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Money Management / Risk Management

  • #1
  • First Post: Jan 2, 2008 5:01am Jan 2, 2008 5:01am
Hello Friends,
Does anyone knows of any Good Money Management / Risk Management Books.
Or know any site, where much more information is given on where to put Stop / profit orders, to have further understanding.
  • #2
  • Jan 2, 2008 10:00am Jan 2, 2008 10:00am
eom
  • #3
  • Edited 1:55pm Jan 2, 2008 1:19pm | Edited 1:55pm
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting jacobtrader
Hello Friends,
Does anyone knows of any Good Money Management / Risk Management Books.
Or know any site, where much more information is given on where to put Stop / profit orders, to have further understanding.
I personally like to use a 14 period Average True Range (ATR) with 2 standard deviations to determine my stop loss in conjunction with a pivot point. This has been the MOST effective method I've found.

As you may know, the average true range will tell you in PIPS, what the average volatility has been is over the last x periods... apply a standard deviation of 2 to the ATR and will have a stop loss that has been hit 5% of the time in the last x periods.... pretty cool huh? This means, you can be 95% certain that your stop loss will not be hit if you pick the trend correctly.

Use this spreadsheet to calculate stop loss size and lot size from your risk % - http://www.forexfactory.com/showthread.php?t=62747

Trev A
  • #4
  • Jan 2, 2008 1:31pm Jan 2, 2008 1:31pm
Quoting TrevA
I personally like to use a 14 period Average True Range (ATR) with 2 standard deviations to determine my stop loss in conjunction with a pivot point. This has been the MOST effective method I've found.

As you may know, the average true range will tell you in PIPS, what the average volatility has been is over the last x periods... apply a standard deviation of 2 to the ATR and will have a stop loss that has been hit 5% of the time in the last x periods.... pretty cool huh? This means, you can be 95% certain that your stop loss will not be hit if you pick the trend correctly.

Use this spreadsheet to calculate stop loss size and lot size from your risk % - http://www.forexfactory.com/newreply...eply&p=1780376

Trev A
The link is not a spreadsheet.
  • #5
  • Jan 2, 2008 1:55pm Jan 2, 2008 1:55pm
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting Carrera
The link is not a spreadsheet.
Apologies... here's the link. The spreadsheet is the attachment to post #1.

http://www.forexfactory.com/showthread.php?t=62747

TrevA
  • #6
  • Jan 3, 2008 2:07pm Jan 3, 2008 2:07pm
TrevA,
Can you give me more info how to use this indicator. i didnt understand it..
Will appreciate it thanks
  • #7
  • Jan 3, 2008 2:26pm Jan 3, 2008 2:26pm
Give this ago

http://www.forexcalc.com/

or

http://members.aon.at/tips/moneyMan.htm
  • #8
  • Jan 3, 2008 3:10pm Jan 3, 2008 3:10pm
TrevA,

Which ATR indicator are using which has an input for deviation? I found the following indicator, ATRStops_v11.1 which should do as you describe.

Note: I think the Kv input is the deviation setting. Change to 2.

TimeFreedom

Quoting TrevA
I personally like to use a 14 period Average True Range (ATR) with 2 standard deviations to determine my stop loss in conjunction with a pivot point. This has been the MOST effective method I've found.

As you may know, the average true range will tell you in PIPS, what the average volatility has been is over the last x periods... apply a standard deviation of 2 to the ATR and will have a stop loss that has been hit 5% of the time in the last x periods.... pretty cool huh? This means, you can be 95% certain that your stop loss will not be hit if you pick the trend correctly.

Use this spreadsheet to calculate stop loss size and lot size from your risk % - http://www.forexfactory.com/showthread.php?t=62747

Trev A
Attached Image (click to enlarge)
Click to Enlarge Name: atrstop_01-03-08_01.gif Size: 15 KB
Attached File(s)
File Type: mq4 ATRStops_v11.1.mq4   3 KB | 1,562 downloads
  • #9
  • Jan 3, 2008 3:30pm Jan 3, 2008 3:30pm
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting TimeFreedom
TrevA,

Which ATR indicator are using which has an input for deviation? I found the following indicator, ATRStops_v11.1 which should do as you describe.

Note: I think the Kv input is the deviation setting. Change to 2.

TimeFreedom
TimeFreedom

I don't have this indicator!! Thanks. I've been using excel. :-)

