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Money Managemant Question

  • #1
  • First Post: May 9, 2008 12:18pm May 9, 2008 12:18pm
Wanted to bring up the topic of money management and risk/reward. Through my reading proper moner management should consist of risking only 2% per trade. My problem is the following upon doing this I could end up at the end of the week negative as far as percentage gained but positive in the amount of pips. ( I do not set a profit target but rather follow my trade with a trailing stoploss determined by the market).Example:

trade #1: 30pips risked, lost trade, lost 2%
trade #2: 30pips risked, lost trade, lost 2%
trade #3: 30pips risked, lost trade, lost 2%
trade #4: 100pips risked, won trade 100 pips, gained 2%
trade #5: 50 pips risked, won trade 100 pips, gained 4%

results: 0 percentage gain for the week , but if count pips 60 pips positive.

My question is does everyone just live with this or should I just set the pips out to be a set dollar amount even if it does interfere with the fact that we are only trying to risk 2% per trade. Feel free to reply and share any of your money mangement techniques and critique mine.
  • #2
  • May 9, 2008 12:53pm May 9, 2008 12:53pm
Your math is correct, but I would doubt anybody really adjusts their sizes so radically. The whole R/R is built on the assumption that you have some idea of where the market is going, you don't. I would keep the trade size constant and just look for good entries (i.e. not trading into obvious support), then try and ride the winners.
The breaking of a wave cannot explain the whole sea.
  • #3
  • May 9, 2008 1:06pm May 9, 2008 1:06pm
This is why pips mean nothing. Don't let someone fool you otherwise. Pips only mean something relative to the percent risked. We need to control our risk. This is the means by which we do it(position sizing).

Adjust your position size according to your stop size. Don't worry if at the end of the week you made 60 pips and have no gain on your account. If you want to get fixated on a number, it is %.

If you keep a set $pip amount and have variable stop sizes, that is a recipe for disaster. If a 50pip loss equates to 2% of your account, then the next trade you need 100 pip stop loss, now you have 4% of your account at risk. It works both ways.
  • #4
  • May 9, 2008 1:16pm May 9, 2008 1:16pm
Quoting nelson7
Wanted to bring up the topic of money management and risk/reward. Through my reading proper moner management should consist of risking only 2% per trade. My problem is the following upon doing this I could end up at the end of the week negative as far as percentage gained but positive in the amount of pips. ( I do not set a profit target but rather follow my trade with a trailing stoploss determined by the market).Example:

trade #1: 30pips risked, lost trade, lost 2%
trade #2: 30pips risked, lost trade, lost 2%
trade #3: 30pips risked, lost trade, lost 2%
trade #4: 100pips risked, won trade 100 pips, gained 2%
trade #5: 50 pips risked, won trade 100 pips, gained 4%

results: 0 percentage gain for the week , but if count pips 60 pips positive.

My question is does everyone just live with this or should I just set the pips out to be a set dollar amount even if it does interfere with the fact that we are only trying to risk 2% per trade. Feel free to reply and share any of your money mangement techniques and critique mine.
Give me 100 trades, not 5 trades. Hopefully, then you'll have % increase. It's not uncommon for any successful trader to have 3, 5, or even 10 unsuccessful trades in a row!
  • #5
  • May 9, 2008 1:26pm May 9, 2008 1:26pm
Thanks for the reply

Craig: I do some times trade into support and resistance if I get a valid bounce off of another s/r. With pivot points (Weekly, Daily and monthly) and s/r I see it almost impossible not to. I generally shoot for 2% and if a clean break then ride the trade.

mbqb11: I agree with you but in going through my trades I realized this and had I used pips I would have been ahead and had I calculated percentage I am behind. I know our number one job is to protect capital and one way is by keeping our money management tight and not risking generally more than 2% per trade, but would you agree that someone who moves up there stoploss as the trade progresses in to positive territory has less risk overall than someone who sets targets and it either wins or it loses. What are your thoughts.
  • #6
  • May 9, 2008 1:41pm May 9, 2008 1:41pm
Quoting nelson7
Thanks for the reply

Craig: I do some times trade into support and resistance if I get a valid bounce off of another s/r. With pivot points (Weekly, Daily and monthly) and s/r I see it almost impossible not to. I generally shoot for 2% and if a clean break then ride the trade.

mbqb11: I agree with you but in going through my trades I realized this and had I used pips I would have been ahead and had I calculated percentage I am behind. I know our number one job is to protect capital and one way is by keeping our money management tight and not risking generally more than 2% per trade, but would you agree that someone who moves up there stoploss as the trade progresses in to positive territory has less risk overall than someone who sets targets and it either wins or it loses. What are your thoughts.
how many trades are we talking that you came to this conclusion(you need a lot of trades to make something seem valid IMO). And with that said how big are your initial stop losses. If this is the case and your avg stop size is say 50pips and your largest stop loss is 100 pips. I would still set my fixed $per pip based on the 100 pip (or largest stop loss size). Again I am always thinking about my at risk and to protect my capital. If you base 2% risk on a 30 pip stop size, but have stops as large as 100. They will be hit. This I will guarantee you. But if you understand that you have 6+% out there and are comfortable with it, well then that is up to you.

With that said I trail my stops and have variable stop losses. I still calculate my risk based on my variable stop size. I never look at how many pips I made, or am up, or am down. It means nothing to me. The only time I look at pips is to get my stop size.

