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Money and trade optimization

  • Post #1
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  • First Post: Apr 22, 2008 9:26pm Apr 22, 2008 9:26pm
  •  motanu
  • | Joined Sep 2006 | Status: Member | 36 Posts
OK, so you have a wonderful trading strategy that works well and makes some 100K in one year. You started with 10K and after a year you have 100K in broker's account.
Now what? What are you going to do?
Continue to trade with all the money?
Withdraw all the money and retire?
If not all then how much?
Keep in mind that you reached 100K because you played with all the money at any time (within the limits of money management). If you withdrew some money earlier you would have now much less in your account.
So the real question is how much money and when can you withdraw in order to maximize your future trades and your bank account too.
Is there an answer to this question? What do you think?
  • Post #2
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  • Apr 23, 2008 1:32pm Apr 23, 2008 1:32pm
  •  Enroth
  • | Joined Mar 2006 | Status: Member | 46 Posts
Motanu,

Although I am not yet in such a happy predicament I have pondered this myself. There is no easy answer.

Mathematically the answer is to leave things as they are because the odds should still be in your favour but psychologically this is very hard to do. You have to be prepared to lose to win in this game but the bigger the wins the bigger the losses and losses are painful.

One possibility is to lower your leverage but leave the balance in tact.

Another is to take back your 10k and only play with "house money".

Personally I prefer the latter but its really a matter of personal preference
 
 
  • Post #3
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  • Apr 23, 2008 2:46pm Apr 23, 2008 2:46pm
  •  motanu
  • | Joined Sep 2006 | Status: Member | 36 Posts
Quoting Enroth
Disliked
Motanu,
[...]
Another is to take back your 10k and only play with "house money".
[...]
Ignored
Myself thought that taking back my money should be the first step, so this will partially answer the question.
But the question remains. When should you take back your own money?
I made some experiences on paper trades and it turns out that it can take quite a long time to safely withdraw the initial deposit. The account may go up to, say 60K then down to 20K and withdrawing 10K will not only jeopardize future gains but also the whole account. The same proportions apply regardless of the initial deposit.
After running some data I arrived to the conclusion that, at least for my strategy, the best moment to withdraw my initial deposit would be when the account exceeds 50 times the initial deposit.
It seems excessive but I think many other strategies, if checked, will show such unexpected figures and I also think that many traders lose a lot of money for not handling it right.
 
 
  • Post #4
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  • Last Post: Apr 23, 2008 10:17pm Apr 23, 2008 10:17pm
  •  Enroth
  • | Joined Mar 2006 | Status: Member | 46 Posts
I agree it depends alot on your strategy's historic drawdown. If the recent drawdown has been exceptionally low then that would be a factor in taking some money off the table. But remenber that reducing leverage is effectively the same thing.
 
 
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