Money Mangement, Do you take it serious? | Forex Factory

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Money Mangement, Do you take it serious?

  • #1
  • First Post: Aug 28, 2006 10:54am Aug 28, 2006 10:54am
Have you setup some money management rules for your trading?
What is your approach?

Do you let a drawdown of more than 25% to your account?
What would you do if you face a 10% drawdown?

What percentage of your account do you risk per trade?
Do you enter a trade with a Risk Reward ratio of over 100%? What about a trade with a Risk Reward ratio of 50% to 100%?
Do you calculate S/L, T/P, and Risk Reward ratio before entering a trade?

What would you do if your account grows by 10%?
What would you do if your account grows by 25% or more?

Do you take these stuff serious?
  • #2
  • Aug 28, 2006 11:31am Aug 28, 2006 11:31am
I think money management only applies to large managed accounts to protect the investors. You can't help but to risk 25% or more if you account is only a couple hundred dollars. I don't take it seriously in the sense that I must follow a rule. I trade small enough to give myself some more chances to make my money back if I lose the next position.
  • #3
  • Aug 28, 2006 11:39am Aug 28, 2006 11:39am
Quoting nitman
I think money management only applies to large managed accounts to protect the investors. You can't help but to risk 25% or more if you account is only a couple hundred dollars. I don't take it seriously in the sense that I must follow a rule. I trade small enough to give myself some more chances to make my money back if I lose the next position.
I don't know what's wrong with me today but I am going to refrain from being a smart ass......for now.

You can follow proper money/risk management rules with small accounts. You do need a broker who will let you trade in micro-lots. I believe oanda is one such broker.

If you decide not to please count on refunding your account. At 25% risk per trade you only need 4 losing trades to demolish your account. Large accounts are large because they follow good money/risk management rules.
Secret Identity: Bill Sullivan
  • #4
  • Aug 28, 2006 11:55am Aug 28, 2006 11:55am
I believe it is a very personal matter. I think there are great traders who don't use money managment at all and go by whether thier trade still looks right after it has gone agaist them, or whether they use strict money managment.

A bad trader will always get stopped out if they have a risk reward ratio of 2:1 and a bad trader will gain more offten but still lose over all on a reward ratio of 1:2 and all things in between.
  • #5
  • Aug 28, 2006 12:01pm Aug 28, 2006 12:01pm
It would be fascinating to find out what an automated back tested strategy would show, if you just tested simple rules.

1 lot at a time,
buy/sell right after the last trade has completed
try to get 5 pips with no stops

another version
try to get 1000 pips with 20 pip stop
  • #6
  • Aug 28, 2006 12:35pm Aug 28, 2006 12:35pm
Quoting ForexDrew
...I think there are great traders who don't use money managment at all ...
I want to challenge this quote. Ignoring money management rules belong to newbies only. However, I would be glad to hear from those professional or as you mentioned great traders who don't use money management and don't care what might happen to their portfolio.
  • #7
  • Aug 28, 2006 12:42pm Aug 28, 2006 12:42pm
Quoting nitman
I think money management only applies to large managed accounts to protect the investors. You can't help but to risk 25% or more if you account is only a couple hundred dollars. I don't take it seriously in the sense that I must follow a rule. I trade small enough to give myself some more chances to make my money back if I lose the next position.
That's not true. You should ask yourself why you have opened a small account. Are you going to build skills to be a professional trader? Are you going to create a large account based on your skills? or are you going to gamble your money and enjoy the game of Forex?

If you are really serious in this business "money management" is a very important part of it. When you open a demo or a mini account your intent should be testing a strategy to make sure it really makes money, test the money management rules to make sure you can build up your account, and work on other important issues such as psychology of trade and discipline. If you ignore some of these what is the use of a mini account?
  • #8
  • Aug 28, 2006 12:43pm Aug 28, 2006 12:43pm
Quoting aparsai
I want to challenge this quote. Ignoring money management rules belong to newbies only. However, I would be glad to hear from those professional or as you mentioned great traders who don't use money management and don't care what might happen to their portfolio.
I never used Money Magement. I think its all in the Displine. Money magement is under the Displine. Many people look for ways to help them selfs but Master your self and you will Master the forex market. Its like saying dont over complicate something that shouldnt be over complicated with makeing 5 page long equastions on how to mange money all it does is confuse you and you concentrate more to mange money then you are to actually trade and then when you lose you have not trained your self for this and you start looking back unto the equasion thinking the problem lays there. Bottom line is Dont over complicate things. Displine your self it takes time and patients but once you have a clear mind and nothing clouding your judgement then you will see things more clearly. I never payed attention to money mangement i always tryed to over come the fear the greed and the pain.
There are those who know, and there are those who don't know.
  • #9
  • Aug 28, 2006 12:58pm Aug 28, 2006 12:58pm
Quoting palabara
Its like saying dont over complicate something that shouldnt be over complicated with makeing 5 page long equastions on how to mange money all it does is confuse you and you concentrate more to mange money then you are to actually trade and then when you lose you have not trained your self for this and you start looking back unto the equasion thinking the problem lays there.
There's nothing complicated in MM. I use a spreadsheet created by FijiTrader (whose knowledge and experience I bow before )and set my lots based on the rules in the sheet.
It couldn't be more simple, and all I've got to do now is get my trading discipline right, when the two meet then I'll be a trader.

