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Money Management Fixed vs Ratio fractional....
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Money Management Fixed vs Ratio fractional....

  #1 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

Money Management Fixed vs Ratio fractional....

If hypothetically a trader " feels " as if they have found a system / method that is profitable ( even though they have never backtested it, Monte Carlo, Walkforward, etc.... ), they just feel as if they have a profitable and robust strategy


Assuming this, what would you recommend as far as Money Management and how to trade...... would it be smarter to employ a Fixed Fractional ( Risking 2% on each and every trade, regardless if you're up +$1,000 in your account OR if your down -$1,000 in your accoung, you will still risk 2% on every trade OR would using the Ratio method work better in this example ( where we use a Delta of say $500 , so using a starting Bankroll of $1,000 , trading just 1 standard lot and a delta of $500 , the sequence would be ...... $1,000 + 1 ( lot ) x $500 = $1,500 ( so once are account is up to $1,500 we would then add another Lot and start trading 2 Lots, and would NOT move up to trading 3 Lots Until......
$1,500 + 2 x $500 - $2,500
So on and so forth )





Thanks so much for everyone's time and help, Really appreciate it - Michael

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
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mdsvtr View Post
If hypothetically a trader " feels " as if they have found a system / method that is profitable ( even though they have never backtested it, Monte Carlo, Walkforward, etc.... ), they just feel as if they have a profitable and robust strategy


Assuming this, what would you recommend as far as Money Management and how to trade...... would it be smarter to employ a Fixed Fractional ( Risking 2% on each and every trade, regardless if you're up +$1,000 in your account OR if your down -$1,000 in your accoung, you will still risk 2% on every trade OR would using the Ratio method work better in this example ( where we use a Delta of say $500 , so using a starting Bankroll of $1,000 , trading just 1 standard lot and a delta of $500 , the sequence would be ...... $1,000 + 1 ( lot ) x $500 = $1,500 ( so once are account is up to $1,500 we would then add another Lot and start trading 2 Lots, and would NOT move up to trading 3 Lots Until......
$1,500 + 2 x $500 - $2,500
So on and so forth )





Thanks so much for everyone's time and help, Really appreciate it - Michael


I don't think it matters, it is just different ways of gambling.

Without knowing how the strategy is going to perform, just randomly select one method or the other.

You can easily lose all your money using either money management technique. And trading on feelings is probably going to lead to just that.


Last edited by kevinkdog; November 14th, 2014 at 06:28 PM.
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  #4 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Trading Experience: Advanced
Platform: Tradestation
Broker/Data: Tradestation, DeCarley, others
Favorite Futures: futures
 
Posts: 2,632 since Jul 2012
Thanks: 1,356 given, 5,029 received

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OK, so let's go a step further. Let's say you know exactly how the strategy performs historically...

So, you apply 2 money management techniques to that historical data:

1) fixed fractional

2) fixed ratio


And, you find one is tons better, profit wise, reward/risk wise, drawdown wise, etc. One is clearly superior.

So, you decide to trade the better one. Is that a good idea?

I'd say "NO." 2 reasons:

1) by comparing 2 approaches, and picking the better one, you've just optimized for money management technique.

2) change up the order of trades a little bit, and you could get radically different results.

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