About Money Management, risk/reward and daily goals/targets

Hi all! Welcome to this thread!

First i want to say that English is not my language so if you have problems understanding what i write that is probably the reason. Just ask if there is something confusing in my post and i will try make it clear.

In my opinion good successful trading is made of 3 equal important parts. The first part is the trader himself with the talent, knowledge and experience. The 2nd part is the system/method/strategy. And the third part is money management (MM) maybe also combined with trade management (TM). Some traders look at MM and TM as one and the same thing. Others say it is two very different things. Personally when i talk about MM i am often including TM as if it is more or less the same thing. I am not saying that is the right way to look at it but i am just telling so people know what i am talking about when i say MM. In this thread i hope we do not talk to much about the trader and the trading system but mainly about MM and things that are related to it.
I am mainly starting this thread first of all to hear other traders view on setting daily goals/targets (or weekly/monthly or whatever period..) so in a way i guess you can say it is about MM then right? I am first of all talking about day trading/intraday trading and maybe scalping here but I guess the idea can also work for other types of trading like maybe even swing trading. I was trying to find a thread where this subject was already going on. I found many but non of them was really spot on so i decided to make a new thread.
Personally i have not used goals much in my trading so that is the reason i like to hear from traders that have experience using it. Is it good or bad? Is it useful or not? People that do not have personal experience using it is also welcome to post here of course. The goals/targets i have been using is most for single trades. Like using Stop loss (SL) and target points (TP) but not much for daily targets.
Some traders also use risk/reward (R/R) for daily goals/targets. Just to make a example of what i am talking about lets say you are scalping and your system gives maybe around 10 trades pr day on average. You may or may not have a pips R/R set in stone like example 5 pips SL and 15 pips TP. Or you may not have your R/R in pips but in % of the acc. Or Dollar. Example 5% risk and 15% profit target (PT). Very high risk i know but just to make the math simple and easy in our heads for this example. So in this example the R/R is 1:3. Pips, % or Dollar.
What i just talked about is sort of a simple MM. Then some traders add one more "layer" of MM. That may be done in many different and advanced ways and i guess it is possible to write a big book about it but just to make it short and simple here for the example lets say they set a similar R/R for the day (or week or...). That may be to stop trading after 15 pips loss (or maybe 15 pips draw down (DD)) for the day. And the same for the winning side. Stop trading after example 45 pips profit that day. So the R/R in this example is the same as for one trade. R/R 1:3. It may be any number or may or may not be the same R/R for the single trades as for the day. Some may also use pips targets for single trades but % targets for the day or the other way around. Or they may use the same number for both single trades and for the day. Pips, Dollar or %. The different variations are endless. Some may not even care about pips and/or % for the daily goal but only go for a certain number of trades. Maybe stop trading for the day after 3 winners or 3 looser no matter what amount of pips, Dollars or % they win or loose that day.
Anyway for the scalper in my example that have a 5 pips SL and a 15 pips TP for the trade and a max risk pr day of 15 pips and a PT for the day of 45 pips, he/she will some days stop trading after only 3 trades even if the system have a average of 10 trades pr day because the goal/target for the day can some times be reached after only 3 trades. Profit or loss. But it is also possible that it will take more trades to reach the profit target or the max risk or DD for the day. Some days the profit or loss targets may not be reached at all. Then they may trade the whole day, or some traders may also have a limit on max trades pr day. The scalper in the example maybe stop after lets say 6 trades pr day even if targets are not reached. Some others may "reset" the targets every day but some may even continue trying to reach the target the next day. Example if they had 30 pips profit previous day (target was 45) they may go for only 15 the next day to reach a total of 45 even if it now is two days instead of one. Or the other way around. If they had only 30 pips the previous day they may go for 60 pips next day to try to reach a average PT of 45 pips pr day. And so on.... There are endless ways of doing it..
Like I say earlier some may stop trading for the day if they have a certain DD. That is not always the same as loss. Example you have 30 pips profit early in the day and then you have some losers and you are down 15 pips from the high that day. Then you still have 15 profit for the day but your rule is to stop at 15 pips DD. Another way is to continue trading until the first loss (or maybe until the first time you have 2 or maybe 3 losers in a row) for the day. Then stop. So if the first (or two first or...) trade for the day is a loss then no more trading that day. If you have no losers then trade the whole day. That may give a very nice R/R some days/weeks or what? Maybe also have a max number of trades pr day. If we go back to the scalper. He stop trading at the first loser for the day. The system gives on average 10 trades pr day but he/she knows that it is very rear that it is 6 winning trades in a row so maybe he have a rule of max 7 (or 8 or 9 or...) winners in a row and then stop trading for the day. So during a week he may have one day when he start with a loss and no more trading. Then a couple of days he have around 2-3 winners then loss. Then maybe a couple of days he have 7 winners, no loss and stop trading. Even if his single trades have R/R of "only" 1:1 it will still be very nice R/R for the week right? And if his single trades have R/R 1:3 the R/R for the week is just amazing if he use this model from the same example. Remember this is only examples. I am not saying it is normal to end a week like that. There are probably thousands of different variations of how this can be done and if some of you have personal experience and success (or even total failure) with something like this, or maybe even something totally different, i would love to hear about it and I am sure others out there like to hear also.