To each his own though.
  • #7
  • May 9, 2008 9:00pm May 9, 2008 9:00pm
Quoting nelson7
Wanted to bring up the topic of money management and risk/reward. Through my reading proper moner management should consist of risking only 2% per trade. My problem is the following upon doing this I could end up at the end of the week negative as far as percentage gained but positive in the amount of pips. ( I do not set a profit target but rather follow my trade with a trailing stoploss determined by the market).Example:

trade #1: 30pips risked, lost trade, lost 2%
trade #2: 30pips risked, lost trade, lost 2%
trade #3: 30pips risked, lost trade, lost 2%
trade #4: 100pips risked, won trade 100 pips, gained 2%
trade #5: 50 pips risked, won trade 100 pips, gained 4%

results: 0 percentage gain for the week , but if count pips 60 pips positive.

My question is does everyone just live with this or should I just set the pips out to be a set dollar amount even if it does interfere with the fact that we are only trying to risk 2% per trade. Feel free to reply and share any of your money mangement techniques and critique mine.
I think you are confuse my friend

you didn't count your dollar value per pips

if for eg we have 2 trades:

1. buy 1 std lot thus 1 pip = $10 and I lost 30 pips = lost $300
2. buy 2 std lots thus 1 pip = $20 and I win only 16 pips = win $320

thus if only pips calculated I lost 14 pips

but integrating the $ value I win $20
  • #8
  • Edited 9:29pm May 9, 2008 9:15pm | Edited 9:29pm
Gift Art I understand what you are saying but in your example it does not take into consideration what you are risking which is where the problem lies. If I continue calculating percentage I will be negative for the week whereas if I calculate pips I will be risking more but will be positive for the week. Ex.Last week percentage wise I was up 1% and when counting pips up by 223 pips for the week.
  • #9
  • May 9, 2008 9:34pm May 9, 2008 9:34pm
The main point to practice is to not risk more than 1-2% of your net asset value in each trade. Forget about the other side for now.

I do see where you are coming from. With the 5 trades you posted, you are losing 60% of the time and winning 40%. It's only that you up'ed the anti with your last two that put you in green territory. You need to bring the wins up to more than 50% and less than 50% for the losses. This is where I'd be concentrating. Otherwise trading on this ratio will eventually bust the bank.

Start focusing on your entry points. This statement has changed my life, completely!

"Think of each singular time frame as a musical note, when we combine multiple time frame’s together we go from the market blaring out one note noises, to the market singing us a melody and revealing the message"
  • #10
  • May 9, 2008 9:58pm May 9, 2008 9:58pm
Quoting itechdev
The main point to practice is to not risk more than 1-2% of your net asset value in each trade. Forget about the other side for now.

I do see where you are coming from. With the 5 trades you posted, you are losing 60% of the time and winning 40%. It's only that you up'ed the anti with your last two that put you in green territory. You need to bring the wins up to more than 50% and less than 50% for the losses. This is where I'd be concentrating. Otherwise trading on this ratio will eventually bust the bank.

Start focusing on your entry points. This statement has changed my life, completely!

"Think of each singular time frame as a musical note, when we combine multiple time frame’s together we go from the market blaring out one note noises, to the market singing us a melody and revealing the message"
WOW!!!!!!!

Now that you put it that way...it totally makes sense!!!

The correct entry opens up even more probabilities of when "YOU WANT" to exit!!!


HOLLA
  • #11
  • May 10, 2008 5:28am May 10, 2008 5:28am
itechdev, thanks for your response. I will keep trying to up my winning percentage and only taking A+ trades. Calculating by %age is what i've been doing so I'll keep doing it. If anyone has any other theory on this side of money management lets keep the thread as I don't see enough talk of money management anywhere on the net. After all supposedly an ok system can be made even better thru proper MM.
  • #12
  • May 10, 2008 5:33am May 10, 2008 5:33am
Quoting nelson7
Gift Art I understand what you are saying but in your example it does not take into consideration what you are risking which is where the problem lies. If I continue calculating percentage I will be negative for the week whereas if I calculate pips I will be risking more but will be positive for the week. Ex.Last week percentage wise I was up 1% and when counting pips up by 223 pips for the week.
perhaps I'm missing something but in my system I know the maximum risk/reward ratio that I'm allowed to take without putting my account into trouble and keeping me ahead in the game

for eg,

situation 1,
last HH/LL = 50 pips
my account is at $1000 mini
my risk is max = eg 2% * 1000 = $20
pip wise the trade might go against me ($0.01 * 50=) $0.5/ 0.01 lot
which is way below my maximum risk

there are several options I can choose:
A. I could buy ($20/$0.5=) 40 * 0.01 lot = 0.4 lot
B. I could increase my SL to (50 * 40= ) 2000 pips
C. buy 0.2 lot and have 1000 pips SL

of course option A is better for maximizing profit, option B is the best for capital protection, and option C is somewhere in the middle

situation 2,
last HH/LL = 250 pips
my account is at $1000 mini
my risk is max = eg 0.2% * 1000 = $2
pip wise the trade might go against me ($0.01 * 250=) $2.5/ 0.01 lot
which is more than my maximum risk

there is only 1 option I can choose:
stand aside and watch

in any cases, my max loss is 2% (or whatever that size is)
  • #13
  • Last Post: May 10, 2008 5:42am May 10, 2008 5:42am
Quoting nelson7
itechdev, thanks for your response. I will keep trying to up my winning percentage and only taking A+ trades. Calculating by %age is what i've been doing so I'll keep doing it. If anyone has any other theory on this side of money management lets keep the thread as I don't see enough talk of money management anywhere on the net. After all supposedly an ok system can be made even better thru proper MM.
one way to get a better entry is by using fibo and put our limit on the retracement level while keeping the distance between our SL and TP the same

this will create better opportunities for us but will also skip some opportunities in case of strong breakthrough with no retracement chance

but of course we can always open more than 1 position

for eg

open 25% position on break
another 75% on retracement
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