My money management (advanced) | Page 2 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

BASKET TRADE Management: Using multiple trade management EA's on basket trades 11 replies

Alternative Trade Management/Money Management Methods 3 replies

Money Management..keeping the money... 39 replies

Money Management / Risk Management 24 replies

Help with Money Money Management Please! (Free EA) 4 replies

Attachments: My money management (advanced)
Exit Attachments

My money management (advanced)

  • #21
  • Sep 6, 2008 10:16pm Sep 6, 2008 10:16pm
Here is a link on fixed ratio position sizing:

http://www.stator-afm.com/fixed-rati...on-sizing.html
  • #22
  • Sep 6, 2008 10:16pm Sep 6, 2008 10:16pm
From the psychological point of view the question is how good can you perform after a substantional draw down . MM is very important but my advise after 30 % draw down try to send new funds to the Acc. to boost the Acc. to the original level
  • #23
  • Sep 6, 2008 10:38pm Sep 6, 2008 10:38pm
i don't perform at all.... my EA trades for me! and as i said earlier in the thread, i don't mind blowing my account! how's that for psychology? "if you can't afford to lose it, don't trade it." sounds like people aren't embracing that cliche....

Quoting Kiado
From the psychological point of view the question is how good can you perform after a substantional draw down . MM is very important but my advise after 30 % draw down try to send new funds to the Acc. to boost the Acc. to the original level
  • #24
  • Sep 6, 2008 10:40pm Sep 6, 2008 10:40pm
why are you posting that here? this thread is about MY money management, not the same regurgitated crap that you find on every MM thread at the factory.....

Quoting eagle4x
Here is a link on fixed ratio position sizing:

http://www.stator-afm.com/fixed-rati...on-sizing.html
  • #25
  • Sep 7, 2008 7:20am Sep 7, 2008 7:20am
Quoting tdion
To do this with fixed fraction, I'd need to risk between 8 and 15% per trade. The problem is, after a few losses, you are below 50% of your highest balance, which is unacceptable.
Can you please elaborate why in your opinion this is not acceptable.. It seems that you can also have a 1096 pip drawdown with only a few trades too. So what's the difference (sorry if I got it wrong)?


Quoting tdion
So, to compensate for this, if my account draws down 33%, I increase my "drawdown divisor" by a factor of 1.5..... the same is true if the account draws down 66%.... then my drawdown divisor increases again to 2X the original.
How did you come to choose these drawdown values? Did they preform well on backtesting or are they just arbitrary numbers? Why not -
20% drawdown= factor of 1.5
40% drawdown= factor of 2x
60% drawdown= factor of 3x
and so on for extra margin to trade..

Thanks for your help,
Oz
  • #26
  • Sep 8, 2008 1:23am Sep 8, 2008 1:23am
hi oz

answer to paragraph 1) margin requirements for 15% per trade can put you in a position for margin calls (depending on how many trades are open at once....) basically your broker would close all your trades before they had a chance to hit the stops you put in place. and although a 1096 wipeout will happen no matter what the MM is (remember that MM and pip totals are seperate)..... the account will be FUBAR after such a losing streak, even with fixed fraction. parabolic loss curve or not, the account would be dead.

answer to paragraph 2) i chose 33% and 66% partly because of the answer i just gave above, but more importantly THE LESS LEVELS the faster you recover from drawdown. it all stems from the hyperlink in Post #1.


think about it. hope it helps.

Quoting ozwilson
Can you please elaborate why in your opinion this is not acceptable.. It seems that you can also have a 1096 pip drawdown with only a few trades too. So what's the difference (sorry if I got it wrong)?




How did you come to choose these drawdown values? Did they preform well on backtesting or are they just arbitrary numbers? Why not -
20% drawdown= factor of 1.5
40% drawdown= factor of 2x
60% drawdown= factor of 3x
and so on for extra margin to trade..

