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Money Management Question

  • #1
  • First Post: Oct 3, 2007 4:51pm Oct 3, 2007 4:51pm
Ok.. so I've recenly found some consistency with my trading, just trying to tweak the money management to milk the trades as much as possible.

I'm successful trading for 30,40 pips a pop intraday.. but trying to add a bit of swing trading to my current daytrading routine.

So for example..

I open 2 lots at market. Stop 30 pips below(or 50,60,whatever).
I close 1 lot at 30pips profit, move stop on the other lot to break
even, and shoot for the starss.

Sounds beautiful on paper.

But what happens if price takes out my break-even stop more often than running higher.. i'd effectively be taking an average profit of 30pips at 1 lot, while taking an average loss of 30pips at 2 lots. I realize the numbers will vary.. but its conceivable that this would lead to greater losses than gains, as I remember it happening in demo a while back when i tried this. Yet many people much more successful than I am manage to "cut the losers short and let the winners run" successfully. How would I do this properly?

Thanks!
- nick andre -
  • #2
  • Oct 3, 2007 5:39pm Oct 3, 2007 5:39pm
30 pips is a lot better than a poke in the eye with a sharp stick.....besides if your on the right side of the trend those bigger moves will come your way....
jmho
Same Whore .... Different Dress
  • #3
  • Oct 3, 2007 7:04pm Oct 3, 2007 7:04pm
Quoting Nick_likes_pips
Ok.. so I've recenly found some consistency with my trading, just trying to tweak the money management to milk the trades as much as possible.

I'm successful trading for 30,40 pips a pop intraday.. but trying to add a bit of swing trading to my current daytrading routine.

So for example..

I open 2 lots at market. Stop 30 pips below(or 50,60,whatever).
I close 1 lot at 30pips profit, move stop on the other lot to break
even, and shoot for the starss.

Sounds beautiful on paper.

But what happens if price takes out my break-even stop more often than running higher.. i'd effectively be taking an average profit of 30pips at 1 lot, while taking an average loss of 30pips at 2 lots. I realize the numbers will vary.. but its conceivable that this would lead to greater losses than gains, as I remember it happening in demo a while back when i tried this. Yet many people much more successful than I am manage to "cut the losers short and let the winners run" successfully. How would I do this properly?

Thanks!
I am trading in a similar way. Nothing wrong with that. It happened to me that say the BE has been taken out and at that moment the price turned. Sometime I am not putting mechaniucally to BE the SL when the unit 1 TP has been executed but I am considering the S/R on the 5 min chart and out the triling SL below/above the S/R depending whether I am long or short.
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  • #4
  • Oct 3, 2007 7:08pm Oct 3, 2007 7:08pm
Quoting Nick_likes_pips
Ok.. so I've recenly found some consistency with my trading, just trying to tweak the money management to milk the trades as much as possible.

I'm successful trading for 30,40 pips a pop intraday.. but trying to add a bit of swing trading to my current daytrading routine.

So for example..

I open 2 lots at market. Stop 30 pips below(or 50,60,whatever).
I close 1 lot at 30pips profit, move stop on the other lot to break
even, and shoot for the starss.

Sounds beautiful on paper.

But what happens if price takes out my break-even stop more often than running higher.. i'd effectively be taking an average profit of 30pips at 1 lot, while taking an average loss of 30pips at 2 lots. I realize the numbers will vary.. but its conceivable that this would lead to greater losses than gains, as I remember it happening in demo a while back when i tried this. Yet many people much more successful than I am manage to "cut the losers short and let the winners run" successfully. How would I do this properly?

