Money Management is everything | Forex Factory

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Money Management is everything

  • #1
  • First Post: Jun 16, 2012 11:20am Jun 16, 2012 11:20am
I am going to trade a live account on the basis that Money Management is everything.

I will of course try to pick smart trades - but I know in advance that most of my carefully chosen trades will be mistaken. I will however manage my resources carefully and hopefully make a profit using Money Management.

I may be right - I may be wrong- but it should be interesting.
  • #2
  • Jun 16, 2012 3:28pm Jun 16, 2012 3:28pm
Hmm... why not open the opposite then? Buy instead of sell and sell instead of buy. Most of the carefully chosen trades would be right then?

Quoting Paddy9
I know in advance that most of my carefully chosen trades will be mistaken.
forget about tomorrow, just steal away into the night
  • #3
  • Jun 16, 2012 5:04pm Jun 16, 2012 5:04pm
Quoting spekitox
Hmm... why not open the opposite then? Buy instead of sell and sell instead of buy. Most of the carefully chosen trades would be right then?

Thanks for your reply. Good question.

In theory your idea should work. However, if all I had to do was to fade all of my buy/sell decisions I would already be sunning myself on a yacht.

This is a Money Management experiment.

In this experiment I will be testing the idea that:

the buy or sell decision is less important than the time of the exit.

Its an experiment ( with a small account ) if my assumption is correct I should make some money. If I am wrong I will lose money.

I have set my trade explorer to display all aspects of my trades, nothing is hidden.

Anyone who thinks that I am a fool can fade my trades if they choose.

In this thread it is not my intention to defend my trading ideas or to try to win an argument with people who have a different way of trading from me.

I am going to trade using Money Management and little else.

I am more interested in the actual results than my opinion of what the results "should" be.
  • #4
  • Jun 16, 2012 5:40pm Jun 16, 2012 5:40pm
Quoting Paddy9
Thanks for your reply. Good question.

In theory your idea should work. However, if all I had to do was to fade all of my buy/sell decisions I would already be sunning myself on a yacht.

This is a Money Management experiment.

In this experiment I will be testing the idea that:

the buy or sell decision is less important than the time of the exit.

Its an experiment ( with a small account ) if my assumption is correct I should make some money. If I am wrong I will lose money.

I have set my trade explorer to display all...
hypothesis: If it's ranging, then time is more important. If it's trending, then buy or sell is more important.

Why? Ranging sets the range of the y axis, i.e. buy or sell. So the x axis, time, is variable.
Conversely, trending sets the range of the x axis, i.e. time; to me, one usually doesn't care how long one holds a trade, just as long as the reason -- in this case, where the buy and sell are -- stays valid.
  • #5
  • Jun 16, 2012 6:06pm Jun 16, 2012 6:06pm
Quoting ha-pattern
hypothesis: If it's ranging, then time is more important. If it's trending, then buy or sell is more important.

Why? Ranging sets the range of the y axis, i.e. buy or sell. So the x axis, time, is variable.
Conversely, trending sets the range of the x axis, i.e. time; to me, one usually doesn't care how long one holds a trade, just as long as the reason -- in this case, where the buy and sell are -- stays valid.
Thanks for your considered reply. I think that I understand your point.

However to me the time of the exit is always key.

Lets look at the history of a hypothetical trade

1. We sell EURUSD at 8a.m
2. The trade goes up by 50 pips by 9.00a.m
3. The trade falls back to break even at 10.a.m
4. The trade moves in to a draw down of 50 pips by 12 noon.
5 The trade moves to 100 pips down at 1pm.


So depending on the time of our exit our profit could be 50 pips or no pips or a loss of 50 pips or a loss of 100 pips.

In this particular hypothetical trade it didn't matter whether we sold or bought at 8.a.m either trade would have been profitable if we got the exit right. On the other hand both trades would have lost if we had made our exit at the wrong time.

Thats why I think ( but don't know) that the buy or sell decision is less important than the time of the exit.
  • #6
  • Jun 16, 2012 7:09pm Jun 16, 2012 7:09pm
Quoting Paddy9
Thanks for your considered reply. I think that I understand your point.

However to me the time of the exit is always key.

Lets look at the history of a hypothetical trade

1. We sell EURUSD at 8a.m
2. The trade goes up by 50 pips by 9.00a.m
3. The trade falls back to break even at 10.a.m
4. The trade moves in to a draw down of 50 pips by 12 noon.
5 The trade moves to 100 pips down at 1pm.


