NexusFi: Find Your Edge


Home Menu

 





are you over leveraged?


Discussion in Psychology and Money Management

Updated
      Top Posters
    1. looks_one cw30000 with 4 posts (3 thanks)
    2. looks_two Big Mike with 2 posts (0 thanks)
    3. looks_3 Fat Tails with 2 posts (0 thanks)
    4. looks_4 MotoMoto with 2 posts (0 thanks)
    1. trending_up 3,470 views
    2. thumb_up 3 thanks given
    3. group 4 followers
    1. forum 12 posts
    2. attach_file 0 attachments




 
Search this Thread

are you over leveraged?

  #1 (permalink)
 
darthtrader3.6's Avatar
 darthtrader3.6 
wny
 
Experience: Intermediate
Platform: ninja, excel
Trading: YM, equities
Posts: 86 since Jan 2010



If you lay me odds that 90% of people here are over leveraged at +200 I'll take that bet all day..
There is a HUGE hole in the retail trading literature as far as risk management.."Risk 2% per trade vs quant VAR"...so everyone just says fuck it.
I don't doubt for a second the reason you don't see outliers with retail trading , even though you so should just from sample size is because so many people are betting 2X kelly without even knowing they are..
That video should be a starting point to Ralph Vince incredible work on bet sizing and way beyond Kelly....
Amazon.com: The Handbook of Portfolio Mathematics: Formulas for Optimal Allocation & Leverage (9780471757689): Ralph Vince: Books

Forget your "profit factor", even if you are calculating such things..
The first question you should ask yourself is if you are putting on 2X Kelly or not because of the deceptive nature of min margin vs contract size on index futures. I bet you are and you don't even know it and don't even know why it matters.

There is no such thing as "under capitalized"...there is only over leveraged to a betting expectation...but its a very deceptive concept to figure out.

Visit my NexusFi Trade Journal Started this thread Reply With Quote

Can you help answer these questions
from other members on NexusFi?
NexusFi Journal Challenge - April 2024
Feedback and Announcements
Better Renko Gaps
The Elite Circle
Futures True Range Report
The Elite Circle
Deepmoney LLM
Elite Quantitative GenAI/LLM
My NT8 Volume Profile Split by Asian/Euro/Open
NinjaTrader
 
  #3 (permalink)
 cpi65 
UK
 
Experience: None
Platform: -
Posts: 154 since Aug 2010
Thanks Given: 12
Thanks Received: 75



darthtrader3.6 View Post
...but its a very deceptive concept to figure out.

Read about you quitting your job to trade your PA... go for it hombré !!

As for this twice kelly/optimal f/VaR stuff... anybody that is reasonably smart can figure out what position size they can trade given their appetite for risk/vol, it ain't rocket science.

Reply With Quote
  #4 (permalink)
 
Fat Tails's Avatar
 Fat Tails 
Berlin, Europe
Market Wizard
 
Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker: Interactive Brokers
Trading: Keyboard
Posts: 9,888 since Mar 2010
Thanks Given: 4,242
Thanks Received: 27,102


cpi65 View Post
Read about you quitting your job to trade your PA... go for it hombré !!

As for this twice kelly/optimal f/VaR stuff... anybody that is reasonably smart can figure out what position size they can trade given their appetite for risk/vol, it ain't rocket science.


But once you are profitable and can trade size, portfolio mathematics may help you to increase your account tenfold, instead of twofold.

Reply With Quote
  #5 (permalink)
MotoMoto
Australia (ex UK)
 
Posts: 25 since Aug 2010
Thanks Given: 14
Thanks Received: 27

portfolio management / money management is nothing more than a tool - if you are a mechanic trying to build a wooden cabinet, get a carpenter.
As a trader you need to understand leverage v exposure v expectations...... if you dont then keep betting, maybe you will get lucky enough to last enough time to then realise what you dont know.
Its usually then you look back and think, damm i was lucky.

Reply With Quote
  #6 (permalink)
 cw30000 
new york
 
Experience: Beginner
Platform: SC, NT
Trading: CL, GC
Posts: 206 since Sep 2009
Thanks Given: 99
Thanks Received: 113

For beginners like myself, I think we should just trade 1 lot until we are profitable regardless of account size. I did work out some math and I will follow it until I go live (again) shortly.

I will start with 1 contract and risk only 2 points ($100 + $4 comm). When my accumulate profit is 20x my risk or $2000, I increase my size to 2 contracts and repeat. So when my accumulate profit is 6k (2k for 1 contract + 4k for 2 contracts), I will move to 3 contracts, etc. However, if I I loss 2k after I move to 3 contracts, then I will go back trading 2 contracts and accumulate another 4k profit before I move to 3 contracts (total of 8k profit) again. I hope this make sense.

Visit my NexusFi Trade Journal Reply With Quote
  #7 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,398 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,537


cw30000 View Post
For beginners like myself, I think we should just trade 1 lot until we are profitable regardless of account size. I did work out some math and I will follow it until I go live (again) shortly.

I will start with 1 contract and risk only 2 points ($100 + $4 comm). When my accumulate profit is 20x my risk or $2000, I increase my size to 2 contracts and repeat. So when my accumulate profit is 6k (2k for 1 contract + 4k for 2 contracts), I will move to 3 contracts, etc. However, if I I loss 2k after I move to 3 contracts, then I will go back trading 2 contracts and accumulate another 4k profit before I move to 3 contracts (total of 8k profit) again. I hope this make sense.

I am having trouble following.

What is your net account size when you are trading 2 and 3 contracts?

How much risk is each trade in terms of your net account? If your stop loss is $400, and your net account is $4,000, that is a 10% stop which is about 5-10 times higher than it should be, for instance.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
  #8 (permalink)
 cw30000 
new york
 
Experience: Beginner
Platform: SC, NT
Trading: CL, GC
Posts: 206 since Sep 2009
Thanks Given: 99
Thanks Received: 113


Big Mike View Post
I am having trouble following.

What is your net account size when you are trading 2 and 3 contracts?

How much risk is each trade in terms of your net account? If your stop loss is $400, and your net account is $4,000, that is a 10% stop which is about 5-10 times higher than it should be, for instance.

Mike


It is not base on risk to the total account size relationship. It is base on profit. If the trader is consistent and profitable, then he/she will increase his/her her trading size.

My point is, regardless if the trader starts with a 10k or 100k account, he should trade 1 lot until he reached a certain profit before he increase is total lot or risk.

My example use $2k profit (2k to 20 times my $100 risk) for every contract.
1) profit =< 2k, trade 1 contract
2) when profit is greater 2k, trade 2 contracts
3a) since trader is trading 2 contracts, in order to move to 3 contracts, trader will need to make 4k profit (2 x 2k) for a total of 6k profit (from base acct). So when traders have 6k of total profit, he will starts to trade 3 contracts.
3b) however, instead of advancing to 6k total profit, trader actually has a string of losses, he is now back to 1k profit. when this happens, he will "downgrade" to trade 1 contract. He will only trade 2 contract when he get another 2k profit, or 3k in total profit.

If you think 2k is not an ideal number, you can plug in anther number that make sense to you.

Hope this make more sense.

Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #9 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,398 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,537

Thanks. I understand what you are saying now.

You don't think the risk % per trade is important? Can you share in your scenario what the risk % per trade is?

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
  #10 (permalink)
MotoMoto
Australia (ex UK)
 
Posts: 25 since Aug 2010
Thanks Given: 14
Thanks Received: 27


google - Fixed Ratio Position Sizing

Reply With Quote




Last Updated on August 31, 2010


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts