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Money Management

  • Post #1
  • Quote
  • First Post: Sep 19, 2007 9:22am Sep 19, 2007 9:22am
Hello all. take a look at this MM set up, Hope you like....

A Traders Plan:


Let’s say that I told you my target batting average was 40% which means I’d be happy getting only 4 out of 10 trades right.

For my risk/reward I am going to go with 1:3---This means for every dollar I risk my profit will be $3. The max I want to make on a trade is $300

Here are my trading results for week one

Trade 1: -40 Pips

Trade 2: +20 Pips

Trade 3: -60 Pips

Trade 4: -120 Pips

Trade 5: +90 Pips

Trade 6: +10 Pips

Trade 7: +50 Pips

Trade 8: -50 Pips

Trade 9: -40 Pips

Trade 10: -80 Pips

Totals: -390 Pips in losing trades and 170 pips in profitable trades. (not looking so good….) A pip loss of -220


Remember the Money management rules???



Here is how each trade would break down:




Trade 1: -40 Pips= 0.25 Lots Traded (Each Pip Move - $2.50) -$100

Trade 2: +20 Pips= 1.5 Lots Traded (Each Pip Move = $15) +$300

Trade 3: -60 Pips= 0.16666 Lots Traded (Each Pip Move = $1.67) -$100

Trade 4: -120 Pips= 0.08333 Lots Traded (Each Pip Move = $0.83) -$100

Trade 5: +90 Pips= 0.3333 Lots Traded (Each Pip Move = $3.33) +$300

Trade 6: +10 Pips= 3 Lots Traded (each Pip Move = $30) +$300

Trade 7: +50 Pips= 0.6 Lots Traded (each Pip Move = $6) +$300

Trade 8: -50 Pips= 0.2 Lots Traded (each Pip Move = $2) -100

Trade 9: -40 Pips= 0.25 Lots Traded (each Pip Move = $2.50) -100

Trade 10: -80 Pips= 0.125 Lots Traded (each Pip Move = $1.25) +$-100

As you can see with the money management in place, we made a profit of $600!!

This is why when someone says “I make 100 pips a week” it does not impress me very much. We actually lost 220 pips in the above example and we still made money!

It is best to focus on risk/reward, and set your lot size based of your stop loss/target prices.
This looks great.. How do you determine the R/R ratio in advance like that.. In your example the loosing trade is always smaller than the winner... How do you do that?

I reduce the risk when I am loosing blindly because as well as I cannot predict market movements I cannot predict winner trades as well.

So for example is risk is 2% if I loos next trade will be 1.9% and so on... Soon I have a winner I jump back to 2%

But you are right +200 pips doesn't mean anything. What matters is the distribution of looser/winner trades... You can loose 300+ pips then gain +500
it is different from +30 -10 +30 -10 +30 -10 and so on,,,,
.
I always operate with the same SL/TP parameters because I have no idea where the market will go just size my SL/TP on simple motion probabilities and volatility...
.
Quote
For my risk/reward I am going to go with 1:3---This means for every dollar I risk my profit will be $3

And how'd you know that?
Quoting bullrock
This looks great.. How do you determine the R/R ratio in advance like that.. In your example the loosing trade is always smaller than the winner... How do you do that?

I reduce the risk when I am loosing blindly because as well as I cannot predict market movements I cannot predict winner trades as well.

So for example is risk is 2% if I loos next trade will be 1.9% and so on... Soon I have a winner I jump back to 2%

But you are right +200 pips doesn't mean anything. What matters is the distribution of looser/winner trades... You can loose 300+ pips then gain +500
it is different from +30 -10 +30 -10 +30 -10 and so on,,,,

You need to find set ups that have the proper risk/reward. Find chart patterns that have a stop 10pips away and a target of 30 and then determine lot size. your lot size is determined by the target and stop price. hope his helps??
Quoting WTB
And how'd you know that?

this should be part of your trading plan. you say "okay I am only going to risk $100 on ANY trade, and I want to make at least $300. you then find set ups and calculate how many lots you can take based on the set up. trading like this takes ALL the emotion away
I have been trying to figure our this money management thing after a couple of 3rd degree burns (ie blown accounts) and have seen many and varied versions.
attached is a mm system i am working on that involves setting you maximum risk and then working it back to the lot size.

I know it simple at the moment but it's just the start.

Please any comment are more then welcome be good, bad or ugly.


