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money management > trading method?
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money management > trading method?

  #1 (permalink)
Elite Member
Johor, Malaysia
 
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money management > trading method?

Dear fellow traders. Do you think it is enough to focus more on money management (Risk to Reward ratios) than trading method in order to trade successfully long term. I prefer to day trade, looking just at the basics - price pattern and volume to decide on the entry and exit. Focusing on trades that I believe will give a RR of 1:3. Please advice.

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
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mykee View Post
Dear fellow traders. Do you think it is enough to focus more on money management (Risk to Reward ratios) than trading method in order to trade successfully long term. I prefer to day trade, looking just at the basics - price pattern and volume to decide on the entry and exit. Focusing on trades that I believe will give a RR of 1:3. Please advice.

The RR is just one measurement - there are obviously some more to consider like max. drawdown, lenght of negative
streaks etc. ...
Of course the money management is very important - without account with enough longterm margin there is no trading.
I suggest to start a period of min. 3-9 months on SIM to evaluate statistically these other parameters.
Eventually trading on a live account with microlots (or cfd's) might give you some pressure of the real thing.

Good trades
GFIs1

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  #4 (permalink)
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risk demo

For those interested in Risk I suggest this little Java page, it simulates betting and it is amazing how often the result is a wiped out account.

Gambler's Ruin Java Applet

Considering that the real market is not a random system like the example, since traders must face professional traders and Algos that are working against the little guy, it is a quick lesson in the importance of risk mngmt.

I have said it here before, new traders focus on Return, pros focus on risk.

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  #5 (permalink)
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It's one piece of a greater whole.
Money management is part of your strategy.
Your entry and your risk are synergistic.

Psychology > Strategy ≥ Money
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  #6 (permalink)
Market Wizard
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mykee View Post
Dear fellow traders. Do you think it is enough to focus more on money management (Risk to Reward ratios) than trading method in order to trade successfully long term. I prefer to day trade, looking just at the basics - price pattern and volume to decide on the entry and exit. Focusing on trades that I believe will give a RR of 1:3. Please advice.

Risk to Reward by itself is meaningless.

Here is an article from Futures Magazine on the subject: Avoiding trading paralysis by analysis

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #7 (permalink)
The fun is in the numbers
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mykee View Post
Dear fellow traders. Do you think it is enough to focus more on money management (Risk to Reward ratios) than trading method in order to trade successfully long term. I prefer to day trade, looking just at the basics - price pattern and volume to decide on the entry and exit. Focusing on trades that I believe will give a RR of 1:3. Please advice.

Naturally you have to do both.

If you are looking at price patterns that you feel will give you a 3:1 then you must ask how did you get that?
You also need your probably of success -so if a 3:1 pattern only plays out 1:6 times then you will lose - unless you can somehow decide which of the 6 is more likely to win and vary your bet.

Also you have the questions of scaling.
  • Do you ease in and set staggered stops on trades going your way - or all in?
  • Do you average in even if the trade initially goes against you?
  • Do you ease out or all out?
Often your trade probability varies as the trade progresses and you have to adjust.
  • If your trade retraces beyond where you expected it to at the outset your probability of a failed trade has possibly increased.
  • If your trade runs beyond a breakout level your odds of a big winner have changed (and you might change your bet).

Trading is a difficult business - otherwise we'd all be gazillionares - and not here. (hopefully)

You could progress your thread farther by posting pics of some setups, showing how you get your RR and asking others for their views on the patterns.

IHIH

Keep your mind in the future, in the now.
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  #8 (permalink)
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A tick is a tick is a tick.

After this profound statement let me explain:
Whatever the strategy, if you can improve your entry by 1 tick then your P&L will be increased by 1 tick X Nr. trades.
If you improve your SL by 1 tick and your PT by 1 tick then your P&L will be improved the same.
So entry improvement = SL + PT improvement.
Maybe the question should be: What part of a trade is easier to improve?

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  #9 (permalink)
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mykee View Post
Dear fellow traders. Do you think it is enough to focus more on money management (Risk to Reward ratios) than trading method in order to trade successfully long term. I prefer to day trade, looking just at the basics - price pattern and volume to decide on the entry and exit. Focusing on trades that I believe will give a RR of 1:3. Please advice.

Risk to reward ratio is not money management. It is rather the outcome of a winning trading method. Just because you aim to make 3 times as much as you lose in a statistical sense it does not mean you will succeed unless you have some edge. Money management has to do mostly with how much you risk on position, proper leverage, portfolio heat, etc.

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  #10 (permalink)
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Thank you kevinkdog for the link. Appreciate it.

Also, thank you Aquarian 1, Massive 1 and other fellow traders. Thank you for taking the time to reply and sharing with me valuable information.

I must first apologized for not doing much homework before posting this thread. After reading through many more threads in the forum and journals from other traders, I learned a lot. I learned that I know very little. I learned that I still have a long way to go. I learned that trading cannot be rushed. There is no quick method, no shortcut, no matter how much will power you have to succeed in this business. Experience cannot be bought.

I did some trading 10 years back for about 1 year. Didn't lose much, but not having the results that I wanted. I went into trading with the mindset of an "investor", hoping to get some returns. Bought a lot of books and traded a little. Gave the broker (who has more knowledge at that time) a small line to trade. I know. huge mistake. Luckily he didn't lose much.

Throughout the years I always wanted to get back into trading futures, but I know it's not easy and I know I will not be able to generate income to support my family, so I focus more on my other small retail business.

I believe everything happens for a reason. Many things happened the last 3 months, that led me back to opening an account and started trading. Attended a class offerred by an experience trader. Learned alot from him, at the same time I learned that a lot of things he does doesn't "fit" me. He may be making consistent profit, but I don't quite agree with some of the things he is teaching us. He meant well, but what works for him, may not work for someone else.

I traded for a little over a month. Basically I'm driving with an eye close, one hand tied up! Luckily, no major damage to the account. I have stopped for now. Traded less than 15 times. What did I learned? I have decided on the market I will focus on. Learn the characteristics of this market. Decided not to trade grains because of the time zone. I live in Asia and even though I have no problem staying up from 9pm to 2:15am, I do have problem holding onto my positions overnight. The risk of it gapping, I am not comfortable with that. That's why I decided to day trade. Grains and gold are what I will trade. Day trade. Worked out my risk per trade that I am comfortable with. Working on my entry and exit method. I am comfortable with my entry, I am willing to take the loss when my stops are hit. The exiting part is a main concern. How much to adjust the stops when the market is moving in your favor. "When to take profit" is one very important skills for an experience trader.

Thank you so much for listening and sharing. I have ALOT more in my mind that I want to say out. Then again I guess I better structured it out before I write the next thread.

Thank you Big Mike for this wonderful forum!

From one of the link... in the forum

Anticipate Not Predict,
Doing what is right, Not Being Right.


Last edited by mykee; October 13th, 2013 at 11:38 AM.
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