How to manage money on a promising system?

Hi,

I think I found a good trading method but my experience is limited. I don't really know how to manage money to be sure I get as many pips as I can. My method is as following:

Entry long:
1° wait for a change in PSAR (0.09-0.9) at the bottom of a closed candle in a 4 hour chart;
2° once the first signal confirmed, wait for a change in PSAR (0.1-0.11) at the bottom of a closed candle in a 30 min chart. Said differently, wait for a retracement in a 30 min chart;
3° do not enter if the Bollinger bands (20-2) are inside the Kertnel channel bands (20-1.5), indicating a range market. I am also using the Bollinger Squeeze v4 indicator wich is visually interesting for that purpose.

Entry short:
- same as above, but adapted to downards movements (PSAR above closed candles).

I have enclosed examples of the indicators I am using with yellow arrows showing entry signals. Visually, if you take any currency pairs, it looks very promising because retracements on the 30 min chart are giving at least a few pips most of the time. My main difficulty is to set up the best stop and profit levels.

What I do right now is placing first a stop loss at the last PSAR dot. Once I reach a 10 pips gain, I ajust the stop to breakeven + spread. After a 15 pip gain, I ajust the stop to the 10 pip gain level. So my first objective is to secure a gain of 10 pips. Afterwards, I ajust the stop loss to every new PSAR appearing above (bullish) or below (bearish) the 10 pips level if I don't get stopped out.

It is some kind of manual trailing stop, but I am not sure if it's the best way to optimize the whole process. I could use an automatic trailing stop, but I don't understand well enough how it works.

I am looking for suggestions. I am pretty sure that my system will produce between 50 to 100 pips a day on the long run as it did the last couple of weeks for me, using 8 different low spread currency pairs. I want to make sure that I am getting the most out of it.

Thanks and regards.

Chamane

Based on the above statement. Trade only .005% of your acct for the first 1000 REAL trades. Demo doesnt count. You'll of course disagree - and go out an blow your acct - but I am telling you - don't be a fool regarding (tell u the truth I didnt even read the specifics of your system ) of this system of yours. Make 1k trades - by that time you should have a little experience and then you can think about real MM.

mrgreen,

Thanks for your answer. I will take every advice I can get.

I will probably take a lot of entries and make some errors, but I want to give myself a framework that will give me the best possible chances to minimize my losses as I gain experience while taking trades. As I can guess, you have probly gathered many hints along the way, but I can hardly think that you don't have any personal rules that you are following no matter the trading method you are using.

I like to be structure minded and have logical system I can rely on. I built a system that looks good to me, I started to demo it and have had good results overall so far, and I effectively started to trade it for real and lost a few hundred pips but mainly because of emotions and a lack of discipline. I know now that real trading is very different.

I think I am now at the stage of trading for real only, but just want to make sure that everything is set properly. Money management is an important part of trading if not the most important as many posts suggest on this site. I am not sure if what I am doing is technically good or if there is any better way of doing it .I am hoping to benefit from experienced traders like you.

Regards,

Chamane

I was in a hurry earlier when I replied - so I did not get my point across. The MM methodology I suggested is so that you last long enough to learn to trade. 2% or even 1% is too much IMHO for a new trader. Trade at .005% and get 1k trades under your belt. By then you hopefully will have learned something about trading and more importantly about yourself. With 1k trades you will also have a statistical bases to use to put together a MM stategy that will maximize your system.
Tip: No MM methodolgy is gonna make a losing sysem successfull.

My real account is a 10000 unit account. That's the smallest type of account my broker is giving me. I made a deposit of 2500$. I am a little over 2100$ right now after losing a few trades like I said. Following your suggestion, if I understand the way it goes, I should have my stop losses under a 20 pips value if I trade 1 lot at a time. According to my system, I would be better off trading the 15min chart (in combo with the 60 min chart for instance) instead of the 30min otherwise I would be stopped out too often because the gap between the closed candle and the PSAR dot is often greater than 20 pips. Even trading the 5 min for scalping (in combo with the 30 min chart for instance) would give me more entries for the same amount of capital.

I can also change for a broker offering smaller unit accounts so I get more room for more trades with my capital. I appreciate your comments.

Regards,

Chamane

I think I found was I was looking for. A good momey management for my trading system would be to take profit when the same amount as risk (given by the last PSAR dot in the 30 min chart) is reached, or exiting when PSAR is reversing in the case of losses. The stop loss is following every new PSAR dot. I backtested manually 9 pairs for the last week and here are my results:

AUD/USD: 6 wins - 1 loss: +200 pips
EUR/CHF: 3 wins - 1 loss: +87 pips
EUR/GBP: 3 wins - 1 loss: +80 pips
EUR/JPY: 3 wins - 3 losses: +82 pips
EUR/USD: 3 wins - 0 loss: +89 pips
GBP/JPY: 5 wins - 2 losses: + 256 pips
GBP/USD: 3 wins - 3 losses: +147 pips
USD/CHF: 1 win - 3 losses: +3 pips
USD/JPY: 4 wins - 2 losses: +54 pips

So there were 47 entry signals and the win rate was 66%. The total amount of gain was +998 pips, but the spread must be substracted. The average spread is 3 pips so that gives a spread cost of 47 X 3 = 141 pips. At 998 - 141 = 857 pips, it would have been a fairly good profitable week. I don't know if I am missing something, but I thought I would give the information in case somebody would see something I don't.

Chamane

If you manually scroll from past price data and indicators, the results you get might be not that correct.

backtest with indicators somehow give wrong results due to repaint indicators.

I agree, but my method is based on closed candles so I suppose it reflects past prices we see on charts. I don't think there is any repainting on PSAR for closed candles when a new one is appearing.

Here are results for the week before last week:

AUD/USD: 3 wins - 2 losses: +55 pips
EUR/CHF: 2 wins - 3 losses: +51 pips
EUR/GBP: 4 wins - 1 loss: +189 pips
EUR/JPY: 2 wins - 6 losses: -32 pips
EUS/USD: 3 wins - 5 losses: +10 pips
GBP/JPY: 3 wins - 4 losses: +212 pips
GBP/USD: 2 wins - 5 losses: -13 pips
USD/CHF: 1 win - 3 losses: -32 pips
USD/JPY: 1 win - 7 losses: -135 pips

There were 57 entry signals with a win rate of 37%. The total amount of gain was 203-141 = 62 pips. That result is quite different from last week's. I will certainly backtest manually the preceding weeks to make sure it's a winning method on the long run.

I wonder if I should use an automatic trailing stop. I know that there are some positive pips that have been reached many times before price turned around and hit my stops.

Chamane