So depending on the time of our exit our profit could be 50 pips or no pips or a loss of 50 pips or a loss of 100 pips.

In this particular...
Well, I admit I took the easier route of price.

To take your path, I found one must be very data-heavy. As this person has said, time in forex can more accurately be divided into irregular points that sessions, news and other factors establish.

And I have found (albeit, unscientifically) that cross-correlation aligns price-centric patterns at key points in time.


Good luck on your experiment.
  • #7
  • Jun 16, 2012 7:46pm Jun 16, 2012 7:46pm
I don't think that I have explained my point very clearly. I will try again.

Perhaps I need to clarify my statement.

When I say "The buy or sell decision is less important than the time of the exit." I am not referring to the time on a clock. The time of day is not important.

I might have expressed myself more clearly if I had said

"The buy or sell decision is less important than the point of the exit."

The point of exit could be the point at which you wish to take profit.

The point of exit could be the point at which you wish to take a loss.


Here is another hypothetical trade


1. We buy the Euro.
2. Straight away our trade goes against us by 50 points.
3. Things get worse the drawdown goes to 100 points.
4 Things get worse the drawdown goes to 200 points.
5 Things get worse and we get a margin call.

It doesn't matter what the time is on our clock at each of the five stages of our trade. It is the point in the trade where the profit/loss hits a certain figure that counts.

If we exit at stage two we only lose 50 points.
If we exit at stage four we lose 200 points.
If we exit at stage five it's been a very bad day.

In this example we cannot win by buying the Euro but by adopting some sort of Money Management we can protect some of our trading capital.
  • #8
  • Jun 16, 2012 8:04pm Jun 16, 2012 8:04pm
As you know by now I think that "The buy or sell decision is less important than the point of the exit."

Here is a another hypothetical situation.


1. I study 6 different time frames on the eurusd chart.
2. My analysis tells me the trend is down.
3. I draw all the important support and resistance lines on my chart.

I place a sell trade when the price hits important resistance.

I take no heat. The trade quickly moves into profit. In fact I get to 1000 pips up.

I congratulate myself on a perfect entry.

I totally ignore the issue of my exit strategy. I leave the trade open until the market reverses and blows my account.

My choice of a buy trade or a sell trade didn't kill the account. It was my exit point.
  • #9
  • Jun 17, 2012 4:49am Jun 17, 2012 4:49am
Paddy, thanks for the explanation. I agree, the exit is more important than the entry but how do you determine the trend?
Is it rule based or discretionary - something like if the graph on the chart starts in the bottom left hand corner and ends in the top right hand corner, the market is going up - sounds too simple but I like it.

Same question about the MM - rule based or discretionary you prefer?
forget about tomorrow, just steal away into the night
  • #10
  • Jun 17, 2012 12:03pm Jun 17, 2012 12:03pm
The aim of my experiment is to see what results can be achieved by pretty much ignoring technical analysis.

Next week I will use a variety of different methods of trade selection:

1. Follow a trend after glancing at chart.
2. Fade a trend after glancing at chart.
3. Toss a coin.

If ( as I hope ) I still have an account at the end of the week I will review things.

At this stage I do not want to go into detail about my MM. However anyone who is interested can follow the trades in my explorer.
  • #11
  • Jun 18, 2012 9:50am Jun 18, 2012 9:50am
Yesterday I took one trade and today I have taken two so far.

In my experiment I don't mind ignoring technical analysis or fundamental analysis, but I am not going to buy at or near recent highs ( or sell at or near recent lows) on my four hour chart. After all it is real money that I am playing with.

So I sold eurusd, chfjpy and gbpjpy.

I wasn't very greedy but I closed all three trades for a profit.
  • #12
  • Jun 19, 2012 3:13am Jun 19, 2012 3:13am
This morning I looked at GBPUSD and tossed a coin. Then I sold it for an easy small profit.
  • #13
  • Jun 19, 2012 7:12am Jun 19, 2012 7:12am
I toss a coin everytime I trade too, well, for extra confirmation. It's the final piece of puzzle. Head for buy, tail for sell basically.
  • #14
  • Jun 19, 2012 7:48am Jun 19, 2012 7:48am
I have had a good day on my other account buying the GBPUSD.

