My trading strategy - Money management

Dear all,

I am new to the Forex world however have some stock trading experience; I already know it is a totally different market as a negative zero sum game, I guess it is not called the "slaughter house" for nothing and that the figures of 90 to 95% of the traders loosing in the long run is true.

I would like to show you my trading strategy in order to have some feedback from senior traders (i.e which means good one or very wealthy that still hope to hit the jackpot..) and as well because I think it is important to write one's plan down if one's want to follow a plan, it can be very easy to take crazy risk in this game and to blow it's own account in a few clicks without any.

I have at my disposal a capital of 10 000 GBP on a spread betting account.

I should not loose more than 1% per trade and per day.
I use stop loss to protect myself, therefore I will have two trade strategies.
2.5 GBP per pips with a 40 pips SL
5 GBP per pips with a 20 pips SL (in purpose to trade the news where the volatility can be very high)

if my account goes to 9 000 I will reduce by half the risk
it if goes at 8 000 I will do the same again and so on.
I will double the size of the position once I have double the starting capital.

I should put a SL at the break even point when the market has moved of 40 pips in my direction.

In case of extremely volatile market I should enter and follow the momentum (the Fed announcement of the 4tf of nov at 19h15 for instance resulted in some straight quasi continuous move of 100 pips done in no times in the market), hold as long the momentum is with me and close at any pullback or loose 4 pips ( at least try to do so..).
So in a much more video-game way I admit.

I am planing to trade the news in priority, without any technical analysis which appears to be irrelevant when big news comes out like FED announcement or unemployment figures.
The other time trade should be done using support and resistance level as entry and exit, in the sens of the global market trend (which can be tricky as different timescale would give different result).

I should not trade exotic currency but give preference to tight spread currency.

I should not have more than 1 position at the time until I double the starting capital.

my risk reward is about 3 times the risk.

I do not want to make a too much complex plan at first, as simple, I hope it will give better result and my knowledge of money management is basic.

thank you for reading this, any comment or ideas to share are welcome.

Be the god of FX be with you.

I don't want to be a negative but...you're toast if you follow this plan.

1. Fixed stop losses: Bad, it makes no sense to pick an arbitrary stop size, Google 'volatility adjusted stops', market volatility changes every day.

2. Chasing momentum: Bad, you're going to get caught in one sucker rally after another if you do this. You need a better reason for being in the market other than the market is moving. You need to be able measure what you are shooting for so you know if it is working or not, the market spends much more time ranging than trending, so that is likely a more fertile direction.

When I started, I tried to trade in much the same way you are suggesting and I got annihilated, I'm not ruling out that you are some sort of trading genius and I am a crap manual trader, but what are the odds?

That is cool Craig, I appreciate franchise.

If I have to precise:

1. regarding the stop loss, I still want to keep a liberty to adapt between 20 and 40 pips as long it is no more than 1% of my capital, maybe this range is too short indeed, but if I loose in the first place, would not that mean that I just miss my entry and have to choose a better one next time?

2. I admit it sounds a little crazy even for me, but I really felt that the move on the DJ in 1M was acting like an advanced indicators for what would do the EUR/USD, then I also consider that it can be just a coincidence therefore using this Technic is irrelevant and I should not use it.

on the other hand be in position before an important news with a close SL can
be interesting if the move is important at least temporarily, therefore the result would be much more wrong trades than right trades but the PNL of the correct trades would be superior of all the loss, the idea is to take its loss soon and be patient with profit, is this a wrong idea in the Forex market?


Anyway if ll stick to it as all the parameters can not be explained here, like the timing, the capability to wait the good opportunity, and I need to make an opinion by myself, however what parameters of your own starting system did you change in order to become a better trader?

Thanks

Probably the biggest realization was that I was crap at manual trading (revenge trading, trading too big, no stop loss, getting all emotional...the whole nine yards), so I needed to automate, which I did. Second big realization, even if you have infinite discipline (which computers do), if you don't have an edge, you will be a highly disciplined loser. So I needed to start trying to define what I was going for, measure and test, learn, learn and more learning. After years of this I now have periods of profitability and periods of banging my head against the wall. But what I do know is that I'm heading in the right direction, getting better...by the time you get to this point you realize two things, there is no easy money in trading and the highly farcical nature of 99% of FF content. This is all probably not of much direct help, but I'm not sure what else to tell you.

you just highlighted what not to do in manual trading which is good information therefore.

revenge trading has to be baned, especially when the reason to it is to think that "this new high is finally a good entry once now I think about it.."
It happened to me, now I always to figure out what would be my reaction if the market has to go further and only enter when it is consistent with my theoricaly best entry) - except for new trading because they can be the start of a new trend at least temporally.

trading too big can destroy your account in case of a few continuous wrong trades as well as inconsistency will make you make a mistake just when the position was the bigger you ever made, Murphy law applied to trading, like no stop loss, and what if you where at the next major return point, even if the probability is slim it is still probable then it can be a killing loss.

At least I already learned that but learning is indeed a continual process anyway.

my goal is to maximize profit while minimizing the risk.

Pippin ain't easy

First off, Congratulations for working on a plan. That already puts you ahead of part of the pack.

But... I have to agree with Craig. Arbitrary stops are bad. They will almost never be in the correct place. I think you'd do better to determine where your stop should be, then adjust your position size accordingly. There'll be times when you locate your stop, then decide to pass on the trade because the best place to put it will be too far away.

News: Have you studied news trading specifically? If you chase the momentum you're apt to get filled too slowly and the same thing will happen when you try to get out. Your 20 pip stop could turn into anything. Everyone can see the spikes and we've all thought the same thing--get in and out quick. It's too easy to get filled at the end of the move. Within those nice, long, solid-colored candles, there is a lot of quick back and forth movement that will stop you out if you're using a tight stop. If you don't get stopped on the way up, you'll pay hell getting out on the way down. I'm not denying that there are no successful news traders, but truth is, newstrading probably isn't the best place to start.

Not trying to discourage you--just pointing out a few land mines.

Thanks Billflet

I agree with the flexible stop-loss philosophy, the size of the position must be decided according to the technical configuration and maybe I should give myself a bigger choice in the size of the SL even if I do still aim at a close entry.

regarding the news, I only noticed a great momentum for the Fed announcement and the unemployment figures, and for some sec, some entry decision could be make using the DJ has an advanced indicator in 1min chart; I know it seems tricky, and it sounds a little crazy even to me, but I should probably give a try and reduce the risk like 1 GBP the pip.

Then I would be able to back test that kind of trades and see if I can increase the size of the amount per pip or definitely stop using this technique.
For the other news that will create a less powerful momentum (the most of them), the technical configuration can give some advice to either or not enter to the trade, with no particular technical clue, I just prefer not to enter in the market.
Then the real problem is that my analysis should not be biased by my will to find some clue just because I want to trade... and that is an other issue.


Anyway thanks to both of you for your answers, I will definitively pay attention to the points you mention.

An other thing of importance is the fact my goal is not to make money with this system, but to create a system able to make money, then it will follow.. normally.

I wish you good trades.