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Big Mike's simple money management rules
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Big Mike's simple money management rules

  #1 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
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Big Mike's simple money management rules

This forum (the Psychology and Money Management section) is underutilized and I really want to encourage fellow traders and futures.io (formerly BMT) members to give this area a lot of thought and share your money management plans.

Most traders do not spend nearly enough time thinking about their money management strategies.

For me, my motto is to never turn a winner into a loser. My money management is built around this goal.

I use a simple 2 or 3 target ATM. Risk:reward is always 1:1 at minimum. The initial stop is 8 ticks for all contracts on the ZN ($15 per tick). The first contract target is 8 ticks, the second contract is 12 ticks, and the third is a runner (if I am trading three).

Once the first target is met, the stop on the remaining contracts is moved to break even (entry price). This assures that the winner will not be turned into a loser. This is automatic in my ATM.

From there, I often move the stop up in a chase fashion. On my second contract this often results in a "stop" being hit, because I kept it tight.

But, my motto is never turn a winner into a loser -- and I would much rather take 6 ticks than 0 ticks. Don't try to be "right", in other words, don't try to get that last tick because you want to be right about it. Too many times you will gamble far too much for that last tick or two, and end up giving back all your profits (or worse).

Many people hesitate to employ this type of money management because they believe it leaves too much on the table. I may get tagged and only take 6 or 8 ticks out of a trade that runs for 6 or 8 points! But, a winner is a winner and you can't lose money if every trade is a winner.

I think the first goal of every trade should be to focus on not losing money. Making money is easier than it seems, the hard part is not turning those winning trades into losers.

Sure, you can overcompensate and have tiny winners and huge losers. That is not smart. You need to start with a 1:1 risk/reward ratio. Then the rest should happen pretty easily.

As you get better, you simply add more contracts and leave a couple of contracts on as a runner with a liberal stop so you can catch those bigger moves.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #2 (permalink)
Elite Member
Neubrandenburg, Germany
 
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wh's Avatar
 
Posts: 538 since Jun 2009
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simple and good without words. thanx

Attached Thumbnails
Big Mike's simple money management rules-atm1.png   Big Mike's simple money management rules-atm2.png  

Last edited by wh; June 30th, 2009 at 03:41 PM.
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  #3 (permalink)
Elite Member
Los Angeles
 
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Poocher's Avatar
 
Posts: 303 since Jun 2009
Thanks: 360 given, 106 received


"I think the first goal of every trade should be to focus on not losing money. "


I can never hear this too much. Very well thought out approach!

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  #4 (permalink)
Elite Member
Asia
 
Futures Experience: Beginner
Platform: NinjaTrader, TOS
 
Posts: 798 since Jun 2009
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Max loss per position? Max daily loss? Max monthly loss?

I've been following Elder's 2% and 6% rules and it has kept me in the game since I went "live" in October 2008. A quiet month in the markets...

Max contracts per equity amount? I actually use a spreadsheet that looks at 2.5x 14-period ATR of the period I trade an instrument and my 2% rule, so in theory I'm trading fewer contracts of a volatile instrument then I am a less volatile instrument with the same amount of equity. That also means it can limit my trading periods... based on the equity I have dedicated to trading the ES, for example, my trading time frame is five minute charts... not 10 minute, not 30 minute.

Again all little money management rules that have been keeping me in the game while I learn more. I'm a very, very small guy. Goal is to be merely a small guy one year from now .

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  #5 (permalink)
Just starting out...
Rocky Mountains
 
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A while back I was reading the sales brochure for MTPredictor (linky) and I really like how they do some of their money management. Similar to Elder's 2% rule etc. But what's neat is that they draw a line across the chart at each profit target. They also draw a line at the "initial risk" price (what you would have lost on your original stop loss).

I'm a very visual person, so having the profit targets on the chart may help me visualize things. For example, how long it's taking to reach the 1st target (if the trade is struggling to reach it, then maybe you take profits sooner or tighten your stop, if it hits your first target fast then maybe you let it run a little more??). Not sure, but though I would throw it out there for those who are visual traders.

I'll be following this thread closely

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  #6 (permalink)
Elite Member
New Mexico, USA
 
Futures Experience: Intermediate
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NMTrader's Avatar
 
Posts: 77 since Jun 2009
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I agree with Systrader completely. As a matter of fact I utilize MTPredictor (EOD version) for short term trades mostly stocks at this time on my moms account. The one thing that it does teach you is that you do not need to have a high win rate to make money. Per my experience trading it I have a 40% win rate yet have a nice return at the end of each month. The risk to reward ratios are great and the best thing about it is that the software shows this information on your chart to help you decide if you want to trade it. I am in no way hawking this software but am using it to illustrate how risk/reward money management is crucial to your trading. It simply comes down to keeping your loses low and winners rolling!

My two cents worth....Besides I need to keep posting to get back in the Arcade...

Regards, NMTrader
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  #7 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
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Posts: 46,240 since Jun 2009
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I've made a new video which goes over my setups again and some of my trading rules and money management.

https://futures.io/free_downloads/educational_manuals_ebooks_videos/86-download.html?view

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following 2 users say Thank You to Big Mike for this post:
 
  #8 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,356 given, 83,237 received

I just uploaded a video where I plead and beg fellow traders like yourself to work on your money management and not on your chart and indicators. The video talks about money management, psychology, indicators, and journals.

Hope you guys watch it and find it of use:
https://futures.io/free_downloads/educational_manuals_ebooks_videos/89-download.html?view

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following user says Thank You to Big Mike for this post:
 
  #9 (permalink)
Elite Member
Minnesota
 
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Platform: NinjaTrader
 
yuri's Avatar
 
Posts: 26 since Jun 2009
Thanks: 99 given, 8 received

Hi Mike!
Mike can I get access to the VIP forum? and thank you for your last video on money management, I'm totally agree with you on this subject, especially after a month ago when I lost my account...you very right... it is a WAR

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  #10 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,240 since Jun 2009
Thanks: 29,356 given, 83,237 received



yuri View Post
Hi Mike!
Mike can I get access to the VIP forum? and thank you for your last video on money management, I'm totally agree with you on this subject, especially after a month ago when I lost my account...you very right... it is a WAR

yuri, as a VIP you already have access to it. It's on the main forum page near the bottom called "The Elite Circle".

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote

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