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Money management - What is the secret?

  • #21
  • Dec 6, 2014 1:34pm Dec 6, 2014 1:34pm
What if you get a very longer than usual string of losers?
No greed. No fear. Just maths.
  • #22
  • Dec 6, 2014 1:36pm Dec 6, 2014 1:36pm
But what happens when you lose 6 in a row? You keep adding more risk each trade? Plus, as you lose 60% of the time your risk per trade will drift higher and higher.
  • #23
  • Dec 6, 2014 2:31pm Dec 6, 2014 2:31pm
Quoting PipMeUp
What if you get a very longer than usual string of losers?
Quote
But what happens when you lose 6 in a row? You keep adding more risk each trade? Plus, as you lose 60% of the time your risk per trade will drift higher and higher.

This will happen when you wrong to forecast the winning ratio of your strategy.
Guys i want to remember this is not a trading system, it will work with your own trading system just improving your profit and having the same drawdrown.
In any case it will improve the result, but if you have a wrong trading system and you 're not able to forecast at least the minimum of your winning ratio, you will lose your money to risk.

What if you get a very longer than usual string of losers?
What's happen if you get longer than usual string of losers in the normal money management?
  • #24
  • Dec 6, 2014 2:40pm Dec 6, 2014 2:40pm
Till now i'm still improving this system.
I'm working with my trading system who give around 55-60% winning trade with 1:1 risk:reward.
On this strategy i add my money management forecasting only 45% winning trades(earning 20% ).
In this way i still limit a possible drawdrown .
What could be my alternative?I should use the same trading system earning less and risking the same, with the classic money management
  • #25
  • Dec 6, 2014 3:56pm Dec 6, 2014 3:56pm
Your idea is quite similar to Martingale.
At some point it breaks down because you simply don't have the bank to survive a long series of losses.

This has nothing to do with being (I quote from your post above) "wrong to forecast the winning ratio of your strategy". Even with a perfect forecast of the average win rate, you will inevitably at some point in time encounter a long series of losers, just like you'll sometimes encounter a long series of winners. If you don't understand that, it's better to stay out of this business - and out of the gambling business as well.
  • #26
  • Dec 6, 2014 4:31pm Dec 6, 2014 4:31pm
Quoting RHoudini
Your idea is quite similar to Martingale. At some point it breaks down because you simply don't have the bank to survive a long series of losses. This has nothing to do with being (I quote from your post above) "wrong to forecast the winning ratio of your strategy". Even with a perfect forecast of the average win rate, you will inevitably at some point in time encounter a long series of losers, just like you'll sometimes encounter a long series of winners. If you don't understand that, it's better to stay out of this business - and out of the gambling...
Exactly. Unfortunately these types of MM tactics don't work or we'd all be rich. All he needed to do was to go flip a coin 50 times and he'll probably see a few streaks even in that small sample size.
  • #27
  • Dec 6, 2014 5:40pm Dec 6, 2014 5:40pm
No matter if you are trading with an aim to make or lose 1,000 pips based on fundamentals or 5 pips based on technicals, as soon as you take a position, price can go either up or down. Even if your fundamental view is right, it can move against you several pips, maybe several hundred. So what we should do? This simple thing that Hanover mentioned. "Keep your position sizes small". This way if you are even meagerly right about the market moves, cannot lose much and for long. .......................and not losing much for long is the money management in trading forex.
The Thief of Wall Street
  • #28
  • Dec 7, 2014 3:08am Dec 7, 2014 3:08am
Quoting RHoudini
Your idea is quite similar to Martingale. At some point it breaks down because you simply don't have the bank to survive a long series of losses. This has nothing to do with being (I quote from your post above) "wrong to forecast the winning ratio of your strategy". Even with a perfect forecast of the average win rate, you will inevitably at some point in time encounter a long series of losers, just like you'll sometimes encounter a long series of winners. If you don't understand that, it's better to stay out of this business - and out of the gambling...
i'm sorry , but if you know what is martingale and you understood this money management you'll know that are very different..
Maybe i wrong to explain the strategy, i will try to explain again
  • #29
  • Dec 7, 2014 3:24am Dec 7, 2014 3:24am
I want to remember again this is not a trading system! just a way to manage money in a better way, you have the possibility to have the SAME drawdrown, but higher profits!
This is not martingale as well.
  • #30
  • Dec 7, 2014 3:33am Dec 7, 2014 3:33am
Far too complicated (and a bit silly, as well).

