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Help me understand Larry Williams's Money Management

  • #1
  • First Post: Edited May 25, 2009 4:40am Mar 25, 2008 7:24am | Edited May 25, 2009 4:40am
Any help, or guidance about this is welcomed,
Laszlo
  • #2
  • Mar 25, 2008 10:25am Mar 25, 2008 10:25am
It looks way too much risk. Or there is something I misinterpret.
  • #3
  • Mar 25, 2008 10:38am Mar 25, 2008 10:38am
Quoting lacika
The highest risk I was ever advised to use was 3%.
Laszlo
3% or lower is very ideal. if you have the equity and
good good strategy. And less stress too.

Today a test of 3% produced 380 pips on three instruments
silver, oil and GBP/GPY.

In the past I would have been closing them at rampant!
  • #4
  • Mar 25, 2008 11:39am Mar 25, 2008 11:39am
How many percent you should risk is up to your own individual risk profile. You should not just blindly follow what people say.

I mean, this is pretty much business school stuff, a 25 year old kid would probably be comfortable risking 10% of his account compared to a 40 year old who has a family. You should get what I mean by now eh.
  • #5
  • Mar 25, 2008 12:46pm Mar 25, 2008 12:46pm
OK, please don t care about me and my trading. Those are OK.
My concern is that this is a famous and succesfull trader who says these things.
Is here Anybody who read this book and see what I misunderstood ?
THX, Laszlo
  • #6
  • Mar 25, 2008 4:07pm Mar 25, 2008 4:07pm
Quoting lacika
The highest risk I was ever advised to use was 3%.
So, in the famous Williams book,Long Term Secrets to Short term trading, Chapter 13, under " Money management- The Keys to the Kingdom" title, page 183:
"If You are Tommy Timid, use 5% of your bank, ...Normal Norma use 10 to 12% ..."
Am I missing something here? Or simple he advices too much risk to trade?
Any help, or guidance about this is welcomed,
Laszlo

Laszlo,

I haven't read the book you are speaking of, but it sounds like he might be referring to position size management as opposed to risk management. If I'm right, Larry Williams is more of an equities trader, so when he talks of using "10% of your bank", he probably means this;

If you have a $100,000 account and you want to buy XYZ stock using 10% of your account, and it is $10 a share, you can buy 1000 shares ($10,000). That doesn't mean you are putting the entire $10,000 at risk, it just means you are reducing your core account equity by $10,000. If your risk tolerance is 3%, then you will place a stop to exit at $7, thereby putting $3000, or 3% of your account, at risk.

You can use the same principles in forex trading using your available margin as a position guideline. Understanding the difference between risk management and position size management is critical. If this is not clear, please follow this link and read a few of the articles on money management. http://www.forexfactory.com/showthread.php?t=39892

Once again, not having read the book I may be mistaken about what Mr. Williams is referring to, but I know I'm right about the importance of understanding all aspects of money mangement. If you don't, you'll probably get in big trouble, especially in this highly leveraged forex market. By the way, I wasn't consistently profitable until I really understood proper money management, so it's not just a boring exercise in number crunching. In particular, understanding expectancy made a huge difference for me.


Cheers,
Richard
  • #7
  • Mar 25, 2008 4:10pm Mar 25, 2008 4:10pm
Keep in mind that there's a statistical confidence factor too. If you flip a fair coin 10 times you won't always get 5 heads and 5 tails. You'll get 6/4, 7/3, it can vary. It isn't until you flip the coin enough that the law of large numbers plays out and you get close to 50%/50%.

Why is that important? Because if your edge gives you a good entry 70% of the time, then that's 30% your edge will fail. Over any small number of trials you may have a large period of failures resulting in a large drawdown. If you're using too much of your equity you will not be able to survive these periods and will end up blown out before your odds can regress to their mean.

In other words you need to divide your pot into enough chunks so that you can survive to be confident that your edge will play out and not die during the bad times.

I suspect very few systems have an expectancy that could handle 10% equity risk in forex. You might be able to do that to some degree in stocks for various reasons, but I suspect that's a good way to go bust in forex.

