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Money Management Exercise


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Money Management Exercise

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  #1 (permalink)
Sweden
 
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This is actually an exercise that helps you understand the game of trading with all it's ingredients. What you have to do is to take two slips of paper.

On the first one you write BUY. On the second one you write SELL. Pick a place to put them so that you can't see what's written on them.
Take out one piece of paper and do what it says at the beginning of a range bar (renko, minute, volume, pick your favourite frame).

Now, let's assume you've drown a Buy slip. If that bar closes higher then the entry, keep the position until the next bar closes. If this bar closes higher than the preceding bar, again keep the position. Go on like that till there's a bar that closes below the close of the preceding bar and then cover.

If the first bar closes lower than the entry, cover immediately.

You'll be making money over time although the entry's are random. And that's because you will be long and short an equal number of times and you cut your losses and let your profits run.

Have fun!


/George

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  #2 (permalink)
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hi george,
funny idea !
what do i do after i closed my position ?
do i enter depending on the next Barclose or do i again pick one paper for a random entry ?

max-td
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  #3 (permalink)
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Well... That's a trading plan, and at first glance it may work.
Have you done it George?

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  #4 (permalink)
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max-td View Post
hi george,
funny idea !
what do i do after i closed my position ?
do i enter depending on the next Barclose or do i again pick one paper for a random entry ?

Hi Max,

You pick up the next slip. The slips are going to decide your entry direction. Be sure not to look at what's written on the slip, that way you truly make it random. It's made that way in order to show you that random entry's can make you money!

Now, please remember this is not a trading plan, it's just an exercise that shows you how professional trading works. So, what you guys want to get by doing this is simply the essence of constant trading.


/George

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  #5 (permalink)
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Luis_PT View Post
Well... That's a trading plan, and at first glance it may work.
Have you done it George?


Luis,

Yes I've done it. Do it yourself, it's funny and it gives you a lot of insight. Now, being a trading plan, sure it could work mathematically but, you'll be needing a huge amount of money. So I don't recommend it such as.

It will give you an insight on how it is to trade mechanically and how it is to follow a trading plan.

By the way, I'm not a fan of mechanical trading, but nevertheless it's a very, very healthy experience that I truly recommend. It's showing you that your mind patterns and your perception of the markets, are not always right.

/George

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  #6 (permalink)
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This is a great exercise! Van Tharpe found the same in the experiments in his book.

I have tried it myself and it can help you see what mistakes you are making managing a trade.

I also found it useful to play the free version of his trading game on position sizing:
Trading Simulation Game

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  #7 (permalink)
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Instead of using slips, could you just use a random number generator like - RANDOM.ORG - Integer Generator - and let an even number = long, and an odd number = short?

Looks like a good exercise though, will try it.

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  #8 (permalink)
belgium
 
 
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I will try this out...

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  #9 (permalink)
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Or use checkers in a box and pick a random checker for each entry .. eventually you finish the box and review the results of the trades

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July 30, 2010


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