Just trade and stop setting TP's that limit your profits, as that's the main restriction on doing well. Put on trades with a reasonable lot size (rough estimate, based on capital, margin, other trades open, etc.) and then stick with that. As the capital increases, you can start to increase the lot size directly proportional (or slightly slower, to reduce risk). If capital starts to decrease, then reduce the lot size.


All this predictive counting of % losers and % winners just seems like fingers in the wind.


ROI is something you do at the end of the week or month to either give you a wake-up call that you're not doing as well as you should, or doing quite well and perhaps want to re-assess the risk taken, to ensure it hasn't been out of line.
  • #31
  • Dec 7, 2014 3:52am Dec 7, 2014 3:52am
The secret is,

you're allowed to lose...

But have you allowed for this?
  • #32
  • Dec 7, 2014 4:16am Dec 7, 2014 4:16am
Quoting Kong
The secret is, you're allowed to lose... But have you allowed for this?
Spot on Kong,,,

Yes that's right.... You're allowed to be wrong, you're allowed to be right, you're allowed to be whatever the fuck you wish tonight.

But you gotta fight

  • #33
  • Dec 7, 2014 4:17am Dec 7, 2014 4:17am
Quoting Kong
{quote} Spot on Kong,,, Y

Thanks Kong

Inserted Video
  • #34
  • Dec 7, 2014 5:08am Dec 7, 2014 5:08am
Quoting Gurudeva
I want to remember again this is not a trading system! just a way to manage money in a better way, you have the possibility to have the SAME drawdrown, but higher profits! This is not martingale as well.
hmm again as you don't give the algorithm I can't be certain of the following but... you increase the size when your recent history winrate is below the average winrate and you reduce the size when the recent winrate is above average. When you get a long string of losers you increase the size. The DD will be BIGGER than a fixed or a fractional MM. For the same reason when you get an unsual string of winners you reduce the size and therefore limit the profits. The profits will be LOWER than a fixed or a fractional MM. If you post the algo I could look closer at the idea. But for now it is really looking like the Gambler's Fallacy. And this has absolutely nothing to do with the acuracy of the estimation of the winrate. You can use a coin, with know probability, to check by yourself: long sequence of heads will happen.
No greed. No fear. Just maths.
  • #35
  • Dec 7, 2014 7:36am Dec 7, 2014 7:36am
When you are using a single system it is not possible for you to obtain a money management technique that is statistically any better than the general percentage based management. You can get fooled very easily by simulations (or historical results as well), because any profitable simulation/historical result benefits from aggressive lot size increases above the average drawdown period depth, simply because in the simulation it is a fact that the system always recovers. When a system reaches a deeper DD than what you see in your simulation//history you will run into a much deeper hole than you would have if you hadn't used this sort of management. As PipMeUp says, it is a version of the Gambler's Fallacy, a mirage where money management hides simulated/historical loses at the expense of much worse loses when conditions change beyond those of the simulations.

However when you have multiple systems (I generally trade 100+ algo strategies at a time), there is a lot you can do to play with your risk allocations to diminish risk and increase potential profits. When you trade large arrays of systems you see a whole new world opening up.
  • #36
  • Dec 8, 2014 4:27pm Dec 8, 2014 4:27pm
Quoting PipMeUp
{quote} hmm again as you don't give the algorithm I can't be certain of the following but... you increase the size when your recent history winrate is below the average winrate and you reduce the size when the recent winrate is above average. When you get a long string of losers you increase the size. The DD will be BIGGER than a fixed or a fractional MM. For the same reason when you get an unsual string of winners you reduce the size and therefore limit the profits. The profits will be LOWER than a fixed or a fractional MM. If you post the algo...
Thanks you PipsMeUp for your answer.
When you get an unsual string of winners you lose the money to supposed to risk.
I add a program here, please check.
Before to make any comments please study it.
It seems something simple , but it isnt.
Try to set the numbers(money to risk, trade, quote, R:R )of your trading system, the final profits will be greater.
I hope somebody enjoy it, it can be a good instrument for every trading system.
Then if someone is interested i will tell how i improved my strategy thanks to this instrument.
Attached File(s)
File Type: zip Money management.zip   31 KB | 467 downloads
  • #37
  • Dec 8, 2014 4:39pm Dec 8, 2014 4:39pm
1000 = money to risk
100 = total trades
25% = trades we supposed to win(OUR TARGET)
R:R 1:3
85 % ROI