Non of the ideas and examples here in this post are my own. Different variations like this have been around long before i start trading and probably even before i was borne.. lol. So i am sure there are many traders out there that have tested this type (and/or similar) of MM with goals/targets in and out, up and down. Lets know about it. Good or bad.. Useful or not..

So this is the sort of things i would like to hear other peoples view and/or experience on. Is it good or bad to stop trading for the day (or week or....) when/if your target is hit even if you know that on average you can still have a lot more trades before the day is over. We all know that the rest of the trades that day can be winners and then you are giving up potential profit right? But they may also be losers and then you are protecting the profit you already locked in that day, or if you stop after a certain loss you protect yourself from even more loss. But then you may miss potential winner that can erase your loss. So what is best? Personally i have to be honest and say i don't know. I have been thinking a lot about this but i have not really been studying it mathematically and i have not been testing it live or “on paper” enough to say i have experience using it.
And about mathematics, i think people that have knowledge about math have a big advantage when it comes to trading and even more so with developing and using MM in a clever way. Personally i do not have more than average skills (probably far less) when it comes to math so i hope maybe some traders that have math skills will join us here in this thread. Another thing that is very useful for a trader is to have some skills using excel. I think a trader that have knowledge about both trading and MM combined with both math and excel skills have a great advantage and good tools to be successful. Excel is far more useful than many traders realize before they learn it and use it for them self.

Other type of MM and ideas of how to make the most of targets/goals or MM in general is also welcome in this thread but please try to stay around the subject of goals and/or MM. It is probably confusing enough already so best not to make it even worst... Hehe..

Arctic4x

When people post about MM one thing that often are taking over the discussion is Martingale and/or trading using no stop loss. I don't want to hear about it here in this thread so please do not post about it. In my opinion it does not work! I know some traders like it and say it works well for them but anyway please do not post about it here. Even if it works for some traders it is far to high risk for new traders so i just don't want it here in this thread because i hope this can be a useful thread also for new traders. In my opinion some of the first and best advice you can give a new trader is always use SL and never use Martingale. Saying to a new trader it is ok to use Martingale is almost the same as giving a suicidal person a loaded gun. Please don't do it. I know this can be different for experienced traders with a very big acc, very small lots and a system they know in and out but anyway I don't want it here in this thread.

But i may be open for ideas around what some traders call "Progressive Position Sizing" or that type of MM. Some people look at it as "Martingale light" and don't want to hear about it but in my opinion some of this type MM is far from Martingale and can not be looked at the same way, but you sure can run in to much of the same problems as in Martingale so i agree it is also very close related in many ways. That is big position size and very big DD and so on. If you don't know what you are doing then be very careful and study it well before testing it. Or even better, do not use it! If you don't have any idea what "Progressive Position Sizing" or Martingale is then don't worry about it. You have not been missing anything important for trading. I have seen people use names like “Recovery Trading”, “Revenge Trading” and "Creative MM" and why not..? It is just a name and for me it sounds as good or bad as any other..

