Rocket Money Management with Training Wheels

Rocket MM v1.0

All bad traders out there, fear not. There is a way for you to concentrate on improving your trading skills with full confidence that:

 

1. bad trading will not blow your account and
2. good trading will be handsomely rewarded.

Spoiler: It does have compounding in it, and parlay too.

Let’s start with definitions:

BASE - the account. The equity that is protected at all times.
STAKE - maximum risk for the current period. It’s the seed of growth.
COMPOUNDING - 2*2*2*2*0.5*2*0.5*0.5*0.5
PARLAY - putting all your wins at risk again. Very risky and costs you nothing.

Stake is a tiny portion of your Base. You don’t risk 100% stake. Good traders can risk 50%. Let’s say your base is $1000. Your stake is $30, or 3%. With compounding, given 10 net wins at 1:2 RR, your 3% is multiplied 1024 times. Your $30 becomes $30000.
At 1:2 RR net wins is easily calculated: it’s wins minus losses, because if you lose, you lose half, if you win, you win double. So a win neutralizes a loss.
The biggest caveat here: you have to be a good trader to pull this off. Let’s see what bad traders can do.

All traders, bad or good, have to earn the right to trade bigger lots.

EARN - to be deserving, by virtue of accomplishment. To make money through labor.

Some good traders are born overnight. They retire at 5 years old. The rest worked hard to get there. So shall we.

Back to our bases. The base is $1000, stake is $30. Let’s say there are 7 stages to good trading. Rockets have stages, right? So we divide our 50% by 7, getting 7.2%. How many consecutive losses (not net, mind you) to reduce $30 to $1, risking 7.2% ? 45! You need to lose 45 times in a row. I’m not saying it can’t be done. Technically, it’s dead simple: make your stop loss less than spread. Philosophically, using a conventional strategy, with discipline, and losing 45 times, not necessarily in a row, will be a great experience, making you grow as a person, and a trader. But you have to do it with discipline.

Ok, and how many trades will it take to increase $30 by 14.4%? One. 1. Uno. But you could get lucky on the first trade. Why not trade for a whole day and see what happens? Or place 10 trades. 5 trades? So if after 5 trades your $30 grew by 14.4%, you can increase your risk by 7.2%. That’s parlay. If after 5 trades your account grew by 7.2% again, then increase your risk by 7.2% again. You see, you’re earning your right to trade bigger, literally.

Ideally, after 35 trades, you can get to risk 50% of your stake, like a good trader. Who knows, maybe you are.

Here's one progression:

Risk 7.2%, aim to make 14.4%
Risk 14.4%, aim to make 21.6%
Risk 21.6%, aim to make 28.8%
Risk 28.8%, aim to make 36.0%
Risk 36.0%, aim to make 43.2%
Risk 43.2%, aim to make 50.4%
Risk 50%, aim to make 100,000%

I think the first stages are too easy compared to the last stage, and that doesn't prepare us for the final takeoff. This should be more like it: The risk% remains the same, but the aim is now always double. Which means by the final stage you'll have quite a bit of stake saved up.

Risk 7.2%, aim to make 14.4%
Risk 14.4%, aim to make 28.8%
Risk 21.6%, aim to make 43.2%
Risk 28.8%, aim to make 57.6%
Risk 36.0%, aim to make 72.0%
Risk 43.2%, aim to make 86.4%
Risk 50%, or whatever, you're a decent trader now, it's up to you.
At every stage, you risk your CURRENT stake size, not the $30 you started with. That makes a huge difference in psychology.

Remember, only STAKE is at risk, your BASE is safe.

Q&A

Q: What’s the point of Base if I can grow a stake of $30 to $30000?
A: Short answer: leverage and diversification. The bigger the account, the less leverage brokers will offer. So your Base will provide the leverage at later stages. In the beginning stages, base can be used for diversification into longer term strategies. Add winnings from your campaigns to your base, and then start another campaign. Example:

Base $1000, stake $30. Campaign winnings: $5000.
New base $6000, stake $180. Campaign winnings: $180000 (Jackpot).
New Base $186000, stake $5580…

References:
https://www.forexfactory.com/thread/...35#post6967135

https://www.forexfactory.com/thread/post/4195579

It's better to know that you are a bad trader and start working on yourself than living in a dreamland. https://www.forexfactory.com/thread/...09#post7025409

I know they tell you to bet more when you're on a roll, not me. I'll bet more when I'm on a roll after a losing trade. That'll keep me sober. So percentage wise, I can increase my risk by 7.2% already. But I feel invincible right now, so I'll wait for the sober up.

