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1% Money Management is a myth, fib is a myth and so on.. 45 replies

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Myth Busters the Forex Edition

  • #101
  • Quote
  • Oct 4, 2009 7:34pm Oct 4, 2009 7:34pm
Quoting PeterFM
You could make a living as a soprano - be careful though, have you seen how fat eunuchs get .

Like I could get fatter

Actually thats my ownly excercise and without the need for ladies I could eat all the pizza I want and just not care, hmmmm a plan is forming!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #102
  • Quote
  • Oct 5, 2009 2:36am Oct 5, 2009 2:36am
@ Sauron & hanover
Those are great explanations of the maths involved in trading and analysing performance, certainly valuable measures to every trader

Stop hunting always seems to cause to a "stir" with stopped out traders.

(Or perhaps I'm misinformed and is real phenomenon?! )
  • #103
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  • Oct 5, 2009 2:43am Oct 5, 2009 2:43am
Quoting hanover
@Mikkom: OK, my apologies, I see where you were coming from now.
No need to apologize at all, that was a really good post.
  • #104
  • Quote
  • Oct 5, 2009 5:04am Oct 5, 2009 5:04am
If I go back to the win rate, let me give an example.

Let's say your system has a 25% win rate <=> 1 win, 3 losses.
The average stop loss is 50 pips.
You lose 3 in a row, very probable, you are at -150 pips.
You enter a trade and it goes on your favor 100 pips. What are you doing?

1) Put a SL at breakeven and pray for at least 150 pips, just to make overall to breakeven?

2) Take half of profits, put SL at breakeven and pray for at least 200 pips, just to make it overall to breakeven?

OR:

3) When you are at +50 pips profit you already take a half and hope for 250 pips?

This is just a hypothetical example. The problem is that the losses will put a tremendous amount of pressure on the next trade, you can't preserve your capital and you depend a lot on a very long trend which must cover your previous losses.
And it seems to me that the trader is always under pressure of covering losses instead of looking for profits. He can't oprimize the profits because those small losses keep him in a chain and force him to exit even if he doesn't want it.
  • #105
  • Quote
  • Oct 5, 2009 5:44am Oct 5, 2009 5:44am
Quoting Sauron
This is just a hypothetical example. The problem is that the losses will put a tremendous amount of pressure on the next trade, you can't preserve your capital and you depend a lot on a very long trend which must cover your previous losses.
This all depends on do you trust your system or not. I know how my system works in the long term (10+ years) so I'm definitely not afraid of taking those small losses to make big gains. Also I don't play pips or dollars, I play percentages. Few 1% losses don't matter if I know every avg win is 20% (and this is hypothetical).
  • #106
  • Quote
  • Oct 5, 2009 5:47am Oct 5, 2009 5:47am
Quoting dreeamer
@ Sauron & hanover
Those are great explanations of the maths involved in trading and analysing performance, certainly valuable measures to every trader

Stop hunting always seems to cause to a "stir" with stopped out traders.

(Or perhaps I'm misinformed and is real phenomenon?! )

Stop hunting is kinda real, but it's not hard to work out where peoples stops would be, it's why the 3rd touch of a S/R line generally fails, the 3rd touch gets people in then it stops them, it takes newbies to the 3rd hit to see it / get confidence in it why they take the 3rd hit.

The secrets are to take the 2nd hit with more confidence and on the 3rd hit expect it to hit the stops, wait for the quick price dip thats the SL's being hit before it reverses ( ofcourse risk is it won't reverse ).

So it's a traders error and easier to blame someone else rather than yourself for your errors.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #107
  • Quote
  • Oct 5, 2009 5:51am Oct 5, 2009 5:51am
Quoting Sauron
If I go back to the win rate, let me give an example.

Let's say your system has a 25% win rate <=> 1 win, 3 losses.
The average stop loss is 50 pips.
You lose 3 in a row, very probable, you are at -150 pips.
You enter a trade and it goes on your favor 100 pips. What are you doing?