Thanks for your help,
Oz
  • #27
  • Edited 3:03pm Sep 11, 2008 10:47am | Edited 3:03pm
Hey Tdion,

OK, I did some thinking... (also read this thread a couple more times)!

Quoting tdion
this MM technique was one of the greatest discoveries in trading forex...

My MM goes like this.... I look back at the last 8 years of my trades...

every trade is between 1:3 and 1:5 R:R...
It is the greatest discovery I have found about MM (but like drawdowns it's only a GUESTIMATION..). Alas, I dont have 8 years of historical drawdown (as a matter of fact I dont have even one..), and I don't want to argue about Risk:Reward, but for me, I can never know what's my reward before the trade is over...(I also don't have practical trading experience )

This post is also for any noob who is reading this.. So would appreciate if you (tdion) can point to some flaws in my new MM (as it is mostly based on your "gold standard" (medically speaking..)).. Please bear with me..


Considering the aforementioned, tell me if this scenario is "right":

I open a 1000$ account and use mini+micro lots combination (using a 50:1 leverage broker)..

I will take any R:R from 1:1-1:5!

I estimated that my max drawdown IN PIPS was 495 pips on backtesting a sample of roughly 1 year and more than 200 trades (enough?!). AT 33% drawdown=1.5x and 66% drawdown=2x..

My 1st trade = 1000/495/10= 0.2=2 MINI lots.

20th trade (I lost 33% from highest balance of 1500) = 1500/742/10= 0.2=2 MINI lots

50th trade= (my new highest balance was 4000$, and I have now lost 66% (a massive losing streak) of that and made a new higher drawdown in pips )=4000/5280(2640x2)/10=0.07=7 MICRO lots

So finally -my 100th trade (my highest balance was 4200$, and drawdown IN PIPS didn't increase (1 step foward 2 back), but everything got screwed and I was left with 246$ in my account and well above my 66% drawdown level)=4200/5280/10=0.07=7 MICRO lots. Now I CANNOT take the trade due to margin requirements (using a leverage of 50:1)..unless I transfer more money to my account that's it for me!

On my next account my max drawdown IN PIPS will be 2640 using the same strategy..


my remaining questions:
1) What PIP DRAWDOWN did you first use (8 years ago?!), how much/long does the data need to be?
2) Is the math correct relatively to yours?
3) When you calculate drawdown levels (33%, 66%), this is from HIGHEST BALANCE, right?
4) In regard to R:R, if my trading plan gives me an opportunity for an 1:1 this is still good with this MM style, right?


Thanks again,
Oz
  • #28
  • Sep 12, 2008 6:04pm Sep 12, 2008 6:04pm
The MM I posted is extremely aggressive! You quoted a 495 pip drawdown.... But if it goes past a 742 pip drawdown (165 + 247 + 330) you will blow the account.

We have discussed that:

  1. if level 3 is breached, you will probably have to add additional margin money (this is not at risk, but need to be available for trade.)
  2. If you believe your max drawdown throughout the year will be more than 495, you should increase it to reduce risk. The current method intrisicly decreases risk to a 742 drawdown before wipeout.... BUT PERHAPS EVEN THAT IS NOT ENOUGH FOR YOU. In the end, the initial divisor is YOUR decision.

Everything is correct until this point. The divisor should be 2 X 495, = 990, not 5280....

Quoting ozwilson
50th trade= (my new highest balance was 4000$, and I have now lost 66% (a massive losing streak) of that and made a new higher drawdown in pips )=4000/5280(2640x2)/10=0.07=7 MICRO lots

Answers to #1 are already discussed in my example where I talk about a 750 drawdown. For #2, I have posted your mistake above. The answer to #3 is YES. As for 4, here is the only rule you need to know about this MM.... YOU MUST CONSTANTLY MAKE NEW PIP HIGHS! If your trading is consistently losing, you will lose money and possibly blow the account. R:R is irrelevant if your pip totals are green at the end of the year, and your DD didn't exceed the limit of the formula.

