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Trade mgmt challenge 8 replies

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US 10-y treasury yields went up today - doesn't that mean bearish USD 1 reply

Money Mgmt feature 11 replies

Attachments: USD/CAD went wrong, tips on money mgmt
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USD/CAD went wrong, tips on money mgmt

Quoting pipmutt
The 'odds' are in having a plan, executing it with money and trade management and discipline and confidence. These are the only things we can be fully in control of. A strategy only gives us a directional bias to help us decide which way to trade but as it's based on probabilities we're never going to be in control of the outcome. If we can't control the outcome what does that leave us with? Statistics help but they're no guarantee. Even with a statistically proven profitable system the majority would still lose overall.



There...

funny you mention statistics and probabilities.

let's assume the market is random, you have 1/2 probability of making money on any given trade... let's say you take 3 trades per night. What are the probabilities of you being profitable all three trades?

(1/2)^3 =12.5% or 1/8 that means that the probabilities of you losing at least one trade is 87.5% or 25% of having 2/3 right as 0.5^2.

what does all these mean well you have equally likely probability of being wrong in all trades 12.5% so then the one trade you are profitable needs to cover

1)transaction costs (spread)
2) previous losses

conclusion...................It's harder than it looks !
AVT INVENIAM VIAM AVT FACIAM
Quoting the redlion

let's assume the market is random
Although, as I think you'll agree, it's not random (identifiable patterns do exist), seems to me the problem is we need to treat it as if it were because we can't be certain of the outcome of any particular trade.


Quoting the redlion

conclusion...................It's harder than it looks !
I agree to the extent that it's hard to master the trading concept and to adapt psychologically, but once mastered I think it's a lot easier than people expected.
Quoting bluesteele
Expand that 60 times per day to per month/quarter/yr.... Same results. Blowout.
I'll repeat what I said in a different way. You may well blow-out but that would be a result of psychological not mathematical problems.

Your trading plan has to take that into account and so its prudent to limit your risk to the 1-2% range.

Anyway risk% is irrelevant until you feel you are consistently profitable. You first need to take a large enough number of trades (probably 100+) so that you can determine whether your trading has a positive expectancy.
Quoting pipmutt
Although, as I think you'll agree, it's not random (identifiable patterns do exist), seems to me the problem is we need to treat it as if it were because we can't be certain of the outcome of any particular trade.
do you have confident statistical data/analysis/study of technical pattern on large historical series of data which says : if x+y happens or when this pattern appears and it looks exactly like this, there is 52-55 % probability that price will go lets say 10 pips in this particular direction and 45-48% probability that it will go 10 pips in the opposite direction??

this would be definitely nice defined edge over the market, but i would like to see those statistics

it may looks in the chart history that there are nice working patterns but i think that human's mind is working in a way that it sees all the potential wonderful trades after the pattern occured and sees the great risk reward in that trade etc.....but in reality there are dozens of possible trades overlooked

just my 2 cents
Quoting katrooo

do you have confident statistical data/analysis/study of technical pattern on large historical series of data which says : if x+y happens or when this pattern appears and it looks exactly like this, there is 52-55 % probability that price will go lets say 10 pips in this particular direction and 45-48% probability that it will go 10 pips in the opposite direction??

this would be definitely nice defined edge over the market, but i would like to see those statistics
For any strategy which includes an element of discretion you can analyse and produce statistics on historical data as much as you want but at the end of the day each trade has it's own unique set of circumstances. Sure, some people need statistical evidence to give them the confidence required to place trades while for others it's meaningless to a certain extent, they rely more on their own personal experience and their results.

Purely mechanical strategies exist but I question how productive they are and their longevity in this market. A typical example would be automated strategies, the one's I've seen always seem to eventually crash and burn, some spectacularly!

In my opinion one size doesn't fit all. With the exception of some basic trading 'rules' trading is a very personal endeavour.


Quoting katrooo

it may looks in the chart history that there are nice working patterns but i think that human's mind is working in a way that it sees all the potential wonderful trades after the pattern occured and sees the great risk reward in that trade etc.....but in reality there are dozens of possible trades overlooked
I agree, looking at charts in hindsight can be misleading but they do offer up ideas worth exploring further, it's up to us to do the leg work. Not only is it an interesting exercise but it means we can explore ideas which interest us and tailor a strategy to suit our own style, personality, time frame, risk tolerance, goals, and ambitions.
Quoting skenobi

You should google "position sizing" and "expectancy" in the same search.

Good luck!
Thanks.
Quoting Assassin
If you go short by that chart I can say you're going with your guts only and that is dangerous. Read the background first for US & CAD, US is in positive expectation of recovery (could lead to stronger bullish support for USD) and Canadian is more or less like UK condition thesedays, not too bad but also not too good. So, I think USD/CAD has stronger bullish pressure than bearish, but with greater portion of sideways and whipsaw.

