Money Management Theory

Hello,

if you can't wait untill you're profitable on a demo account,at least demo trade for two months.at least you were able to hold off losing all your money for two month right? If you can't hold out foe two months,just donate that money to your favorite charity or cut your hand off.

Yes,

it is same as climbing a mountain.

During the all ascension you are asking yourself if you are on the way to something great or just wasting your time ?

[quote=hellsbells;12117104]{quote} Hey Ric thanks for your response. I have to say it's nice popping into a thread where people have given pleasant reasonable respon
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I think that there are subsets to the OP's question...

These are dependant on your goals. For the purposes of example and assuming that the market is predictable - ie the perfect 50:50 win one lose one, you would employ different money management between bank building and income based accounts.

It may well be worth it in the long term to trade with big risk to hit 3 or 4 trades to get big rewards, and then to revert back to a 5% risk, or 3%, 2% etc..

It may be that you do not even consider risk the biggest factor, but the reward. It may be controversial, but blowing an account or two is not neccesarily a bad thing, but at the same time, it is all risk management. having 5 accounts of $100 Is not the same as having 1 account of $500.

moving on from this, an income account, where you need, or want to draw money out on a regular basis, goes back to the old adage of don't risk more than you can afford to lose. Bank building is all about getting money in the account - whether increasing risk or compounding, income is more about containing risk regardless. Again, your goals are what matters here.. it may not be thinking of risk but purely about the reward.

Moving away from a percentage risk, you may elect to use a multiplier in your trading.. so add 0.01 lot for each $50 you make.. or add 1 lot for each $5000 you make. You are borrowing from your past wins to pay for the increase in lot sizing. It makes your profit curve smoother as well.

On the BE part and the partial profits, I have been doing extensive testing around this recently, with no clear 'this is the better way' of doing things. One thing which was abundantly clear, is that letting profits run produced much bigger results for the same risk (per trade opened). In my testing I implemented a full tp/sl and full tp/be on TP1 hit. full tp/be on tp1 was the far greater of the two methodologies- but this was based around dynamic TP's and SL's. I have not done it on static as of yet (hundreds of lines of data done manually!) In actual fact, full tp and full SL on the bigger tps had a much better profitability than just letting trades run to tp1. There again, it all depends on the strategy that you use as well.

On this I also tested out a different type of theory.. which was lot x as a first trade and then lot 2x on the second trade. So taking a position size of 0.1 for trade one, and then 0.2 for the second trade on the condition that trade 1 won. trade 3 would be 0.1 lot etc. The profitability on this was exceptionally good as well, much better than a straight 2% risk model, despite the obvious win on the first trade lose on the second trade. The other condition was that a losing trade resulted in 0.1 lot size for the next trade... so if you have trade 1, 2, and 3, all losing, your lot size would be 0.1 for each. Likewise a win on trade 2, would result in 0.1, 0.1, 0.2 (l, w,l) scenario. This was tested on a 75% win condition, It was surprisingly profitable.

Anyways, a few of my thoughts/experiments!

Money management is the key to succeeding in the market, you don't have that you stand the risk of losing it all.

No such thing. Figure out what works best for you.

- Ric

I have no idea what you are talking about. But thanks for the post. Please rewrite or try and clarify what you are trying to say/ask.

Thanks,

- Ric

Hey LDXF,

That is a great way to put it.

Thanks,

- Ric

Hey rolandW,

Thanks for the post. Interesting points to consider. Again, everyone has to find a way to make this work for them. The most important thing to understand your true costs of trading. If you cant understand that, you lost before you started.

Thanks,

- Ric

Please elaborate on what you mean by "True cost of trading "

In post #37 I explained what I pay and what my charges are for my trading. You have to figure out what your costs are based on your broker. Follow this checklist.

1) Most brokers charge rollover once a day, figure out what time and how much they charge.

2) Is the spread you pay charged @ half-spread or is that spread paid in and out. Example. If you pay 2 on the GBP/USD, is that 1 in and 1 out or 2 in and 2 out.

3) If you pay commission, understand how it is charged and how much.

-Ric

Everyone knows that money management is a crucial aspect of successful forex trading.

Yeap, it is a HUGE part and many methods to play it with Try fitting different MM Strategies to your systems and check backtest profitability, the result might stun you

While I agree the majority of traders know they have to manage the trade, I disagree that those same traders fully understand how important it is. Most are focused on how or why the trading system they use failed or isn't working as good as it should. I maintain that while building a trading plan it is imperative that you try different money management methods within the same trading style. In can make or break your trading.

- Ric

You know something, this money management thing can come in different form and ways. It all depends on what work for you, some choose to use bonuses to test out a strategy and save their main funds. That's a good way to go.

We are talking about controlling your trades and funds. Where the funds for the account come from are irrelevant.

Thanks

- Ric

Hey Mohsinali,

Same avg wins/losses but yet still ahead. Hmmm.... How did you do that?

- Ric

Hi riclater.

They are MAXIMUM....but not average.

Max Cons WINS = 3
Max Cons Loss = 3

Could be...... WWWLWWWLWWWLWWWLWWWLWWWLLLWWWLWWWLWWWLWWWL........Just ONE set of Maximum Consecutive losses of 3 trades.......but a majority of Max Consecutive WINS of 3 trades.

Just a thought......nice thread by the way.
Cheers