I have been looking in to that type of MM and i have been experimenting with it and even developed some creative MM systems of my own in excel but i have not been using it much for live trading. Only one short period I have been trading something like this live. It is some years ago I was using a sort of progressive betting system made for casino gambling. The system is called “Labouchere”. The system was sort of converted in to fit trading but to make a long story short it do not work so don't even bother looking in to it. I have developed better/safer progressive MM systems on my own but not traded them live. The reason i have not used it for live trading is a very long story, but to make it short i have not been able to make it work. What i found out (and i know others have come to the same conclusion) is that if you have a losing system you can not make it profitable just by position sizing. Not even with a break even (BE) system. It is not mathematical possible unless you have a huge acc and trade so small lots it is not worth it anyway. You will run in to similar problems as with Martingale just not that extreme. And if you have a good winning system you will do far better with far less risk just using a simpler, easier and lower risk "normal" MM.
In my opinion a trading system where some sort of "Martingale light" can help does not exist. That system have to be something like this: The R/R have to be a little bit better than 1:1. Lets say 1:1,1 or better. It needs to make a little bit of profit before you add the MM so combined with the positive R/R it also needs a positive hit-rate. Somewhere better than 50%. Just for this example lets say 52%. The system needs to overcome the trading cost/spread and still make a little profit on top of that. Of course it do not have to be a system with around R/R 1:1,1 and little better than 50% hit-rate. It can be more or less any combination of R/R and hit-rate as long as it makes a little profit. It is just simpler and easier for the example to talk about around R/R 1:1 and around 50% hit-rate. Easier to imagine in our heads.
Then the characteristic of the system also have to be a certain way. It can not be a system that normally have long periods of big DD even before you add any MM so It needs to have a steady even distribution of losers and winners so it normally hovers around BE or better most of the time. This is a system that makes a tiny little bit of profit already even before you add any MM but the profit will not be enough to make it worth the trouble trading it so it also have to be a high number of trades pr day or pr week to be able to make a effective compounding and also because you have to start with very small lots so it needs hi frequency of trades to make enough profit so it is worth trading it. The system will have many small trades instead of a few big ones. The TP have to be small because with a big TP the trades will take to much time to make a high enough number of trades pr day (for the compounding effect and profit in general). But that is not the only reason. If you have a big TP you also need a big SL and with a MM like this the risk and the DD gets to big if the SL is “big”. Because of those reasons combined the TP and SL needs to be "small". I don't know how many trades pr day is needed but just for this example lets say more than 12 trades pr day so maybe 70-80 trades pr week or more. That means it is sort of a scalping system that is in the market most of the time. The more profit you want the more trades you need. After the TP or the SL is hit then it needs to find a new trade fast. How "small" does the TP have to be then? Hard to say but for this example maybe somewhere around 10 pips.. And remember we need to overcome the spread and make a tiny profit on top so the SL have to be a little smaller than the TP. A system that trades this often will have to be something very similar to random entry’s and it is not possible to make a profitable system using random entry´s. Well, that is my opinion anyway...
I guess most of you are starting to get the idea of how this system needs to be and i think i can say for sure that it is not possible to make a system like this. At least i know i am not able to come up with it.
But there is even more that needs to be in place to make something like this work. It is about the broker. You will need high leverage. I can not say how high but the more the better. I guess maybe less than 300:1 may not be enough so lets say more than 300 just for this example. And you will need very small lots. Again I can not say how small but the smaller the better. The smallest I have heard about is “nano lots”. That is smaller than micro lots. But not many brokers have nano so for this example we say no bigger than micro lots. Then there is the question of how big the acc needs to be. Again it is almost impossible to say without knowing all the details of both the system and the MM but it can not be traded with a “small” acc that is for sure. Bigger is better. But lets say no smaller than $10000 ($10K) And then there is one more thing that will be very hard for most traders. You have to accept very big DD. How big? Same thing here, it is not possible to say anything general but probably far bigger than 50% of the acc. That will of course depend on how big the acc is and how small the first lot was in the first place and a lot of other things but anyway you get the point right..? Not many traders will be able to see more than half the acc disappear and still say this is just a normal day at the office.
So then put all of this things together and say it is easy to make this work. I say it is impossible!
And then some of you may ask how can i know that the system have to be like that and how do i know that sort of system do not exist or can not be made? Well..... Like i say in the beginning of this post i have already been trying to make this type of MM work, and i have some years experience when it comes to trading in general so the only short answer i can give is that i have enough personal experience to say it is not possible. And I have been around the trading forums for years and I have not seen others presenting systems like that ether. But anyway if some of you can prove me wrong i will like to hear it. No problem. In fact I will LOVE to hear it. That is part of the reason why I write this post. Because a trading system like that combined with "Progressive MM systems" that i already have developed will be a money making machine. But when something sounds to good to be true then that is just what it is. Again i think it is safe to say it does not exist! I know i say in my first post that i first of all only want to talk about MM and not about trading systems in this thread. I have already sort of broken my own rule here but i still say we do not talk about systems here. The only exception is if a certain type of MM can only work well with a certain type of system and the other way around. That may be something like in my example above.
And please if you like to post about "Progressive Position Sizing" or ”Creative MM” (or "Martingale light" as some people call it) then I prefer you only do so if you have some knowledge and/or experience about it. Please don't come here and just post some untested ideas, questions, suggestions or things like that. If you know something for a fact because of testing and/or experience please let us know about it but if you just had a idea and you like to have some other people test for you, or just want other peoples opinion about it then please do not post here about it because i like this thread first of all to be about goals/targets and proven and tested MM and subjects around those type of things. About goals, targets and “normal” MM anyone is welcome to post even without experience but if you want to talk about "Progressive Position Sizing" then I like you to know what you are talking about. That is a subject where there are far to much risk involved so it is not for new traders. To dangerous! Believe me..

