All About Money Management

Welcome Bass

I don't know what market did, but I did these two things:

1. Enter / Exit at appropriate time, except one trade where I put a tp and went to bed.

2. Money Management. The tactic used this time was to have tight sls at key levels.

So where is that simple method I promised in my first post and where is money management?

Here they are, but give a 15 to 20 minute smoke break.

my MM,


http://www.forexfactory.com/showthre...66#post7941866

Watch this Chart #1

now watch this Chart #2

http://www.forexfactory.com/attachme...1&d=1365587151

Now watch this chart #3

http://www.forexfactory.com/attachme...1&d=1365696218

Now finally watch this Chart #4

http://www.forexfactory.com/attachme...1&d=1365696704

If we analyze these charts, they show very simple things. The only complications are the lines that we draw on them.

Let me know if I am wrong in my this following analysis:

1. Price goes up and down
2. In long term, it maintains a direction to a great extent but in short term it fluctuates. Even if it fluctuates in longer term, these fluctuations are pretty big and not merely for 100 or 200 pips
3. Not always, but many times it tries to move in steps. Some call it trends, making HH/ HL and LL/LH
4. Unlike a staircase, these steps are not regular in sizes but the angle tend to maintain it's incline/decline. That is why we have trend-lines and channels
5. Now go back to the charts and see how these steps are formed

Look at this chart. It has been marked for bull movements.

Yellow are the small steps or secondary/small trends and Blue is the Primary/major trend.

Note the arrows. These are low risk entries.

Whenever price first time comes near the starting point of a preceding major move, it bounces off.

Now analyze the same chart to see if it also true for down moves.

The foregoing 4 charts illustrate the case for Price Action Rules. Then there are the MM which is a must. Simplicity on the wholw isbest in my opinion. I vote for all newbies having access to the logic and illustrations as presented here early in their evolution. Great thread Chicky.

I tried (the yellow arrows and lines), but not very convincing. It its not clear, move to higher time-frame. That means, the whole thing becomes a step (Blue line).

Now watch this. This is why I went long near the green marked areas and short near the red marked areas. But this is not all. There are two more things in this package, 1. Timing and 2. Money Management.

Looking at this current chart, if I plan to go long around 1.2400 won't be a bad idea.

This is very common thing, probably the most common in all technicals. Many technicals are build around this Price Behavior - few terms are Trend, Trend lines, Channels, Line of Least Resistance, Horizontal Support/Resistance, 61.8 or higher fib retrace, Gator's 1/4th or 3/4th (Mid of a Mid), Gartley, 123, Elliot Wave, etc. etc.

The second thing is timing the trades.

Look at this chart one more time. Steps are very thorny. They are not flat. One can lose an account on spikes at the tops and bottoms. If you carefully look at the chart, it did form steps but most of these steps are not tradeable, purely because of the speed and power of these moves forming tops and bottoms. This is where timing counts.
http://www.forexfactory.com/attachme...1&d=1418449095

It has been long time since I last posted here. Meanwhile used the demo account for other testing purposes.
Here we come back again. Let me summarize this simple concept in a simple way.

1. Money Management is the prime focus and not the trades.

2. To apply this money management tactic, we need a simple method. Therefore the simple method selected is to look for a mega trend reversal. I have selected USD/JPY pair for a mega trend reversal, betting on start of a down trend with sl at 122.00. The last peak I have is 120.82 and therefore my cushion for sl is little over 100 pips. The profit target is 1,000 pips.

3. The idea is to divide the total position into 3 parts, each trade risking 0.25% if 122.00 sl is hit. a) I entered first short around 119.50 on December 8, 2014. b) The second trade was supposed to be entered near 122.00 if pa goes against my position or if not when it starts making LHs and LLs. c) The third and last trade when down trend becomes visible (that is, LHs and LLs). SL remains at 122.00

4. The above 2. and 3. are just a simple method to apply the money management concept. One can use whatever method is considered appropriate.

5. The money management concept is to a) go for a swing trade with a very good r/r, b) Enter all three positions as early on as possible but after getting some sort of confirmation. The confirmation I have selected for my this simple method is formation of LHs and LLs on Daily Time Frame. c) Sit back and relax until it either hits sl or tp (or when it gets significantly closer to the sl or tp).

6. If one wants, can change the direction or move to sidelines if fundamentals change and repeat the steps with revised sl and tp targets.

Now to tell you the truth, this method is stolen from Jesse Livermore. I consider all his success was because of his money management more than anything else. However, after adding these three positions, he used to go for a killing betting almost the whole farm. This is what made and broke him several times. He was good at spotting trend reversals correctly 9 out of 10 times. Few consecutive winners with good r/r (let's say 1:10) multiplied his account hundred or thousand of times. When he lost, lost a significant part of his capital because of carrying these heavy positions (the Killing Trades).

If one gets only four consecutive trades of 1:10 r/r right in let's say 5 years with starting capital of $1,000 risking 0.25% per trade for each of 3 trades, can turn that $1,000 into $110,800. If this fails at any stage the maximum loss of original capital would be $30. You can still walk away with $970 remaining intact from your original capital.

Calculation:
First Trade: Risk $7.5, Reward $75, Balance $1,075
Second Trade: Risk $82.50 ($75+$7.5), Reward $825, Balance 1,900
Third Trade: Risk $907.5 (900+7.5), Reward $9,075, Balance $10,975
Fourth Trade: Risk $9,982.5 (9,975+7.5), Reward $99,825, Balance $110,800

Kindly note that 1:10 r/r is only possible on swing trading and takes months or years for a trade to mature. Applying this kind of tactic on short term trades would be futile. I have recently blown several demo accounts trying to use it on shorter moves. If it fails, money lost is only $30 but time lost can be years or decades.

Note: Kindly re-check the calculation. These days, I make a lot of calculation errors. It's not me, but my age that beats me.

1. You didn't mention anything as to where you set your TP.
2. While you're talking about a Reward to Risk of 10 (!), the money management you just described is far less than that because each time you lose, you lose 2 to 4 portions, while your profits are limited to, at the best, the same portion as your losses.

As a result, your win rate should be more than 55-60% which is too far from most known strategies' capabilities.

If you think I'm wrong, please correct me. Thank you...