Cheers
Attached File(s)
File Type: xls DD MM.xls   14 KB | 445 downloads
I think you can money manage your trade by a very simple strategy.

Remember, with your average system you will have wins and losses. And the world is not beautiful, you may have 50-50 or more losses than wins.

To control your risk you should have something like "filter formula" or "signal strength" or "trade confidence" by allowing lower dollar value on less confident trades and vice versa. Ofcourse the parameters would have been set by you.

Lets say (example) you trade the market with a system consisting of elliot wave, candlestick patterns, fibonacci, divergence.

Each one is a rule. The more rules line up in your favour, the more confident, and higher pip value. But if only candlestick patterns for example give you a trade you would use quarter the risk.

Quoting chevelle
Hello all. take a look at this MM set up, Hope you like....

A Traders Plan:


Let’s say that I told you my target batting average was 40% which means I’d be happy getting only 4 out of 10 trades right.

For my risk/reward I am going to go with 1:3---This means for every dollar I risk my profit will be $3. The max I want to make on a trade is $300

Here are my trading results for week one

Trade 1: -40 Pips

Trade 2: +20 Pips

Trade 3: -60 Pips

Trade 4: -120 Pips

Trade 5: +90 Pips

Trade 6: +10 Pips

Trade 7: +50 Pips

Trade 8: -50 Pips

Trade 9: -40 Pips

Trade 10: -80 Pips

Totals: -390 Pips in losing trades and 170 pips in profitable trades. (not looking so good….) A pip loss of -220


Remember the Money management rules???



Here is how each trade would break down:




Trade 1: -40 Pips= 0.25 Lots Traded (Each Pip Move - $2.50) -$100

Trade 2: +20 Pips= 1.5 Lots Traded (Each Pip Move = $15) +$300

Trade 3: -60 Pips= 0.16666 Lots Traded (Each Pip Move = $1.67) -$100

Trade 4: -120 Pips= 0.08333 Lots Traded (Each Pip Move = $0.83) -$100

Trade 5: +90 Pips= 0.3333 Lots Traded (Each Pip Move = $3.33) +$300

Trade 6: +10 Pips= 3 Lots Traded (each Pip Move = $30) +$300

Trade 7: +50 Pips= 0.6 Lots Traded (each Pip Move = $6) +$300

Trade 8: -50 Pips= 0.2 Lots Traded (each Pip Move = $2) -100

Trade 9: -40 Pips= 0.25 Lots Traded (each Pip Move = $2.50) -100

Trade 10: -80 Pips= 0.125 Lots Traded (each Pip Move = $1.25) +$-100

As you can see with the money management in place, we made a profit of $600!!

This is why when someone says “I make 100 pips a week” it does not impress me very much. We actually lost 220 pips in the above example and we still made money!

It is best to focus on risk/reward, and set your lot size based of your stop loss/target prices.

Chevelle -

What money management formula/spreadsheet do you have that would dictate your trading 0.25 lots on the first trade and 1.5 lots on the second?
Chance favors the prepared
Quoting JohnW
Chevelle -

What money management formula/spreadsheet do you have that would dictate your trading 0.25 lots on the first trade and 1.5 lots on the second?
What is ment is the Risk to reward is ALWAYS 1:3, so with every trade no'matter what the setup is thesame $/% ammount is always risked.

40pips Stoploss and 120pip Takeprofit at 1lot, is equal to...
20pips Stoploss and 60pip TP at 2 lots.

It works on the basis that all trades made with Chevelles system have an equal chance of sucess, So thesame amount of capital is risked.

Im sorry if I have got this wrong, certainly seems to be what chevelle was showing.

Good weekend.

LoLo
Quoting chevelle
You need to find set ups that have the proper risk/reward. Find chart patterns that have a stop 10pips away and a target of 30 and then determine lot size. your lot size is determined by the target and stop price. hope his helps??
Interesting,very interesting,thanks for sharing.

Zu
He's dividing $100 by the stoploss. Total lots per trade is the result / 10. The TP is always 3 times whatever the stop is. It would have been clearer if he had put the TP/SL in the example.
Quoting chevelle
Hello all. take a look at this MM set up, Hope you like....

A Traders Plan:


Let’s say that I told you my target batting average was 40% which means I’d be happy getting only 4 out of 10 trades right.

