Money management - What is the secret? | Page 3 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Alternative Trade Management/Money Management Methods 3 replies

Money Management..keeping the money... 39 replies

Money Management / Risk Management 24 replies

Trade management... The secret to success 27 replies

Help with Money Money Management Please! (Free EA) 4 replies

Attachments: Money management - What is the secret?
Exit Attachments

Money management - What is the secret?

  • #41
  • Dec 9, 2014 6:41am Dec 9, 2014 6:41am
The results are fully in line with my previous posts. With a winrate=50% and RR=1 your MM starts betting 7.37% of the starting capital that I set to 1000.

If we bet 7.37% each time and get 10 losers the final result is 464.96. With your MM the result is 317.56. The risk increases to 14.68% => worse DD

If we bet 7.37% each time and get 10 winners the final result is 2036.66. With your MM the result is 1624.59. The risk decreases to 2.84% => less profits

Yet if we alternate win and loss 5 times the result is better: 1003.97 instead of 973.

Clearly the Gambler's Fallacy at work. Such MM can't work as long as there is no serial correlation between the trade outcomes. In the long run you will get the same overall result but with a higher volatility of the equity curve (=higher risk of ruin)
No greed. No fear. Just maths.
  • #42
  • Dec 9, 2014 7:07am Dec 9, 2014 7:07am
Quoting PipMeUp
The results are fully in line with my previous posts. With a winrate=50% and RR=1 your MM starts betting 7.37% of the starting capital that I set to 1000. If we bet 7.37% each time and get 10 losers the final result is 464.96. With your MM the result is 317.56. The risk increases to 14.68% => worse DD If we bet 7.37% each time and get 10 winners the final result is 2036.66. With your MM the result is 1624.59. The risk decreases to 2.84% => less profits Yet if we alternate win and loss 5 times the result is better: 1003.97 instead of 973. Clearly...
Great thank you
focus while relaxed to see better
  • #43
  • Dec 9, 2014 7:56am Dec 9, 2014 7:56am
Quoting PipMeUp
The results are fully in line with my previous posts. With a winrate=50% and RR=1 your MM starts betting 7.37% of the starting capital that I set to 1000. If we bet 7.37% each time and get 10 losers the final result is 464.96. With your MM the result is 317.56. The risk increases to 14.68% => worse DD If we bet 7.37% each time and get 10 winners the final result is 2036.66. With your MM the result is 1624.59. The risk decreases to 2.84% => less profits Yet if we alternate win and loss 5 times the result is better: 1003.97 instead of 973. Clearly...
thanks you but you wrong.... youdont have to consider only the first stake.....in the worse scenarioyou lose 1000....
  • #44
  • Dec 9, 2014 7:59am Dec 9, 2014 7:59am
With 50% r:r1:1and 10 total trades...you will lost all deposit after 6losing trade...
  • #45
  • Dec 9, 2014 10:54am Dec 9, 2014 10:54am
Quoting Gurudeva
thanks you but you wrong.... youdont have to consider only the first stake.....in the worse scenarioyou lose 1000....
I just posted the result of your own software...
Attached Image (click to enlarge)
Click to Enlarge Name: ten_losers.png Size: 72 KB

Attached Image (click to enlarge)
Click to Enlarge Name: ten_winners.png Size: 64 KB
No greed. No fear. Just maths.
  • #46
  • Dec 9, 2014 11:04am Dec 9, 2014 11:04am
Quoting PipMeUp
{quote} I just posted the result of your own software... {image} {image}
ok...but after all the 50trades winning what happen?...did you compare??
  • #47
  • Dec 9, 2014 12:08pm Dec 9, 2014 12:08pm
This is exactely the Gambler's Fallacy: out of 100 trades there is absolutely no reason that there will be 50 winners and 50 losers.

No I didn't try to enter more than 10 trades because it is a pain in the... neck to enter the values. It if was possible to upload an excel file it would make sense to create a bunch of random datasets and see the difference with a regular MM. To me the result is clear anyway: the same result with much more volatility in the equity curve.

Since you have the algorithm, why don't you generate a Monté Carlo simulation and post the graph?
No greed. No fear. Just maths.
  • #48
  • Dec 9, 2014 5:15pm Dec 9, 2014 5:15pm
Quoting PipMeUp
This is exactely the Gambler's Fallacy: out of 100 trades there is absolutely no reason that there will be 50 winners and 50 losers. No I didn't try to enter more than 10 trades because it is a pain in the... neck to enter the values. It if was possible to upload an excel file it would make sense to create a bunch of random datasets and see the difference with a regular MM. To me the result is clear anyway: the same result with much more volatility in the equity curve. Since you have the algorithm, why don't you generate a Monté Carlo simulation...
I think it's more simple than what it seems, just i would like to make a question :
Assuming that you have a strategy with R:R 1:1 and that after long backtest you "supposed" to have a winning ratio around 50%.ok?
Now you want to use it risking all the capital ( 1000 euro) with an aggresive money management you want to reach the max profits.
Can you tell me what will be the results after 100 trades, assuming that you were right so you will have 50 loser and 50 winner?
This is only math , we are not including all the others variables(spread, commissions,slippage.....)
  • #49
  • Dec 9, 2014 10:58pm Dec 9, 2014 10:58pm
Quoting Gurudeva
{quote} I think it's more simple than what it seems, just i would like to make a question : Assuming that you have a strategy with R:R 1:1 and that after long backtest you "supposed" to have a winning ratio around 50%.ok? Now you want to use it risking all the capital ( 1000 euro) with an aggresive money management you want to reach the max profits. Can you tell me what will be the results after 100 trades, assuming that you were right so you will have 50 loser and 50 winner? This is only math , we are not including all the others variables(spread,...
If you have a win rate of 50% at 1:1 RR, then your profit factor is 1. Hence if you start with 1000 EUR, and we ignore costs, you will (on average) end with 1000 EUR, no matter how many trades you make, and no matter what position sizing MM you use. Aggressive or conservative MM makes no difference.