Quoting ozwilson
my remaining questions:
1) What PIP DRAWDOWN did you first use (8 years ago?!), how much/long does the data need to be?
2) Is the math correct relatively to yours?
3) When you calculate drawdown levels (33%, 66%), this is from HIGHEST BALANCE, right?
4) In regard to R:R, if my trading plan gives me an opportunity for an 1:1 this is still good with this MM style, right?
  • #29
  • Sep 12, 2008 6:13pm Sep 12, 2008 6:13pm
The reason you divide by 10 after the divisor is THAT IS THE DOLLAR PER PIP per standard lot!

If you trade a pair that pays $8/pip/lot, YOU WOULD DIVIDE BY 8 INSTEAD OF 10!



THIS IS VERY IMPORTANT!

Mixing pairs that have different $/pip/lot can make calculations extremely complex.... you'd need to make the calculation for each pair's $/pip, then constantly keep up with the lot sizes for that pair. Too complex for most people to grasp, I'm sure.

It is ideal for people that trade only a single currency, or a set of currencies w/ the same $/pip.
  • #30
  • Sep 12, 2008 6:27pm Sep 12, 2008 6:27pm
One thing I have not discussed is when to take profit.

The truth of the matter is that as more new "high balances" are achieved, the more volatile your equity curve will be.... this might be too much of a rollercoaster ride for most people....

A huge drawdown can come from nowhere, wiping out a huge yearly gain accrued by the MM combined with your own trading style. This risk is ALWAYS a threat, unless your strategy guarantees pips (rare, if not impossible.)


So what do you do? If you have 100K to start with, you could put 90K in a low risk/low return investment such as a bank CD..... this is a hedge against the risk of the other 10K that will be used to trade forex with....

So you are risking 10%, and if the account blows, you are left with 90% and whatever interest accrued on the 90%.....


AS FAR AS TAKE PROFITS:

You could do several things....

  1. Remove profits quarterly and start over (or every 6 months)
  2. Wait until you have gained a certain percent on your 10% at risk (say, 1000% gain)

These are methods to help relieve the stress of the WHAMMY.... a string of several losers in a row... In each case, you can start over with a new 10% of THE ENTIRE ACCOUNT.

These are merely suggestions.... the issue needs to be considered if you are going to trade a preconcieved plan.

Attached Image (click to enlarge)
Click to Enlarge Name: TesterGraph.gif Size: 25 KB
  • #31
  • Edited 4:47pm Sep 13, 2008 4:25pm | Edited 4:47pm
Quoting tdion
..additional margin money (this is not at risk, but need to be available for trade.)
I don't understand why the need for an extra money deposit.. I can just calculate my "not at risk money" instead, and put that money initially..


Quoting tdion
If you trade a pair that pays $8/pip/lot, YOU WOULD DIVIDE BY 8 INSTEAD OF 10!
Definitely overlooked this problem.. and it is, still, hard for me to grasp!

Quoting tdion
The MM I posted is extremely aggressive!

So you are risking 10%, and if the account blows, you are left with 90% and whatever interest accrued on the 90%.....
I thought about this intuitively.. Which is why I think this MM is perfect (for me) for an overall portfolio risk management!

Quoting tdion
Everything is correct until this point. The divisor should be 2 X 495, = 990, not 5280....
Btw, my mistake of "dynamic pip drawdown" is actually an interesting idea by itself.. (hope you don't mind me tweaking your ideas..) It may make your strategy much less aggressive (if you're wrong)! (but it will hurt the compounding like you once stated before..) Nonetheless, it does guarantee you get "punished" () for a higher PIP drawdown! What do you think?

Also, do you have a limit for number of open positions? and if so, do you use an algorithm that doesn't expose you to too much risk (for example, whenever you make X green pips and then limit your risk to Y, you can add Z positions)?
  • #32
  • Sep 14, 2008 2:49pm Sep 14, 2008 2:49pm
you're splitting hairs here.