Peter
  • #10
  • Aug 28, 2006 1:01pm Aug 28, 2006 1:01pm
Quoting palabara
I never used Money Magement. I think its all in the Displine. Money magement is under the Displine. Many people look for ways to help them selfs but Master your self and you will Master the forex market. Its like saying dont over complicate something that shouldnt be over complicated with makeing 5 page long equastions on how to mange money all it does is confuse you and you concentrate more to mange money then you are to actually trade and then when you lose you have not trained your self for this and you start looking back unto the equasion thinking the problem lays there. Bottom line is Dont over complicate things. Displine your self it takes time and patients but once you have a clear mind and nothing clouding your judgement then you will see things more clearly. I never payed attention to money mangement i always tryed to over come the fear the greed and the pain.
So then it's perfectly acceptable to you to risk 25% or more of your account on each trade as the previous poster implied?
Secret Identity: Bill Sullivan
  • #11
  • Aug 28, 2006 1:08pm Aug 28, 2006 1:08pm
Quoting palabara
I never used Money Magement. I think its all in the Displine. Money magement is under the Displine...
You mentioned that Money Management is under Discipline and that you never used Money Mangement. Doesn't that mean your discipline lack something? Sorry about that but English is my second language. Could you elaborate on that if I didn't understand it properly?

Thanks,
  • #12
  • Aug 28, 2006 1:11pm Aug 28, 2006 1:11pm
Quoting Captain Piptastic
So then it's perfectly acceptable to you to risk 25% or more of your account on each trade as the previous poster implied?
Too answer it simply, Yes i can put 25% or more of my account on trade its not every single trade....But from time to time i dont MM I trade the way my displine feels comfortiable with for example i wont start trading from 10$ per pip to sudden shift of 15$ per pip or 20$ per Pip or on the other way around buying more lots then the usual because your Psyche is not ready for that! But its all Displine for me, the only MM i use is that i have enogh margin to sestain the trade. But i do not encourge or support or anything that will make you think my way of trading is good. Its good for me i have been doing this since started. So what im exspressing here is my looks on MM.
There are those who know, and there are those who don't know.
  • #13
  • Aug 28, 2006 1:22pm Aug 28, 2006 1:22pm
Sounds like someone needs to play the money management game. Give this a try. It would be interesting to see a few people post their results.

This is an excel file but had to be uploaded as a .zip file since .xls is not accepted.

I would be particularly interested in seeing how risking 25% of your accout works out.

Phil
Attached File(s)
File Type: zip Money Management Experiment.zip   103 KB | 1,015 downloads
  • #14
  • Aug 28, 2006 1:24pm Aug 28, 2006 1:24pm
Quoting aparsai
You mentioned that Money Management is under Discipline and that you never used Money Mangement. Doesn't that mean your discipline lack something? Sorry about that but English is my second language. Could you elaborate on that if I didn't understand it properly?

Thanks,
Thats pretty good. What i meant is that Money Mangement is under Displine but the way i mean is that you do it the way you see fit and comfortiable with for example. Everyone says dont trade 25% or more of your account people stick to equasions rules and other stuff but like i said money mangement is under displine...Use your eyes see how much can you handle if 25% of your account is good for you and you can handle it and its good for the level of displine you are. the idea is that you should displine your self to where you feel comforitable with your MM without sheets rules or anything else like that. You have 1,000$ on mini account you trading 10k per lot you feel that you displined enogh to move to 20k a lot then by all means.
There are those who know, and there are those who don't know.
  • #15
  • Aug 28, 2006 1:30pm Aug 28, 2006 1:30pm
Quoting philmcgrew
Sounds like someone needs to play the money management game. Give this a try. It would be interesting to see a few people post their results.

This is an excel file but had to be uploaded as a .zip file since .xls is not accepted.

I would be particularly interested in seeing how risking 25% of your accout works out.

Phil
Like i said my ways are not for everyone else i might be considered a gun slinger. But as long as Forex Makes you money every day it really dosnt matter what you do as long as it works without stoping.
There are those who know, and there are those who don't know.
  • #16
  • Aug 28, 2006 1:34pm Aug 28, 2006 1:34pm
Quoting palabara
Like i said my ways are not for everyone else i might be considered a gun slinger. But as long as Forex Makes you money every day it really dosnt matter what you do as long as it works without stoping.
That's the point. "without stopping". If you are interested in making a couple "big kills" by all means continue. If you want to stay in the game long term, reconsider.
Secret Identity: Bill Sullivan
  • #17
  • Aug 28, 2006 1:36pm Aug 28, 2006 1:36pm
Give the experiment a try and tell us how you make out.
  • #18
  • Aug 28, 2006 1:41pm Aug 28, 2006 1:41pm
That's a good one Phil.

I remember the subsequent discussion of disagreement that followed when a bunch of us took this test at the beginning of the year.
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  • #19
  • Aug 28, 2006 1:43pm Aug 28, 2006 1:43pm
Ralph Vince (a very famous money manager) did an experiemnt with 40 Ph.D.s. He ruled out doctorates with a background in statistics or trading. All others were qualified. The 40 doctorates were given a computer game to trade. They started with $10,000 and were given 100 trials in a game in which they would win 60% of the time. When they won, they won the amount of money they risked in that trial. When they lost, they lost the amount of money they risked for that trial.

When the results were tabulated at the end of the trials only 2 of the 40 had made money.

If you think money management doesn't matter you won't be around for very long. Money management takes the fun out of trading and makes it a business. If you're not interested in money management then simply admit that you are trading for entertainment purposes. I suppose there is nothing wrong with that until you start telling people who are interested in learning that it doesn't matter.

Phil
  • #20
  • Aug 28, 2006 1:45pm Aug 28, 2006 1:45pm
Bemac,

Thanks for posting that. I hope others will as well.

Phil
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