Trev
  • #10
  • Apr 17, 2016 12:43pm Apr 17, 2016 12:43pm
If I may add :
Risk:Reward ratio can be improved drastically as per the attached file.
What we can see in the attached file that risk:reward ratio of 2:1 has been converted to greater than 1:3.5
Attached File(s)
File Type: doc Guruji Setup.doc   33 KB | 1,182 downloads
When the going gets tough , the tough get going
  • #11
  • Apr 19, 2016 3:04pm Apr 19, 2016 3:04pm
F. Knight "Risk, Uncertainty and Profit"
  • #12
  • Apr 20, 2016 4:25am Apr 20, 2016 4:25am
Quoting Stubborn
If I may add : Risk:Reward ratio can be improved drastically as per the attached file. What we can see in the attached file that risk:reward ratio of 2:1 has been converted to greater than 1:3.5 {file}
From the document Guruji Setup.doc
Quote
What we have done actually is reduced our risk and increased our rewards and thus risk:reward ratio in this scenario has improved drastically from 2:1 to greater than 1:3.5
This is a wrong statement. The R:R is only improved to 1:3.7 when all the steps are triggered and the trade wins. They aren't always triggered. Probabilities have to be taken into account. The trade can go straight to the target. In such a case your risk is $400 and the profit is $25. This is 16:1 RR (0.06R trade)! The R:R becomes better than 2:1 (0.5R) only from step 3 on. The best trades are the least rewarding.
Inserted Code
All the losers lose $400
Some winners make $25    16:1     0.06R
Some winners make $95    4.2:1    0.24R
Some winners make $230   1.74:1   0.58R
Some winners make $450   0.89:1   1.13R
Some winners make $775   0.52:1   1.94R
Some winners make $1475  0.27:1   3.67R
If we assume a normal distribution spanning over these winners (just to get an idea because there is no reason for a normal distribution) the R:R is perhaps improved to 1.06:1 (0.94R). This is much better than 2:1 but far from the promised 1:3.6.
No greed. No fear. Just maths.
  • #13
  • Apr 20, 2016 4:48am Apr 20, 2016 4:48am
Quoting PipMeUp
{quote} From the document Guruji Setup.doc {quote} This is a wrong statement. The R:R is only improved to 1:3.7 when all the steps are triggered and the trade wins. They aren't always triggered. Probabilities have to be taken into account. The trade can go straight to the target. In such a case your risk is $400 and the profit is $25. This is 16:1 RR (0.06R trade)! The R:R becomes better than 2:1 (0.5R) only from step 3 on. The best trades are the least rewarding. All the losers lose $400 Some winners make $25 16:1 0.06R Some winners make $95 4.2:1...
Every person has unique ideas and he or she knows how best to implement or tweak it to make improvements.
This was a practical scenario of one of my friends who was trading and had a lot of losers where he exited with little loss but kept track of the trades he exited with loss.
The analysis was done on a sample of over 50 losing trades.
People jump from one system to another just by getting negative returns and assume and conclude that the system does not work.
People unknowingly have overlooked many profitable systems without doing any research and analysis of losing or winning trades.
Attached is a sample of the analyses of the trades I am taking on a new system I am working on. This will tell me the faults of the system which can be tweaked and improved or whether it should be scrapped totally. It is updated by EOB of the date of trade being taken.
This is my way of looking at things as I am a little data oriented.
Attached File(s)
File Type: xls Sample Trades Analysis.xls   23 KB | 1,276 downloads
When the going gets tough , the tough get going
  • #14
  • Dec 8, 2016 3:42am Dec 8, 2016 3:42am
Talking about money and risk management, I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.
  • #15
  • Dec 8, 2016 3:51am Dec 8, 2016 3:51am
Quoting RussellBrown
Talking about money and risk management, I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.
Lol.

How does this help? If anything, the only time you need to change your trade size is if you're feeling emotions about your trades (but then they were probably too large to start with) OR if you've reduced your trading capital to the point where you need to adjust your lot size accordingly based on your MM principles.

By reducing it when you're losing, does it infer some kind of magical losing streak...need to rub a rabbits foot or walk around the kitchen table backwards three times to try to un-jinx it? If you're losing steadily go back and review those trades. Maybe you were just stupid (very bad trades) or maybe that's just the way the market moves sometimes.

Just stay steady on your path, with some sort of trading plan/strategy and a reasonable trade size. That's it. Otherwise, if you are losing, you are effectively reducing your capital and it will take even larger % gains to get back to BE for your balance, much less get into profit.
  • #16
  • Dec 8, 2016 3:54am Dec 8, 2016 3:54am
Quoting RussellBrown
Talking about money and risk management, I keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.
risk management will certainly be well managed, and that fear can be a great loss will attack, will certainly be able to try to continue to optimize the skills and abilities that are expected in the forex business can be maximized
  • #17
  • Dec 13, 2016 8:38am Dec 13, 2016 8:38am
Money and Risk Management are both very much important in Forex Trading, we need to learn them both if we wanna make some good amount of income through it.
  • #18
  • Dec 13, 2016 9:37am Dec 13, 2016 9:37am
The first thing you have to learn about trading is the money and risk management. This is the most important thing to start with. Once you get this properly you start learning the other stuff to improve your entry and exit points until you get better and better and you increase your success rate. Unfortunatelly I had to learn this the hard way blowing up a few accounts with no proper risk management.
  • #19
  • Dec 14, 2016 4:15am Dec 14, 2016 4:15am
Risk is the measurable likelihood of loss. Hence, it is Proper to use Money Management. That is the key element to lasting in forex trading, controlling your risk. You just have to resist the temptation trade to maximize gains and to instead trade to minimize loss.
  • #20
  • Nov 14, 2017 11:36pm Nov 14, 2017 11:36pm
Foreign Exchange Exposure is a measure of the potential change in an organizations benefit, net income and/or showcase estimation of net resources because of an adjustment in exchange rates. "At the point when a US organization pitches to a foreign purchaser and acknowledges the purchasers currency for installment, the US organization bears the hazard that the foreign currency devalues and that it will get less dollars once the foreign currency is changed over once again into the dollar."
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