1) Put a SL at breakeven and pray for at least 150 pips, just to make overall to breakeven?

2) Take half of profits, put SL at breakeven and pray for at least 200 pips, just to make it overall to breakeven?

OR:

3) When you are at +50 pips profit you already take...
What ever you do, ie waiting for more your increasing your risk of losing money from that +100 pip point so it's not easy, just got to do the right thing at the time.

And a Market going against you, position closed or not your still losing money, try to never be in that scenario cause once you are your doomed.

If it's going your way hold, if it's going the wrong way exit, at a profit or loss at that time does not matter, thats how you get trapped and end up holding to the margin pixies take you away!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #108
  • Quote
  • Edited 2:08am Oct 6, 2009 1:57am | Edited 2:08am
Quoting mikkom
I play percentages...
I too prefer percentages. Mathematically the smaller your percentage loss as a value of equity, the less the smaller the extra gain required to get back to break even. E.g. A 10% loss from $100 leaves $90, but a 11.12% gain is required to break back even. It supports mikkom's approach of the low win-loss outcome ratio with minute % loss and large % gain (greater than "% for BE required" of course.) To conceptualise:

Risk %........% gain to BE
...1...................1.010
...2...................2.041
...3...................3.093
...4...................4.167
...5...................5.263
..10..................11.111
..25..................33.333
..50..................100.000

Courtesy of our friend the hyperbole:
% to Break even = Equity x ((Risk %)/(1-Risk %))
  • #109
  • Quote
  • Oct 6, 2009 5:55am Oct 6, 2009 5:55am
Quoting dreeamer
I too prefer percentages....
Most people aren't trading on a strict percentage though, so 100 to 90 is 16pips, you lose 16 then make 16 and your back to 100.

Where that comes in is the really stupid -80% trades, then you can't trade at $10 per pip any more then it'll take a age to get back to 100% as you need 400% profit!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #110
  • Quote
  • Oct 7, 2009 7:05pm Oct 7, 2009 7:05pm
Quoting Sauron
Doubling your account every year is a very hard thing to do. Most of the millionaires traders didn't become millionaires by doing it. I think rather working for some firm where 50% a year was considered a very good return and they received a nice bonus.
Waren Buffett made in average 25% every year, according to this forum he is one of the worst traders who ever lived and didn't go bankrupt.

50% is still shooting pretty hi. try 15-20%
  • #111
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  • Oct 7, 2009 7:26pm Oct 7, 2009 7:26pm
Signing up.

Lenoxer
  • #112
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  • Oct 7, 2009 8:16pm Oct 7, 2009 8:16pm
Quoting blacksun1
50% is still shooting pretty hi. try 15-20%
This is an interesting discussion and I guess I may have a slightly different take on this. I look at forex as an income stream any only let my account get to the point where I can trade @3% risk for my lot size until the point I am ready mentally to move up to another lot size. My goal is 40 pips a day, and that nets me roughly 2-4% of my account depending on the account current balance that day. Before everyone starts spewing the you'll be a trillionaire BS that is completely unrealistic for a whole host of reasons and will never happen just think about it.
  • #113
  • Quote
  • Oct 7, 2009 9:12pm Oct 7, 2009 9:12pm
Quoting endroute
This is an interesting discussion and I guess I may have a slightly different take on this....
Many traders do 2-4% daily, who can't do become angry and start with the BS
Keep your good work up!
  • #114
  • Quote
  • Edited 2:28am Oct 8, 2009 1:57am | Edited 2:28am
2% daily means that you multiply your account 140 times yearly. You don't have enough time to count the money.
I took your reply as a very good joke, which of course was your intent.