What is the ROI with the same conditions in the classic money management?
I will tell you, risk will be always the same(1000) and profits decrease.
Attached Image (click to enlarge)
Click to Enlarge Name: llll.png Size: 50 KB
  • #38
  • Dec 9, 2014 12:22am Dec 9, 2014 12:22am
Can you post a user's manual, please. The Help menu doesn't work. Even after google translation it is quite confusing.

What are "quote iniziali uguali" (initial shares equal) and "quote iniziali diverse" (several initial shares??)?
Why shall I enter the winrate twice? (attesi is WR right?) Also it's not obvious I shall enter 50 as opposed to 0.5

At some point I could select the dropdown win/loss. Once you select the value you can't change. I suppose it is a feature to not change the past but for testing purpose it is quite a problem.

When an input is wrong you show a popup "I valori in ingresso non sono corretti" (The input values ​​are incorrect) but this doesn't tell which is wrong and why it is wrong. (btw people hate popups)

what is to be set in the column Quota (shares)?

I set 50% and RR =1, I get 0 bet size...

You are using a proprietary format for saving the result. Is it possible to import from a csv file?
No greed. No fear. Just maths.
  • #39
  • Dec 9, 2014 2:39am Dec 9, 2014 2:39am
Quoting PipMeUp
Can you post a user's manual, please. The Help menu doesn't work. Even after google translation it is quite confusing. What are "quote iniziali uguali" (initial shares equal) and "quote iniziali diverse" (several initial shares??)? Why shall I enter the winrate twice? (attesi is WR right?) Also it's not obvious I shall enter 50 as opposed to 0.5 At some point I could select the dropdown win/loss. Once you select the value you can't change. I suppose it is a feature to not change the past but for testing purpose it is quite a problem. When an input...

"CASSA" = money you want to risk, you can call it deposit as well but not in the forex because you'll need money for the margin also, and i dont consider that money to risk.
"EVENTI"= Total trades
"ATTESI" = trades you forecast to win
"QUOTE INIZIALI UGUALI" = here you consider that with every trade you will have the same QUOTE ! so if you put 2 for every trade you will earn = trade * 2...ok?
"QUOTE" = it is the value we use for the risk:reward but remeber, if you want to use a 1:1 R:R it means that for every trade you will double the money so you have o set "2", if you want a 1:2 R:R you have to set quote = 3, if you want a 1:3 R:R you have to set quote = 4.
"QUOTE INIZIALI DIVERSE" = it give you the opportunity to set a different quote for every trade and then will calcolate the ROI for you, by the way for now i suggest you to not use this.
Then you push"AVVIA"
"RESA TOTALE" = ROI %
FROM NOW THE PROGRAM GIVE YOU THE STAKE ( PUNTATA) FOR THE FIRST TRADE.
After the first trade you have to set if it is a win(vinta) or if it is a loser( persa) then it will give you the stake for the second trade and so on ...........
  • #40
  • Dec 9, 2014 2:55am Dec 9, 2014 2:55am
Please download the file and import in the program a posted before.
Strategy :
Money to risk = 1000
total trades = 100
trade we bet to win = 50
R:R = 1:1 SO QUOTE = 2
normally it should give us a 0 profits, but with this money management it will give us 85%.

SAME DRAWDOWN BUT GREATER PROFITS !
Attached File(s)
File Type: zip 11.zip   100 KB | 469 downloads
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