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Please review my money management...
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Please review my money management...

  #11 (permalink)
 Vendor: www.indicatorx.com 
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Hi Liquidcci,

Thanks for your advice, it is really appreciated to hear from a trader who has made it through. Yes my plan is definately survive THEN prosper.


Last edited by mokodo; June 30th, 2011 at 05:14 AM.
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  #12 (permalink)
 Vendor: www.indicatorx.com 
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liquidcci View Post
Best you can do is try to protect yourself while learning it which looks like what you are trying to do.

yes, lifevest on at all times, thanks for the advice and input - it's very much appreciated.

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  #13 (permalink)
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mokodo View Post
Hi Liquidcci,

Thanks for the link, have run through the videos and product looks excellent.

Check out Trading Journal > Trading Spreadsheet > Trading Log - Stock, Futures, Forex (Trading Spreadsheets as well) I don't have them but I am thinking of buying them; I think they are like $97.00

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  #14 (permalink)
 Vendor: www.indicatorx.com 
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Hi Rayzor,

This looks like it may suit me, certainly has a load of good features, thanks for the link.

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mokodo View Post
Hi Rayzor,

This looks like it may suit me, certainly has a load of good features, thanks for the link.

No sweat, I was going to actually buy them, but I need to wait another week or so. I just purchased something else from another vendor and what can I say, I have a budget. I will say this about the vendor: I inquired on Sunday and I got the answers I needed via phone and e-mail that day; I like good, quickj service, I think it is a good sign. It sounds like they have really strong support also.


Last edited by Rayzor; June 30th, 2011 at 09:24 AM. Reason: add comment
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  #16 (permalink)
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mokodo View Post
Hi Liquidcci,

Thanks for the feedback. I don't refer to stop size at all, this is just a device to assess my performance and tune risk level to current performance.

But point taken on 'keeping it simple'. Whilst there a few things going on to generate the ranking, it only takes a copy and paste of one line of data to an excel file to do the maths.

Let's be clear here, if I was posting a better P&L I would not have the need to be soooo careful about money management. But I think this approach is forcing me to improve my trading skills. If I trade poorly I can not make any money because the system will not let me have money to trade with. As my goal is trading for income full time, this certainly keeps my focus on identifying the areas to improve on.

I don't think this approach is forcing you to improve your trading skills, it is insuring that you don't reach your point of ruin to quickly. But I think the only thing that will improve your discretionary trading is screen time. To that extent , the approach will help, as it will allow to extend your screen time as much as possible.

I believe that successful discretionary traders have an inherent aptitude for it that is developed and tuned by screen time. So, the 90% of discretionary traders that fail, either do not have that inherent aptitude, or reach the point of ruin before they develop that aptitude into a skill, or did not have the patience or perseverance to clock in the screen time.

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  #17 (permalink)
 Vendor: www.indicatorx.com 
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Thank to everyone for their input. I've modelling my money management system and have some things to share. As posters have said on this thread (and many others), risk control can't make profits, only a profitable trading system can do that. I fully understand and agree. All I am trying to do is give myself the best chance of success by staying in the game.

So what's new.

I have taken the results of a backtest (manual, candle by candle) on one of my systems. Top line is an accuracy rate of 52% and payoff of 1.959:1. This is an 118 trade sample covering 7 months made up from 2 pairs: EURUSD and GBPJPY.

I have tweaked the system to be more aggresive, the risk range per trade is between 0-5%; and it's more reactive, sampling the last 10 trades rather than the last 20.

With a straight 1% risk with all profits reinvested to the trading account return is:
37.4%

ditto 2%
82.4%

ditto 3%
139%

My system
105.5%

So what benefits are there for the extra bother? Firstly I feel more 'protected' as I know if my performance falls I continue to trade without getting too strung out with the $ losses. I can just continue to take each trade as it comes.

