Money Management: Taking a Well-Known Term To the Moon

For some of you Money Management is simply placing a stop, for some it is placing a limit. But for me it is much more than that, it is playing trading for what it is, a numbers game. It all comes down to probabilities and all else fades. Your method needs to be sound and repeatable, your stops and limits need to be defined, you have to pull the trigger but in the end the numbers don't lie. This is why I created the Super Shot Market Management System, it is what I use for all my accounts and one I hope can be a major help to you traders who seem to win with 1 lot but not with 5.

This system all started with the proposition: "How much is my Max. Drawdown" to me max drawdown is simply defined as this: How many pips is my av loss, then take my losing percentage Av [lets say 40% chance of loss and 25 pips per loss]. What I then do is calculate Max D: How I calculate it is as follows:

I take the losing percentage and I multiply it by itself until the number is below 2%. What this does is makes sure that the chance of a "Max D" is below 2%. For 40% that is 5 times (.4 x .4 x .4 x .4 x .4=<.02). Thus we can conclude that our Max D is (5 losses times 25 pips, thus we lose 125 pips in Max D). Whether that is $12.50, $125, or $1250 I don't care my Max D is 125 pips.

The ultimate aim of this system is to move my account forward (by trading more lots) as my account gets bigger, BUT I wanted to gurantee I certain sum of money for every number of lots that I go forward. The end formula's also contain the formula for Margin and calculate the GV (Guranteed Value of account in Max D).

So here it goes guys I'm going to try my best not to confuse you but just follow me this is pure gold:

The symbols are as follows:

Max. D: Max drawdown as the number of losses in a row times Av. Loss.

GV: Gurranteed value of account during Max. Drawdown

GGV: Gurranteed value of account during Max. Drawdown x 2 (during bad times of trading where you disobey your system rules and trade erratically)

Median: The Av value between the GV and the C value (to be defined later)

C: The Tier value of YOUR account. This is the value of your Account when you want to start trading more lots

Margin: The total amount of margin needed to trade your amount of lots



Okay so what I'm going to do is attach a example spreadsheet at the bottom demonstrating a $1500 account with a 65% win av and a 35% loss av it loses 12 ticks per loss and I know I can make 45 ticks per week, the lot size is in dollars per pip my preferred measuring stick. It will look like greek but just follow the C value as it progresses, and follow the GV. Essentially what I do is plot my lots first, then I take my Max D and calculate it. I then take my starting account value, the next "tiers" are calculated as you see in the spreadsheet.

I hate wasting time so if you all want to see more just say so and I'll post a video on taking this system to your own account. Just wanted to start off with showing you how it works.

Unfortunately the attachment failed so I will be uploading tommorrow but if you are interested please express it.

Got the attachment to work, finally

i am the first voter and i am in... lets dig...

Getting a little late on the east coast of the US guys, hello kader good to have you. Need to get my rest for tom. trading.

Just so ya'll know I've created dead threads before, it is my hope that this thread remain alive so we can truly show Forex Factory what the real key to trading is: Money Management. Its not about the system and all the indicators, its about numbers, taking a system that works and making it work for you. It all hinges on two things though, do you have a system that is defined enough to follow, and can you follow your system and your trading plan. All else is absolute garbage. Again good night guys will see your replies in the morning

pip counting has been my way of trading for some time - lets us know the system continues to perform as planned and removes some of the issues associated with larger lot sizes

Helps us grow without as much stress i feel.

enclosed is a pdf of a few weks worth of trades and how i track my pip count - all manually - but it keeps me in check

will look to see how your method works into this now as currently i manage my lot sizes according to account balance

xxlots per $xxxx of balance - but all exits are pip based

regards

MPP

Will you also share with us your winning system that wins 65% of the time? That is nearly unheard of, unless your risk/reward ratio is very high.

Hi Jak

If you are looking for the maximum number of loosing trades in a row,where the av loss is 40%, with the total no more than 2% of your account, then shouldn't these loosing trades be added, not multiplied?
i.e. 0.4+0.4+0.4+0.4+0.4 equals 2% of your trading capital. (5 loosing trades in a row)
i.e 0.5+ 0.5+0.5+0.5 again equals your 2% of trading capital. If you use the 50% example above, then you would need 6 loosing trades in a row to equal your example of 0.0102, if multiplied, when clearly the av loss in this example of 50% (greater than the 40%) and thus requiring less trades to equal the 2% risk you are using. i.e. 4 .
I'm happy to be proven wrong !
A 2% drawdown (i.e. 5 loosing trades in a row) doesn't equate to 551 dollars on a $1500 account, it's more like 30%.
Somehow I think I'm missing something.
Look forward to your ongoing explanation.
Cheers, Rob

sorry can't disclose that

Seriously though many methods can win 65% of the time. For instance have you ever thought of just trading fibonacci crossing a trendline? That method is simple and works 65% of the time. The beauty about this money management system is that it doesn't matter your percentage as long as you plug them into the equation. It could be 30% for all I care and the formula will generate what you need to succeed.

Your thinking of 2% of account balance. I mean a 2% probability of getting x number of losing trades in a row. Since your average is say 25 pips and 5 trades in the 40% scenario then that comes to 125 pips. Get what I'm saying? It doesn't matter % of account balance as long as you keep margin and everything in perspective.

That is a simple way to do it. But this method is so nice because it is stress free. I know that my GGV (Max D x 2) will only be reached one time in 800 trades. Considering that takes about 2-3 years you will only reach GGV 1 time in 2-3 years (theoretically). You could also do MAX D x 3 (called GGGV lol) and that would only be reached one time in 8000 or something. Thus it really is stress free, I know if I follow my rules the probs will take care of themselve. Also when you calculate pips do you calculate pips or pips x number of lots? The right way to do it with this formula is counting pips by themselves. For instance EU moves from 1.37 to 1.38 is 100 pips, whether I traded 1 micro (.01) or one mini (.1) or one standard (1).

Okay got the videos completed. If you have any problems or questions just post them on this forum. First video herehttp://youtu.be/eu-llzL_Gcg Second video here: http://www.youtube.com/watch?v=QvlxY...ature=youtu.be

Just so ya'll know this forum is showing results that are not real, they are all theory and I don't gurantee anything, thanks for all your support but this thread is strictly for showing you the formula. I don't make any gurantee that it works.

The administrators did right in moving this thread to the Commercial forum section.

May I ask why dreamliner? All I did was try to share a money managment formula I came up with? What was I selling?

Ok I understand now, I didn't know about the forex factory rule change. Got you

You'll have to ask the moderators, but generally anytime someone provides a link to something that costs money (especially the amount you provided here) it will be moved to the commercial section.

While you may not have been trying to sell something, for all Forex Factory knows, you work for the other company and are trying to market your method. So seeing it from their side, you can understand their reasoning.

Generally Forex Factory frowns upon those who try to market methods to fellow traders, and with good reason. And while you may not have been doing that, the link you provided at least gives them enough grounds to move it to the commercial section.

At the bare minimum you were not providing a "Trading System", which is where you initially placed your thread. This is why I asked you to provide your trading system. When you refused, combined with the link to your method that costs money, the only natural conclusion was to move your thread to the commercial section.

At least you still get to share your money management here, and many will still examine it.

Okay I see. I took that post down though. I discovered my error. I will create a new thread in trading discussion though so more can see it.