I have a hard time risking more than 3% per trade initially. I personally prefer to scale in, I'll go higher than 3% if the trade is profitable enough that the 2nd trades stop will still leave me in profit, but then again that's not really risking 3% is it? =)

Perhaps we'd get a better idea of what he meant if you could also quote the context.
  • #8
  • Mar 26, 2008 3:27am Mar 26, 2008 3:27am
Quoting Rabid
Keep in mind that there's a statistical confidence factor too. If you flip a fair coin 10 times you won't always get 5 heads and 5 tails. You'll get 6/4, 7/3, it can vary. It isn't until you flip the coin enough that the law of large numbers plays out and you get close to 50%/50%.

Why is that important? Because if your edge gives you a good entry 70% of the time, then that's 30% your edge will fail. Over any small number of trials you may have a large period of failures resulting in a large drawdown. If you're using too much of your equity you will not be able to survive these periods and will end up blown out before your odds can regress to their mean.

In other words you need to divide your pot into enough chunks so that you can survive to be confident that your edge will play out and not die during the bad times.

I suspect very few systems have an expectancy that could handle 10% equity risk in forex. You might be able to do that to some degree in stocks for various reasons, but I suspect that's a good way to go bust in forex.

I have a hard time risking more than 3% per trade initially. I personally prefer to scale in, I'll go higher than 3% if the trade is profitable enough that the 2nd trades stop will still leave me in profit, but then again that's not really risking 3% is it? =)

Perhaps we'd get a better idea of what he meant if you could also quote the context.
Well said thks.

Until you experience both you won't know the difference.
The difference is peace of mind. The lower the % risked
the more money you make in the final analysis.
  • #9
  • Mar 26, 2008 3:39am Mar 26, 2008 3:39am
Quoting lacika
OK, please don t care about me and my trading. Those are OK.
My concern is that this is a famous and succesfull trader who says these things.
Is here Anybody who read this book and see what I misunderstood ?
THX, Laszlo
Larry began to make the speaking circuits a few year ago, years after his
How I turned 10k to 1.1 million best seller dropped off the charts.

For a while he was running around the country w/ Jake Bernstein doing
seminars and such and he does have a lot of years under his belt.

His money management goes something like this:

1)First: Turn 10K into 1.1 million in a year.

2)Next: Write a book about it (or anything market related) and make a couple hundred more grand.

3)Then: Piss it all away in Vegas at the sports book.

Repeat steps two and three .
  • #10
  • Mar 29, 2008 8:33am Mar 29, 2008 8:33am
Thank You , but I have no problem with my MM.
I have with LW's.
THX again, Laszlo
  • #11
  • Mar 29, 2008 11:38pm Mar 29, 2008 11:38pm
Quoting toshi
Larry began to make the speaking circuits a few year ago, years after his
How I turned 10k to 1.1 million best seller dropped off the charts.

For a while he was running around the country w/ Jake Bernstein doing
seminars and such and he does have a lot of years under his belt.

His money management goes something like this:

1)First: Turn 10K into 1.1 million in a year.

2)Next: Write a book about it (or anything market related) and make a couple hundred more grand.

3)Then: Piss it all away in Vegas at the sports book.

Repeat steps two and three .
Wait, didn't you forget a step? Something like don't pay taxes and get arrested in Australia for tax evasion?
Has what you wanted to see made you blind?
  • #12
  • Mar 30, 2008 12:02am Mar 30, 2008 12:02am
Quoting Dunkan
Wait, didn't you forget a step? Something like don't pay taxes and get arrested in Australia for tax evasion?
That right ! I forgot about that part. I think that's the "discretionary"' feature of the MM.

For those using Metatrader, that means set the following after start():

int phuk_I.R.S. = true;

if it equals true;
then phuk everybody else too.

return(0);
}
  • #13
  • Mar 30, 2008 2:15am Mar 30, 2008 2:15am
Quoting toshi
int phuk_I.R.S. = true;

if it equals true;
then phuk everybody else too.

return(0);
}
Has what you wanted to see made you blind?
  • #14
  • Feb 3, 2015 11:33am Feb 3, 2015 11:33am
Larry Claims that he turned 10,000 into 2.1 millions in 18 months.Any proof of his trades or ledger..anyone?
  • #15
  • Last Post: Jun 2, 3:20pm (39 hr ago) Jun 2, 3:20pm (39 hr ago)
Is this convo still active? I am actively looking into Larry Williams strategies and finding other people who are also
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