Quoting ozwilson
I don't understand why the need for an extra money deposit.. I can just calculate my "not at risk money" instead, and put that money initially..
i'd rather use a higher initial divisor to mitigate risk than get into fixed fraction (or "dynamic pip" as you say)

Quoting ozwilson
Btw, my mistake of "dynamic pip drawdown" is actually an interesting idea by itself..
No limit to open positions. Again, this is accounted for in your 8 year backtest using the same exact strategy.

Quoting ozwilson
Also, do you have a limit for number of open positions?

Well, not to sound arrogant, but I have no plans to change this method. My previous post demonstrates the power of it in a good year.... a 40 fold return in 8 months. Take this strategy and make it your own ("Tweak" it to your liking, or forget it even exists.)
  • #33
  • Sep 14, 2008 5:11pm Sep 14, 2008 5:11pm
BTW, for anyone interested, my best year (in my 8 year backtest) was a 150 fold increase, and my worst year was a 50% gain.

I'll say it one more time for people tempted to bring up blowing the account: YES it is possible, but YES it can be controlled by decreasing the risk of the initial divisor.
  • #34
  • Sep 16, 2008 9:11am Sep 16, 2008 9:11am
Quoting tdion
Hello.

I am sharing my hundreds of hours of work with you in a concise thread...
[...]
Hey tdion,

have you ever tought about trading your equity curve? What I have in mind is plotting a simple MA which determins the % of money you risk inorder to smooth your equity curve.
  • #35
  • Sep 16, 2008 9:38am Sep 16, 2008 9:38am
Quote
have you ever tought about trading your equity curve? What I have in mind is plotting a simple MA which determins the % of money you risk inorder to smooth your equity curve.

Hrm. Elaborate...
  • #36
  • Sep 16, 2008 10:34am Sep 16, 2008 10:34am
Well there are two possibilities.
1. Equity over the 30 Period average Risk 1%
2. Equity under the 30 Period average Risk 0.5%

Nothing fancy.
  • #37
  • Sep 16, 2008 11:58am Sep 16, 2008 11:58am
Quoting Tjpld
Well there are two possibilities.
1. Equity over the 30 Period average Risk 1%
2. Equity under the 30 Period average Risk 0.5%

Nothing fancy.
????? Ummm a little more clarity please.
Same Whore .... Different Dress
  • #38
  • Sep 16, 2008 12:25pm Sep 16, 2008 12:25pm
Thanks tdion .... I like what you are up to with the MM ... makes total sense plus it's got balls !


good one, I always enjoy your general "against the herd" commentary ...

k, back to my cave ...
  • #39
  • Edited 4:54pm Sep 16, 2008 4:36pm | Edited 4:54pm
One thing you can do to mitigate risk to your initial capital is use twice the divisor until the account doubles, then use your historical max drawdown after that. If the account falls below your initial capital, you simply:

  1. forget the old high balance
  2. use the initial capital as the new high balance
  3. revert back to a doubled divisor

So in the example in Post #3, I would use a 1500 initial divisor until my account went to 20K.... then start using a 750 divisor. and if the account fell below 10K after it went to 20K, I would use 1500 again, and use 10K as the new high balance.

This is a great way to be less risky with your own money, but be more risky with the house's money. Of course, the trade off is that you will not make as much doing this if you are winning a lot, because you drastically reduce the "butterfly" effect of compounding early winnings.

  • #40
  • Sep 16, 2008 6:35pm Sep 16, 2008 6:35pm
Another concept I am looking into is "on demand."

For me, dropping 10K into an account is not trivial (I don't have it in a glass jar in my kitchen.)

So, if my broker lets me fund my account via debit card, and the transaction is instantaneous (or within an hour or two) I don't have to have 10K in an account to trade this MM.

Let me repeat: Fund the account only when you need to. So maybe I can get away with putting only 5K in their, BUT STILL TREAT IT LIKE IT IS 10K based on the rules of the MM! Why let the extra 5K sit in there dormant??

It just doesn't make sense any other way.
0 traders viewing now