Win rate = 50% and RR = 1:1 is effectively the same as a (fair) coin toss.

@PipMeUp: please correct me if I'm wrong.
  • #50
  • Dec 10, 2014 12:31am Dec 10, 2014 12:31am
is this strategy base on 'binary option' condition?
Still trying to understand this strategy.
thanks for sharing, anyway
Happy Trading
  • #51
  • Dec 10, 2014 2:33am Dec 10, 2014 2:33am
Quoting Gurudeva
Now you want to use it risking all the capital ( 1000 euro) with an aggresive money management you want to reach the max profits.
No. You don't want to maximize your profits. If it were the case you would bet 100% for each bet because this is the bet which maximize your profit and a string of winner maximizes the sum of the profits. Of course the first loser loses it all. What you need maximizing is the expectancy of growth of your account.

Quoting Gurudeva
Can you tell me what will be the results after 100 trades, assuming that you were right so you will have 50 loser and 50 winner?
No. The maximum likelihood is 50 winners indeed but you can have any number of winners between 0 and 100. The probabilities will distribute around the gaussian bell curve.

Do generate a simulation of your MM. You can do this easily with excel and compare it to a fixed fractional MM. You'll see by yourself. Your MM driven equity will always wander then come back and cross the others. The only way to have your MM work is to statistically validate that the outcomes of the trading strategy are serially correlated.
No greed. No fear. Just maths.
  • #52
  • Dec 10, 2014 4:53am Dec 10, 2014 4:53am
Quoting hanover
{quote} If you have a win rate of 50% at 1:1 RR, then your profit factor is 1. Hence if you start with 1000 EUR, and we ignore costs, you will (on average) end with 1000 EUR, no matter how many trades you make, and no matter what position sizing MM you use. Aggressive or conservative MM makes no difference. Win rate = 50% and RR = 1:1 is effectively the same as a (fair) coin toss. @PipMeUp: please correct me if I'm wrong.
Thanks you Hanover.
You're completely right, if we ignore costs you will end with 1000 EUR.
Now, did you download the program i posted?
Please can you try to set a strategy with a win rate 50% at 1:1 RR ??Can you tell me please what will be the result?
Remember, as i explained if you want to put a 1:1RR you must put "2" in "Quote iniziali uguali"'s box.
thanks you
  • #53
  • Dec 10, 2014 4:55am Dec 10, 2014 4:55am
Quoting BinHarnoFX
is this strategy base on 'binary option' condition? Still trying to understand this strategy. thanks for sharing, anyway
No , it isnt.
It is just a money management strategy who give you some benefits than the normal, download the program e test it.
  • #54
  • Edited 11:05pm Dec 10, 2014 10:41pm | Edited 11:05pm
Quoting Gurudeva
{quote} Thanks you Hanover. You're completely right, if we ignore costs you will end with 1000 EUR. Now, did you download the program i posted? Please can you try to set a strategy with a win rate 50% at 1:1 RR ??Can you tell me please what will be the result? Remember, as i explained if you want to put a 1:1RR you must put "2" in "Quote iniziali uguali"'s box. thanks you
Sorry, no I haven't downloaded your software.

I gave my views earlier in the thread:

1. To be profitable you need positive expectancy, i.e. a profit factor > 1. No MM (position sizing/staking system) can alter expectancy; I don't believe there is any kind of "secret". Hence it's not a priority of mine to develop a 'superior' MM.

2. Risk management is of paramount importance, to preserve capital. The deeper an account goes into drawdown, the more difficult it becomes to recover (explained here). More aggressive MMs increase risk of drawdown.

3. Everything else being equal, RR and win rate operate in approximate inverse proportion to each other (like in roulette: higher payoff bets = commensurately less frequent wins). However, I believe that markets can offer the possibility of 'long tails', and hence there are possible exceptions, as I attempted to explain here.

However, IMHO the best chance of finding any kind of robust edge is to gain an understanding of the hows and whys of price movement. Hence that is my primary focus. I replied to your question merely because I was fairly sure that I knew the answer.
  • #55
  • Dec 18, 2014 5:38pm Dec 18, 2014 5:38pm
Quoting PipMeUp
This is exactely the Gambler's Fallacy: out of 100 trades there is absolutely no reason that there will be 50 winners and 50 losers. No I didn't try to enter more than 10 trades because it is a pain in the... neck to enter the values. It if was possible to upload an excel file it would make sense to create a bunch of random datasets and see the difference with a regular MM. To me the result is clear anyway: the same result with much more volatility in the equity curve. Since you have the algorithm, why don't you generate a Monté Carlo simulation...
This is exactly right. If you do a Monte Carlo simulation of 10,000 trades with a 50% win rate, you will get a distribution of win % around 50%, but each individual simulation run will give an answer different than 5000 wins, with a small number of exceptions. Any trading system that adjusts trade size assuming a return to average or expected probability ignores the memoryless property of the system. Of the 10,000 trades you could have 1000 winners and 9000 losers, but the probability of the next trade being a winner is still 50%.

If you want to check the probability of a favorable or unfavorable outcome from a particular win% and R:R (and other factors), there are calculation tools online that act as a sanity check.

This risk of drawdown tool uses Monte Carlo simulation.

This one is based on a risk of ruin formula.
  • #56
  • Last Post: Dec 18, 2014 9:20pm Dec 18, 2014 9:20pm
Money Management is all about staying in the game as long as possible.

Its called "under leverage" .

If you under leverage the more chance you stay in the game, release trade tension and develop a steady income pattern.
0 traders viewing now