Thanks!
All my calculations shows that the protective SL and BE are necessary elements of the success. Believe you are right when you are saying that your losses were bigger when you haven't used the BE. I have recalculated my strategies 1000 times (no kidding) and all variations showed the same thing. By the way I am using 4 units with 3 tps and 1 for the shoot for the stars....
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  • #5
  • Oct 3, 2007 8:08pm Oct 3, 2007 8:08pm
I am not sure why this type of MM strategy is so popular. Why close the 1 lot at 30 PIPS, is the market telling you to do so? I am a firm believer in moving to BE as soon as possible/feasible. One of Jesse Livermore's rules was "Take 50% of your BIG winnings off the table." In the scenario you describe; by closing 50% at 30 PIPS you are closing w/ a 1% profit. (Assuming you are taking a 2% risk at an original SL of 30 PIPS.) Risking 2% to make 1% is not a "big winning" IMHO.
"Hoping" your other lot goes to the 'stars' is just gambling w/ the houses money - physiologically it comforts you, but does it make you more profitable?
This 1% is then lost if your 2nd lot goes back to break even, so you have effectively had a free trade. (Not bad if you learn something)
If your original trade hits the SL you are, as you state, taking your full 2% loss. Eventually, unless your system has a greater than ~60% wins, you will start to erode your trading capital.
Have you calculated your profit if you had moved both lots to BE at 30, then waited for the market to tell you to exit both lots?

Good Trading to You.
Quoting Nick_likes_pips
I open 2 lots at market. Stop 30 pips below(or 50,60,whatever).
I close 1 lot at 30pips profit, move stop on the other lot to break
even, and shoot for the starss.

Sounds beautiful on paper.
In trading, there is no bullshit. You either make money or you don't.
  • #6
  • Oct 3, 2007 8:19pm Oct 3, 2007 8:19pm
Quoting mrgreen
I am not sure why this type of MM strategy is so popular. Why close the 1 lot at 30 PIPS, is the market telling you to do so? I am a firm believer in moving to BE as soon as possible/feasible. One of Jesse Livermore's rules was "Take 50% of your BIG winnings off the table." In the scenario you describe; by closing 50% at 30 PIPS you are closing w/ a 1% profit. (Assuming you are taking a 2% risk at an original SL of 30 PIPS.) Risking 2% to make 1% is not a "big winning" IMHO.
"Hoping" your other lot goes to the 'stars' is just gambling w/ the houses money - physiologically it comforts you, but does it make you more profitable?
This 1% is then lost if your 2nd lot goes back to break even, so you have effectively had a free trade. (Not bad if you learn something)
If your original trade hits the SL you are, as you state, taking your full 2% loss. Eventually, unless your system has a greater than ~60% wins, you will start to erode your trading capital.
Have you calculated your profit if you had moved both lots to BE at 30, then waited for the market to tell you to exit both lots?

Good Trading to You.
The risk is 1% / unit. So the 2% is for the 2 units. Say the first hits 30 TP so there is the 1% profit and the risk was 1% for that unit so it is 1:1 ratio... Then the second unit can be whatever breakeven or 180 pips. In the first scenario it is a free ride but in the second it is 1:6 ratio... so the average is 1:3.5 which is not too bad... So the second unit can end up in Be or whatever the market gives.. IMHO this is not too bad.. The other thing is our friend is right. There is greater than 50% chance that the market will move at least 40 pips so it is safe to bail out some units and protect the rest because from there the probbability will drop.
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  • #7
  • Edited 10:48pm Oct 3, 2007 10:42pm | Edited 10:48pm
Trading 2 full lots.

10 trades letting profit run.
3 BE = 0
5 Losses = 2(300 X 5) = 3000
2 Wins@ 180 PIPS = 2x(180 X 20) = 7200
Profit = 7200 - 3000 = 3200

Same 10 Trades w/ taking 1 lot profit at 30 PIPS.
3 BE = 0
5 Losses = 3000
2 Wins@ 180 PIPS = 1st Lot = 300 + 300 =600
Two lots 2(180X10) = 3600
Profit = 1200

With letting your profit run you could take 6 losses and still break even.
(It's late - I hope my math is right
The probability that a trade will go against you does not rise or decrease based on how many PIPS you may be up or down. Like a coin flip it still remains the same probability. We raise or lower the probability based on our rules and system.

