent outcome and therefore a tighter equity curve in the long run.

Please let me know if my post is inappropriate for your thread and I will edit/ remove if needed

Kind Regards,
Tzamo
"Work hard, put in the effort, and follow your dreams..." -Me
  • #35
  • Mar 19, 2019 2:35am Mar 19, 2019 2:35am
Quoting tzamo
{quote} Dear Ric, Lucky for us we can simply ignore those that constantly cause disruption. I wanted to thank you for making this thread as there are some nice points in the discussions. I notice that havo mentioned one of his outcomes is 'break even'. Do you think that having break even rules for executed trades as part of a money management strategy is a good idea? What about taking partial profits? and letting the rest run? An interesting example I have come across was from Etienne Crete, he trades Bollinger Bands for a living apparently. He...
Excellent question, just the kind of thing I want to learn about cheers h
  • #36
  • Mar 19, 2019 5:16pm Mar 19, 2019 5:16pm
Quoting tzamo
{quote} Dear Ric, Lucky for us we can simply ignore those that constantly cause disruption. I wanted to thank you for making this thread as there are some nice points in the discussions. I notice that havo mentioned one of his outcomes is 'break even'. Do you think that having break even rules for executed trades as part of a money management strategy is a good idea? What about taking partial profits? and letting the rest run? An interesting example I have come across was from Etienne Crete, he trades Bollinger Bands for a living apparently. He...
Hey tzamo,

Thanks for posting. This is exactly the kind of post I created this thread for. All I can do is answer based on my knowledge and experience.

"Do you think that having break even rules for executed trades as part of a money management strategy is a good idea?"

In my personal experience and trading style I would say yes. Some traders frown on "break even" arguing that it strangles the trade from breathing. There is some truth to that but we are in the business of managing risk. I would say that also it is very dependent on how you trade. Scalpers would manage trades different than swing or position traders. I believe that all should have some sort of "B.E." built in a money management scheme.

In my "break even" method I use the tools provided to me by my broker Oanda to help gauge how much I should be ''Saving''. Oanda charges/pays interest by the second but since I trade daily it is much easier to calculate the interest. Currently, shorting USD major pairs will cost me interest, going long with USD major pairs earns me interest, with the NZD/USD as an exception. Either way I must pay with that one.

Since rates fluctuate during the day I just use 1 pip as and average for interest paid. I also add 1 additional pip for the next days interest payment. To that I add 1 pip for the half spread of closing my trade. I then add 1 pip for commission and 1 pip for me. Commission on my account is $4.00 per Full lot in and then out so $8.00 total. If I trade $50K I pay $2.00 in and $2.00 out. I still make a bit off the commission pip. So for each day my trade is on I owe 5 PIPS to my trade. If I am paying interest or earning interest I use the same method to offset any additional costs such as the EUR/USD which costs more than 1 pip per day on Longs. For example, today EUR/USD 50000 Units earns $5.00 per pip but costs nearly $6.00 a day in interest. For what its worth it pays about $4.00 per day for shorting the EUR/USD.

Each day I try to move my trade the 5 pips. Some days I can, some days I cant. If I hold a trade over the weekend I add 15 by Mondays candle close. If there is a good move I adjust my trade to at least catch up on what I owe or if it was a significant move, I go back to my original MM rules. If I get stopped out so be it. There is always going to another trade. Capital preservation is of utmost importance.

It sounds more long winded and complicated than it really is but it is important that if you are going to institute a "break even" method that you fully understand your costs so you can truly set "break even". We are after all running a business here.

What about taking partial profits? and letting the rest run?

As far as trading costs go, they would be the same if you use the same amounts like my $50K example. 2 $25K Trades cost nearly the same or closing half of $50k trade cost nearly the same with only a small variance on spread. On if it is worth it? That is a business decision I can only make for myself. Personally I do not do it. Not that it is bad or anything. I don't see anything wrong with partial profits. Some of my colleagues do it.

One colleague who trades yen pairs and only yen pairs likes to take 2 trades at once. 1st trade has a TP equal to the SL of that trade. The other trade he leaves free. I never really saw the point myself. I see the onset risk as exactly the same. You risk 100 pips and your 1st TP is 100 and you hit it. Great. Now the second trade goes against you and you close it at less than 100 pips. If you just had the full trade at 100 you would have made more and been out of the trade faster, paid less interest in some cases and freed up your margin for other trades that may come into play.

Again, if you are OK with that. Great. It is just not for me. To be honest I have never done a detailed analysis on if that sort of money/trade management would be better or worse for me. I will go back in time about a year or so and run the numbers to see if it would have done any better or worse. I will post the results here when I am done.

Thanks for a great post. I hope to see more like this in the future.

Thanks,

- Ric
Be humble or get humbled
  • #37
  • Mar 19, 2019 7:48pm Mar 19, 2019 7:48pm
If I place a few trades near SR, i might TP 1 trade at say 4 pips, then loosen the BE SL of one of the remaining trades by 4 pip to help save it from a spike. It depends on how confident I am that my remaining trade has a chance to make >10pips ie going with the trend. Regardless, as a scalper I like tight SL , I feel more comfortable with a tight SL, it's for me.
  • #38
  • Mar 20, 2019 4:56am Mar 20, 2019 4:56am
What is the most best money management for forex?
  • #39
  • Mar 20, 2019 6:26am Mar 20, 2019 6:26am
Quoting riclater211
{quote} Hey tzamo, Thanks for posting. This is exactly the kind of post I created this thread for. All I can do is answer based on my knowledge and experience.
What about taking partial profits? and letting the rest run? As far as trading costs go, they would be the same if you use the same amounts like my $50K example. 2 $25K Trades cost nearly the same or closing half of $50k trade cost nearly the same with only a small variance on spread. On if it is worth it? That is a business decision I can only make for myself. Personally I do not do it....
About the question of taking partial profits, I think it all as to do with psychology (at least for me). If you have a trading strategy that gives youba risk to reward ratio of 1:2 / 1:3. Then I think taking out partial profit at level 1 and leaving the 2nd trade to run can help you deal with the psychological drama that occurs if the trade reverses before it gets to the final destination.

And combining this method with a solid trailing stop method can really help you reduce risk (just my thoughts tho)
Always ontop
  • #40
  • Mar 20, 2019 8:30am Mar 20, 2019 8:30am
Quoting TiongeEdi
What is the most best money management for forex?
There's no "best" system, personally I have 2 Money Management models for 2 systems
One Aggressive Casino Style, One with low risk style for long term, know your goals and follow the rules!
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