Just tossed a coin for a trade on this account and it was heads, so I have just placed a sell trade on GBPUSD.
  • #15
  • Jun 19, 2012 8:17am Jun 19, 2012 8:17am
Traders are naturally obsessed with what indicators other traders are using.

There must be a perfect indicator somewhere, and I bet it's going for free somewhere on Forex Factory. You just have to find it.

So, naturally, some people may want to know what coin I am tossing and more importantly what precise settings am I using.

Well, my indicator is a British Two Penny Coin ( I found one penny coins are unreliable for currencies).

My settings are:

Year of manufacture: 2000
Colour: dirty bronze
Condition: well worn
Scratched or unscatched : scratched

In the past I found that if a MACD setting didn't work then I should change it .

If that didn't work I switched to CCI. If the initial CCI settings didn't work I simply changed them. If that didn,t work I switched to RSI.

This experience has taught me a lesson:

If I have any problems with my two penny coin, obviously I will try a 2001 setting first and if that doesn't work I will switch to a ten penny coin.http://www.forexfactory.com/images/icons/icon12.gif
  • #16
  • Jun 19, 2012 9:04am Jun 19, 2012 9:04am
There is one problem that I have always had with indicators. Are they telling me that the market is oversold or overbought ? Or are they telling me that there is a strong trend and I that I need to get on board now?
For example if the CCI is reading over 100 does that mean that I should go long, or does it mean that the market is running out of steam and I should sell it.
As you know I am a strong supporter of indicators. I have my own custom Two Penny Coin Indicator . Please do not PM me asking me to share the Two Penny Coin Indicator. I have put years of work into this.
The problem that I have is that if my coin comes up tails does that really mean buy? or does it mean that the market is overbought and I should sell ?
I suppose that it takes years of learning a Two Penny Coin indicator before you can become a Guru.
I could try a back flip (oops I mean back test).
  • #17
  • Edited 11:19am Jun 19, 2012 9:38am | Edited 11:19am
I have been taking a look at some of the important threads on Forex Factory and I have realised that my method of trading is missing something.

In particular I have waded through three million pages of Alorentes TMA thread.
It seems that anyone who is anyone has what they call a “REPAINTING INDICATOR”.
I have looked this up in a dictionary for very gullible traders. It seems that “REPAINTING INDICATOR” means an indicator which predicts if the market is going up or down.
After the event it goes back in time to see if it was right or wrong. If it was wrong it changes it’s prediction accordingly. In this way it never makes a mistake.
People who thought that the King really was wearing clothes have claimed that “REPAINTING INDICATORS” are valid for predicting the future.

Naturally I have contacted the Royal Mint and have ordered a Two Penny Coin that changes from Heads to Tails when you tilt it.
  • #18
  • Jun 19, 2012 11:37am Jun 19, 2012 11:37am
There is another “important “ indicator genre that we have not yet considered. As Usual it is almost perfect.
It’s called the “LAGGING INDICATOR”.
The lagging indicator is famous for predicting something that has already happened.
For example it tells you to buy when the trend is already over.
The people who believe that the King really was wearing clothes love this one.
I have designed my own “Lagging Indicator For Horse Racing”.
You drop the “Lagging Indicator for Horse Racing” on any chart of the runners for a horse race.
Once the race is over my indicator correctly predicts the winner.
On an hourly chart it predicts the result one hour after the race. On a fifteen minute chart it correctly predicts the winner fifteen minutes after the race. If you like scalping you can use a one minute chart
  • #19
  • Jun 19, 2012 11:42am Jun 19, 2012 11:42am
Quoting Paddy9
There is another “important “ indicator genre that we have not yet considered. As Usual it is almost perfect.
It’s called the “LAGGING INDICATOR”.
The lagging indicator is famous for predicting something that has already happened.
For example it tells you to buy when the trend is already over.
The people who believe that the King really was wearing clothes love this one.
[font=Calibri][size=3]I...

Failure is a feedback. Learn from it.
  • #20
  • Jun 20, 2012 4:56am Jun 20, 2012 4:56am
That one made me laugh with tears. Massive one.

Quoting Paddy9
On an hourly chart it predicts the result one hour after the race. On a fifteen minute chart it correctly predicts the winner fifteen minutes after the race. If you like scalping you can use a one minute chart
forget about tomorrow, just steal away into the night
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