For my risk/reward I am going to go with 1:3---This means for every dollar I risk my profit will be $3. The max I want to make on a trade is $300

Here are my trading results for week one

Trade 1: -40 Pips

Trade 2: +20 Pips

Trade 3: -60 Pips

Trade 4: -120 Pips

Trade 5: +90 Pips

Trade 6: +10 Pips

Trade 7: +50 Pips

Trade 8: -50 Pips

Trade 9: -40 Pips

Trade 10: -80 Pips

Totals: -390 Pips in losing trades and 170 pips in profitable trades. (not looking so good….) A pip loss of -220


Remember the Money management rules???



Here is how each trade would break down:




Trade 1: -40 Pips= 0.25 Lots Traded (Each Pip Move - $2.50) -$100

Trade 2: +20 Pips= 1.5 Lots Traded (Each Pip Move = $15) +$300

Trade 3: -60 Pips= 0.16666 Lots Traded (Each Pip Move = $1.67) -$100

Trade 4: -120 Pips= 0.08333 Lots Traded (Each Pip Move = $0.83) -$100

Trade 5: +90 Pips= 0.3333 Lots Traded (Each Pip Move = $3.33) +$300

Trade 6: +10 Pips= 3 Lots Traded (each Pip Move = $30) +$300

Trade 7: +50 Pips= 0.6 Lots Traded (each Pip Move = $6) +$300

Trade 8: -50 Pips= 0.2 Lots Traded (each Pip Move = $2) -100

Trade 9: -40 Pips= 0.25 Lots Traded (each Pip Move = $2.50) -100

Trade 10: -80 Pips= 0.125 Lots Traded (each Pip Move = $1.25) +$-100

As you can see with the money management in place, we made a profit of $600!!

This is why when someone says “I make 100 pips a week” it does not impress me very much. We actually lost 220 pips in the above example and we still made money!

It is best to focus on risk/reward, and set your lot size based of your stop loss/target prices.

I must be really thick tonight but I cant for the llife of me see how you are determining your position size per trade here.
Same Whore .... Different Dress
I just explained it.

Quoting johnedoe
I must be really thick tonight but I cant for the llife of me see how you are determining your position size per trade here.
Is chevelle's explanation an example of actual trades he took? Or is it an explanation of how trading different lot sizes can maximize and minimize risk.

Or is it both.

In either case, just for clarification, why did you choose the lot sizes you used in trade 1 and in trade 4. Or even in 2 and 3.

How is it that all the winners have large lot sizes compare to the losers?
Quoting Lou
Is chevelle's explanation an example of actual trades he took? Or is it an explanation of how trading different lot sizes can maximize and minimize risk.

Or is it both.

In either case, just for clarification, why did you choose the lot sizes you used in trade 1 and in trade 4. Or even in 2 and 3.

How is it that all the winners have large lot sizes compare to the losers?
This is what my main question was regarding........ winning trades and a larger entry compared to losers......... where in his MM did he come up with the differentiation here? How did he determine when to risk more on particular trades (winners) and less on his losing trades. So I really don't see a valid MM technique here......
TDION ... thanks I saw and understand what you are saying.
Same Whore .... Different Dress
Quoting chevelle
Trade 1: -40 Pips= 0.25 Lots Traded (Each Pip Move - $2.50) -$100

-> SL = 40 TP = 120 -> $100/40 SL = $2,5 per pip = 0,25 lots

Trade 2: +20 Pips= 1.5 Lots Traded (Each Pip Move = $15) +$300

-> SL =~ 7 TP = 20 -> $100/7 SL = 14,28$ per pip = 1,43 lots

Trade 3: -60 Pips= 0.16666 Lots Traded (Each Pip Move = $1.67) -$100

-> SL = 60 TP = 180 -> $100/60 SL = 1,66$ per pip = 0,166 lots

.....
A good thing but i like more risk in % insted of fixed values.
No Brain, no Gain.
  • Post #18
  • Quote
  • Last Post: Feb 9, 2008 3:44am Feb 9, 2008 3:44am
Quoting chevelle
This is why when someone says “I make 100 pips a week” it does not impress me very much. We actually lost 220 pips in the above example and we still made money!

It is best to focus on risk/reward, and set your lot size based of your stop loss/target prices.
Excellent point, chevelle. Total pip count is absolutely meaningless if you don't know what those pips are worth.
Domo Arigato, Mr. Roboto!
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