Thank you for this nice post.
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:
Theoretically it could run into infinity, if trend is sustained. This part must be part of the system to maximize profit on 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:
but 10% is too much for me. Maybe 12.5% of Kelly would be 5% more manageable. EUR or GBP + commodity pairs are trending more than majors.
Please critique the money/risk management so all can benefit.
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:
Theoretically it could run into infinity, if trend is sustained. This part must be part of the system to maximize profit on 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:
Please critique the money/risk management so all can benefit.
Cut short your losses. Let your profits run on. David Ricardo (1772-1823)