If I can suggest, why pushing your luck with that kind of choppy market? Why not choose clearer pairs such USD/JPY long...

Thanks for this. I try not to trade EUR/USD becuase I'm not sure if I understand the background of EUR completely.

Please define "clearer pairs".

I try to avoid trading pairs with high spreads since my TP was only 30 Pips.
Quoting xtrader101
5% is not too much in relative terms. If you trade less than 20 times a year that is optimal. If oyu trade often then that is way too much.
No I trade more often than that. Perhaps you are right. 5% is way too much. After reading the comments on this thread, I'm starting to realize it was probably both. System and Acceptable Drawdown.
Quoting bluesteele

And I disagree that MM is solved easily. It's the hardest part of any system and it is the #1 reason traders fail.

A 70 or 80 or 90 % winning system does not equate to profits.
May I request you to elaborate on that. 90% chance of winning .... not equal to profits.
Quoting the redlion
my view on this is that as stated, the edge is a very hard thing to grasp, even if discovered early on.... you dont really understand it until you UNDERSTAND IT.

now as far as the money management goes since that is your question.

in my opinion the $ risk should be directly dependent on the volatility in two major ways

1) statistical historical volatility
2) current volatility


to give you an example, the Euro/usd

2910 trading days (since inception) can be divided in to quartiles and the mean

minimum range of all time=0
25%< of the time it...

Thank you soo much. That is more like what I was looking for. Your insight into volatility is to adjust SL is of great help. Appreciate it.
Quoting the redlion
funny you mention statistics and probabilities.

let's assume the market is random, you have 1/2 probability of making money on any given trade... let's say you take 3 trades per night. What are the probabilities of you being profitable all three trades?

(1/2)^3 =12.5% or 1/8 that means that the probabilities of you losing at least one trade is 87.5% or 25% of having 2/3 right as 0.5^2.

what does all these mean well you have equally likely probability of being wrong in all trades 12.5% so then the one trade you are profitable needs to cover

1)transaction...

Quoting Svm
May I request you to elaborate on that. 90% chance of winning .... not equal to profits.
long-term profits are always a function of the win-rate as well as the risk-reward ratio.
Quoting Custos

long-term profits are always a function of the win-rate as well as the risk-reward ratio.
I've got a feeling you may as well be talking a different language altogether!
  • Post #54
  • Quote
  • Edited 10:38pm Mar 26, 2012 10:24pm | Edited 10:38pm
Quoting Svm
Thanks for this. I try not to trade EUR/USD becuase I'm not sure if I understand the background of EUR completely.

Please define "clearer pairs".

I try to avoid trading pairs with high spreads since my TP was only 30 Pips.
Note : The term "clearer pair" I gave to usd/jpy & aud/usd was before Helicopter Ben give his freakin dovish statement hours ago, now the condition quite different because those statement from Uncle Ben bring down fog to the clear path.

What I mean clear pair : when in a pair one currency side expectation and or economic condition becoming contrast with the other side of currency pair. Giving an example of cad/jpy, on canadian side the economy quite good and in contrast on jpy side the expectation & economic condition of japanese is obviously in the bad shape. With those condition we got clearer path of bullish pressure to cad/jpy, that way we can wait to buy the dip.

So, it's all based on reality and how most people will behave, not just based on mere illusion of chart. Technical visualization of chart of course important to aim the precise entry, but without "knowing" the theme I would say we are not much different to a gambler.

About intraday trader aiming 30 pips, I know many trader using those kind of strategy, but I don't quite grasp why trader would only limit their TP to 30 pips. We are trading of course want the odds not against us how low our winning rate, right? One of the way is by not limiting our profit. It's okay to set SL, but for me I prefer not set my TP. With that strategy I'm increasing probability of survival to the black swan (read: losing strike).

If the pair goes to 700 pips in a week would you just cut your profit to 30 pips only? Or you prefer to ride it out and decreasing your position whenever the background condition start to change? If you watch a sharp surge in price would you showing of your guts to enter with full amount or with small portion each dip by closely watching the condition start to turn on your favor? Think about it & you will find the best answer for yourself for the sake of your future.
Quoting pipmutt
I've got a feeling you may as well be talking a different language altogether!
it's called english.
Quoting Custos

it's called english.
For the OP it seems like it may as well not be!
  • Post #57
  • Quote
  • Last Post: Mar 27, 2012 2:38am Mar 27, 2012 2:38am
Risking too much can be lethal. A string of losses will do more damage than a string of profits will do good. That's the way it is. 2% is statistically proven to be maximally agressive. Lest not forget you still need what some refer to as an edge. Otherwise MM will not save you. You will just bleed to death slower. MM and edge are not mutually exclusive.
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