I hope my English writing have not been to painful to read and understand, and that we maybe can get something interesting going on here and that we all maybe can learn something new and useful. I have been in to the world of trading for some time already and learned a lot but the one thing i know for sure is that there is always more knowledge out there to learn. Please post some of your wisdom..

Arctic4x

Hey, this is not a grammar competition. Don't worry about that.

Well .... good to see someone into MM. People are so concerned with levels, indicators, price action and all that, when in reality all you have to worry about, is to be positioned with the bigger trends. The rest is MM. MM tells you how much (% or fixed amount) you're willing to risk.

MM combined with TM means you take price action into account when making decisions. Yeah, it's still MM, not "pure" MM where your decisions are based on your account balance (and possibly, your recent results, eg. Anti-Martingale - pump it up when you're winning)
But targets and goals, no, that's not MM. Of course it's a good idea to stop trading for the day, week or month after a certain gain or loss. Just to get it out of your head.

my money management allows me to have a 45% drawdown before ruin levels are reached ....I don't care about profits....but i make sure my losses are tendered to..you have to divorce yourself from the how much have I made today mentality .I only confirm my position size and slippage if any....there's a song by Kenny "you never count your money when you sitting at the table,there'll be time enough for counting when the dealins done - my signature.

yes agree Martingale in the long run will stuck into big trouble
Martingale is often give profit but once or twice caught the benefits for 6 months will probably be gone even will overdrawn

salaam
kho

I have a question I couldn't find an answer:
How many percent of all forex players end up as winners?
There must be some statistics.
I heard that 1 in 4 is a winners in a stock market.

In recent brokers statistics, about 30 percent are winning. But this was only 1 year long statistics.

Thanks. I expected much lower number.

Yes the i agree it can be good for the mental and psychological part of trading.

But i am also curious to hear if anyone think there may be other more technical or mathematical reasons to set goals and targets in trading.
One example may be if you stop trading after a certain loss for the day. Maybe some amount of pips or maybe lets say 3 losers in a row. Then that may be telling you the market is not good for your system that day so better to stop and try again the next day. Any views on that way of thinking anybody?

Arctic4x

That is probably a bit bigger than most people will accept i think. But that is maybe different not only for different people but also how big the acc is. I guess most people will accept less % DD on very big acc compared to a very small acc.
I think it is easier to accept 50% DD if the acc is $500 than if it is $500000 ($500K)

Arctic4x

Yes. Martingale does not work in the long run.

Martingale has been shown not to work in a coin-flipping game with 50/50 probability. Trading might be different, though.