Another benefit is dealing with a run of losses. I ran a monte carlo simulation on this system and there is 5% chance of experiencing a run of 10 losses. At 3% that would equate to 30% account drawdown and put me dangerously close to my pull the plug figure of 35%. Even at 2% this would knock the stuffing out of the account and me. In theory I can have an unlimited run of losses and still be 'in the game'. Reality would be that I would probably realise I was not going to make it (or that system was not going to make it) and decide to stop trading - rather than run out of money first and have to stop.

I'll continue to post up any developments and data on trades. I accept this system may look like unnecessary complexity, but it feels right for me and I have found that I can fully concentrate on following my trading rules / executions and I do not think about the money all that often.

Lifevest on - off to market.

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  #18 (permalink)
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mokodo,

Simple is better.



Thoughts...just my opinions.

1. I trade down to microlot level, the added granularity ensures I match % with actual money as closely as possible.


-not very important

2. I also have some circuit breakers which stop me over trading, revenge trading etc. (I've learn't that tomorrow there will be a whole heap of new opportunities and the market doesn't care if I do domething else):

- 3 losing trades in a row or losses of $XXX stop trading for the day
- 3 losing days in a row or lossess of $XXX stop trading for the week
- Over $XXX profit in a day stop trading
- Over $XXX profit in a week stop trading
- Over $XXX profit in a month stop trading
- If I suffer a 10% drawdown or 7 losing trades in a row I reduce risk to 0.5% (if it is higher than that at that point)
- At 20% drawdown or 25 trades producing a net loss revert to demo trading (if not doing so at that point). And then return 2 sets of 7 trades with a net profit on each to revert to live trading.



-your circuit breaker is your personal managemt. Discipline.

3. I have no more than 4 trades open at any time (unlikely due to correlation rules)


-Time frame? if you're hyper scalping, its much tougher than trading off weekly charts

4. No more than 3 times the current risk % at risk at any one time (any trade with a stop past breakeven not included).

-keep it simple
5. Capital allocation. At the end of each month I add or withdraw money to/from the trading account. I add if I've made a profit in the month, the same amount that I made. Withdraw in a losing month in the same manner.


-withdrawing money is a whole psychological deal in itself.
6. At 35% drawdown I stop trading and get a job.

-get another source(s) of income right now. Trading is much easier when you don't care about the money you lose. It's not a coincidence that many successful people have several businesses.



good luck.

Best mate.

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  #19 (permalink)
Trading Apprentice
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Money Management

Some say that Money Management is 90% of the game. I tend to agree, and it's excellent that your focus is on this sooner than later.

Strong recommend for The Trading Game. I have the PDF, if you like. It's all about Money Management and the author keeps it clear and relatively simple.

Since you're doing Forex, you might be interested in ForexDecoder (PM me for the link. I'm not allowed to post URLs yet..... or Google "ddsmm" and choose the first find) for the free spreadsheet and video. In it he shows how, using his spreadsheet and recommend lot sizes per trade, you can have 30 winners followed by 30 losers, with a net gain of ZERO PIPS and still have very significant profits to show for that effort.

Hope that is of some help,
Merlin

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  #20 (permalink)
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Hi Again,

Thought I'd bump my own thread for the sake of an update.

10 months or so later and the money management - in retrospect - did it's job. The main goal of having (a complicated) approach was to keep me in the game whilst I was finding my way. And it did just that. After trying countless chairs I found one in which I am comfortable and profitable. And it is absolutle not the type of trading I thought would suit me when I started out.

My worst drawdown during the learning curve (ok, the first of my learning curves!) was 4% of my starting equity.

I no longer use the plan as stated as part of my development was to track all sources of error (anyone undertaken a 'lean process' in the muggle world?) and I identified so many were coming from dumb human error. So I learned C# and have coded all my strategies - including an amended money management.

I still invest much more time in analysing and developing protective measures rather than the entry/exits strategies themselves, which are far from stellar but reliable! I honestly get a bigger kick from ending a bad day with the least loss, rather than than a good day day with the greatest gain. There will be countless good days to come - but irrelevant to me if I'm not in the game.

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