Quoting blacksun1
Before everyone starts spewing the you'll be a trillionaire BS that is completely unrealistic for a whole host of reasons and will never happen just think about it.
Either you make 2% every day or you don't.
If you make it, and you know the math, you'll multiply your account 140 times. Can you explain in simple words why am I wrong?
  • #115
  • Quote
  • Oct 8, 2009 3:27am Oct 8, 2009 3:27am
Quoting endroute
I look at forex as an income stream.. @3% risk... My goal is 40 pips a day...
I have real respect for traders like yourself. It takes a lot of dedication and commitment. Not least of all a good solid strategy to consistently pocket those 40 pips a day as an income stream.

I'm sure (hope) you enjoy it too! Like the saying goes "if you really love your job, you don't have to work a day!"
  • #116
  • Quote
  • Oct 8, 2009 3:41am Oct 8, 2009 3:41am
Quoting Sauron
Either you make 2% every day or you don't.
If you make it, and you know the math, you'll multiply your account 140 times. Can you explain in simple words why am I wrong?
Oh dear, I feel like it is a trick question, but I can't resist. Here goes:

Assumptions:
1) No trading holidays
2) 52 weeks, 5 trading days per week = 260 trading days per year
3) Rates 2% profit per day = 520% profit per annum (Compound Daily)
4) 100% win rate.

EquityFinal = EquityInitial x ( 1 + 5.2/260) ^ 260
Equity Final = EquityInitial x 172

I'm guessing that one of my assumptions is the reason for the 'wrong answer'. You have me hanging...

While we're on this topic, if you like to simulate you trade balance try this neat site that creates random equity curves of your trade history and statistics. Requires a bit of number crunching for the inputs. :nerd:
  • #117
  • Quote
  • Oct 8, 2009 3:54am Oct 8, 2009 3:54am
Quoting dreeamer
Oh dear, I feel like it is a trick question, but I can't resist. Here goes:

Assumptions:
1) No trading holidays
2) 52 weeks, 5 trading days per week = 260 trading days per year
3) Rates 2% profit per day = 520% profit per annum (Compound Daily)
4) 100% win rate.

EquityFinal = EquityInitial x ( 1 + 5.2/260) ^ 260
Equity Final = EquityInitial x 172

I'm guessing that one of my assumptions is the reason for the 'wrong answer'. You have me hanging...

While we're on this topic, if you like to simulate you trade balance try this neat site that creates...
I think they all just laugh at the 2% per day, they think it's not possible cause well there barely scraping 2% per year.

I don't think 2% per day is possible, 6 or 7 maybe I'd only be at 54K with my current account far from the trillionaire previously promised.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #118
  • Quote
  • Oct 8, 2009 4:14am Oct 8, 2009 4:14am
I assumed that a year has 250 trading days, so I arrived at 140.

Anyway, I expect an answer from those who seem to be able to make 2% daily.
  • #119
  • Quote
  • Oct 8, 2009 6:06am Oct 8, 2009 6:06am
Quoting Sauron
I assumed that a year has 250 trading days, so I arrived at 140.

Anyway, I expect an answer from those who seem to be able to make 2% daily.
What sort of answer are you looking for, how to do this yourself. Its called a whole hell of a lot of hard work and determination. Like I said in my post these types of x% per day calcs live in fantasy land, and you should really go find something better to do with your time.

It is possible to make good pips each day, like I said I look at forex as an income stream, the dollars I make I take out and do other things with and . The bottom line is I do what works for me.
  • #120
  • Quote
  • Oct 8, 2009 6:37am Oct 8, 2009 6:37am
Quoting endroute
What sort of answer are you looking for, how to do this yourself. Its called a whole hell of a lot of hard work and determination. Like I said in my post these types of x% per day calcs live in fantasy land, and you should really go find something better to do with your time.

It is possible to make good pips each day, like I said I look at forex as an income stream, the dollars I make I take out and do other things with and . The bottom line is I do what works for me.

The problem with a % per day is purely maths based, ie.

$10K account, 50pip per day average, trading at $10 per pip = $500 profit or 5%.
$100K account you'd have to trade at $100 per pip ( scarey ).
$1Mil Account $1000 super scarey!!

I prefer to look at average pips per day, rather than a cut and dry percentage anyways.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
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