Fixed the progression sequence. I'm not at the next stage yet.

Risking 7.2%, 14.4% target for my account was $12500*0.03*0.144=$54. It has been reached and exceeded in 6 trades.
Next stage is risking 14.4%, targeting 28.8%, which is now $12574*0.03*0.288=$108.

How many trades needed to reach the 1000 times the stake.

That is obviously up to each trader's ability, but at 1:2 RR net winners are easily calculated: it's total winners minus total losers. So if you risk 7.2% then the question is: how many net 14.4% winners are needed for 1000X? It's about 50. Like 150 winners out of 100 trades. If you risk 50%, then it's about 10. For example, 70 winners out of 80.

Certainly, my trades are rarely 1:2 RR, but this thread about MM, not any kind of setup. You have Risk, and you have Target. How quickly you reach it that's up to you, and likely will be an ever increasing velocity, because you'll get better with experience.

Actually 14.4% win and 7.2% loss don't actually cancel each other out, because 1.144*0.928=1.06, that's still 6% gain, so without any losers, you would need 51 wins straight, but with losers, net winner requirement reduces the more trades you have. With 30 losses, you'd need 68 winners, so that's 38 net winners. Interesting.

Actually sounds very interesting. You won’t loose much money with this method. But you can loose time. In that case you would know what works or not. Especially in the begin will be difficult to stick to the plan if the stake is low. In the late phases the lot size will be large .

I have good news: risking 50% is not always optimal. It's only optimal if your winrate is 66%.
If your winrate is 50% and you go for 1:2 RR, optimal risk is 25%.
Winrate 66%, 1:3 RR, optimal risk is 55%
Winrate 50%, 1:3 RR, optimal risk is 33%

All this has to do with maximizing net winners. I checked this by hand and also by plugging in Kelly Criterion.

So, do check your dashboards and trade explorers to find out your winrate and your RR (average winning trades vs average losing trade)

Currently, my winrate is 65% and RR is 1:2, so I can continue my progression towards 50%.

According to my TE, my RR is 1:1.5 ($2:$3), with my winrate of 67% that makes my optimal risk 45%. Great.

I thought of maybe making a Kelly Criterion matrix in excel, but found some on the net.


Credit: https://tradesignal.trayport.com/tra...ps-14/?lang=en

Pip Rich and Money Poor, Why?

It's very important to put in a lot of trades to get meaningful statistics. I looked at my trade explorer, estimated my RR, got my winrate, and that gave my optimum risk%. There's a problem, though. In dollar terms my risk is $54, but my TE shows that my average loser is $3. If I were trading my model faithfully, taking losses, and letting winners run, then my average loss would be fairly close to risk, between 0.5 and 1.2, but my average loss is less than 0.1 risk. There could be several reasons:

1) Incorrectly calculated lot size. Easy to correct.
2) Entries are split into smaller positions. Understandable. That can be calculated.
3) I am cheating. Not letting my winners run, BE too early. Maybe even average down.

Yes, number 3 is me. Risk of ruin is high. It's all perfect until it's not. I suffer from 3 and here's my plan for November:

1) I will be patient, like a crocodile, I'll wait for my deer to come to drink instead of chasing small fish in muddy waters.
2) I will have a target, and I will average up instead of down, all the way to the target.
3) I will risk appropriate % of my stake for the lower probability of this high RR game.

I don't have the statistics for this method, so I'll be risking 10% of my stake to begin with, waiting for spikes and riding them to the other side of the range.

For now I'll continue with current progression, maybe this chicken will grow into an eagle.

This chicken has fried. I'll shut up for now.

Rocket 2211 is firing engines and steadily lifting up. However, because I can have several positions open at the same time, I need to manage my exposure. Next week I'll be placing more trades and limiting my exposure to 3.6% per trade for 10% daily ATR movement.

EDIT: 3.6% of STAKE! not account!

I have placed 395 trades on this account, so statistics are more meaningful now.


$15/$25 win/loss translates to 60%/100%. Plugging my winrate into Kelly formula gives me 6.93% optimal risk.

Well, pretty close to 7.2% I've been using.