Quoting bullrock
The risk is 1% / unit. So the 2% is for the 2 units. Say the first hits 30 TP so there is the 1% profit and the risk was 1% for that unit so it is 1:1 ratio... Then the second unit can be whatever breakeven or 180 pips. In the first scenario it is a free ride but in the second it is 1:6 ratio... so the average is 1:3.5 which is not too bad... So the second unit can end up in Be or whatever the market gives.. IMHO this is not too bad.. The other thing is our friend is right. There is greater than 50% chance that the market will move at least 40 pips so it is safe to bail out some units and protect the rest because from there the probbability will drop.
In trading, there is no bullshit. You either make money or you don't.
  • #8
  • Oct 4, 2007 3:20am Oct 4, 2007 3:20am
all good answers.

the key - let the winners run.

you are effectively cutting the winner short by closing the partial.
https://linktr.ee/Soultrader
  • #9
  • Oct 4, 2007 3:32am Oct 4, 2007 3:32am
Quoting mrgreen
Trading 2 full lots.

10 trades letting profit run.
3 BE = 0
5 Losses = 2(300 X 5) = 3000
2 Wins@ 180 PIPS = 2x(180 X 20) = 7200
Profit = 7200 - 3000 = 3200

Same 10 Trades w/ taking 1 lot profit at 30 PIPS.
3 BE = 0
5 Losses = 3000
2 Wins@ 180 PIPS = 1st Lot = 300 + 300 =600
Two lots 2(180X10) = 3600
Profit = 1200

With letting your profit run you could take 6 losses and still break even.
(It's late - I hope my math is right
The probability that a trade will go against you does not rise or decrease based on how many PIPS you may be up or down. Like a coin flip it still remains the same probability. We raise or lower the probability based on our rules and system.
I can show you some calculations if you want.... I am not saying anything without calculations... Here is what I said that the average motion from entry in 60% of the cases is at least 40 pips... I havent's said anything about that :
Quote
The probability that a trade will go against you does not rise or decrease based on how many PIPS you may be up or down.
Read again please.. This is are based on empirical research and statitical calculations. I do not invent numbers.
.
  • #10
  • Oct 4, 2007 3:35am Oct 4, 2007 3:35am
Quoting soultrader
all good answers.

the key - let the winners run.

you are effectively cutting the winner short by closing the partial.
Well, in a hectic market like FX, I am happier if some of the position is in my pocket. on average the market trends anywhere between 20-50% of the time depeneding on the currency. So I weight my positions accordingly. Some have the purpose of scalping some have the purpose of going as far as possible. Like a little army. Everyone has its special purpose.
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  • #11
  • Oct 4, 2007 6:07am Oct 4, 2007 6:07am
Quoting Nick_likes_pips
I open 2 lots at market. Stop 30 pips below(or 50,60,whatever).
I close 1 lot at 30pips profit, move stop on the other lot to break
even, and shoot for the starss.

Sounds beautiful on paper.

But what happens if price takes out my break-even stop more often than running higher.. i'd effectively be taking an average profit of 30pips at 1 lot, while taking an average loss of 30pips at 2 lots. I realize the numbers will vary.. but its conceivable that this would lead to greater losses than gains, as I remember it happening in demo a while back when i tried this. Yet many people much more successful than I am manage to "cut the losers short and let the winners run" successfully. How would I do this properly?
Nick, congratulations on figuring out what so many can not see. This realization will serve you well in your trading. Mr. Green's example was spot on. If you can resist the temptation to take a quick profit with a partial exit you will be rewarded.
  • #12
  • Last Post: Oct 4, 2007 6:46am Oct 4, 2007 6:46am
Quoting philmcgrew
Nick, congratulations on figuring out what so many can not see. This realization will serve you well in your trading. Mr. Green's example was spot on. If you can resist the temptation to take a quick profit with a partial exit you will be rewarded.
Phil's was one of the responses that made me stop taking partial profits when I started this thread some time ago.
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