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Strictly speaking, "Market's money" refers to a concept (rather than a technique) where trader divides "their own money" and "market's money".
Market's money here refers to the profit that the trader accumulate which trader intend to risk more.
This concept gives birth to unlimited techniques including pyramiding, scaling up and scaling down etc.
EXAMPLE:
Let say you have $10000, Here's the plan:
1. Owner's money always constants = $10000
2. Market's money = $totalprofit
3. Risk 1% of Owner's money and 10% of market's money
4. After every year, reset Owner's money = $AllMoney and Market's Money = $0
This technique that used concept above will have characteristic of starting conservative and becoming aggresive as you accumulate profit. In the case where there's a drawdown, you become less and less aggresive.
Suppose you have %10 drawdown trading using 1% risk capital, using technique above means:
1. You will never have %10 drawdown of your "original capital".
2. You might get some crazy drawdown when you got a lot of profit.
3. You have insane growth at the end when risking 10% of your profit (when your profit is really big).
All of this fall into the category of "Money Management" school. If there's a so called secret of trading, then I've very little doubt that it refers to "Money Management". After all, it's called a secret because there are soo many people know about it, but only few people understand the real meaning behind it.
Of course, you have to consder a lot of practical stuff while implementing it. Eg. ensure your capital is not too big for the market you are trading and etc etc.
I hope that helps.
Can you help answer these questions from other members on NexusFi?
Actually - this will never become an issue. Let's say you start with $1000 and aim for 10% per day. You will never have a scaling issue because you will blow up the account before it ever happens. Hence scaling is not the issue. Taking excessive risk is the issue.
Also - to say "it doesn't scale" and then talk about "it won't work with $100M" is disingenious. If I made $100M from trading and then found I couldn't trade the same way any more, I would call that a complete success, not a failure to scale.
Still - I admire your lofty goals.
It is not my opinion that 10% per day is impossible, it is a fact and it is tied to risk.
Would you like my thesis on why pigs can't fly too?
I'm all for having aspirations but this kind of stuff is ridiculous. If people don't understand that risk and reward are related, then where do we start?
The 10% a day thing has been done to death on trading forums and it's usually people with $5000 (or less) futures accounts banging the 10% drum. If you are woefully undercapitalised, then of course you need to cling to beliefs like this 10% thing. A small amount of money and a limited imagination will lead you to the place where you need to believe you can turn the $5k into a million. It's the classic get rich quick syndrome.
We also see on here another myth - that you can money manage your way to profits. This is along the same lines of the 10% a day. If you have are trading directionally and have a negative expectency, then money management cannot make that positive.
On the bright side - the very people that aspire to do this are the ones that keep the markets topped up with new money.
Larry Williams, many many years ago turned a $10000 account into $2 million in 10 months and then lost 1million from that for a net of 1million in a year (please rounded numbers but you get the idea)
So, is that 10% / day if you consider 990,000/250 days = 3960 $$ ?? He was consistent in his trading interms of fixed%/max% risk /trade, and admits he was trying to prove that he could trade more than 1 type of a market at a time when he had his big drawdown. This was part of Robbins Trading Company - World Cup Challenge so it is documented and audited ...
AND YES, he hasnt done quite as well since then
Markets at that time were more highly leveraged, and even Hillary Clinton made money trading so I guess anything was possible. What is likely is that a really great trader wouldnt leave all his trading money in the broker account if he wanted to trade for a living.
TJ
Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
$10,000 -> $2m in 10 months is actually a lot less than 10% per day.
If you compound $10,000 at 10% per day, then by day 57, you are at $2,079,651. So - even by one of the best examples of survivorship bias on the planet, it's still a lofty goal.
As for the Larry Williams thing - how many people had heard of Larry before this experiment? Do we hear anything from people that blew up their $10k account? Of course not. Just by the fact that so many people try this, the laws of probability are such that someone is bound to succeed just by sheer chance. The fact that Larry couldn't keep this up is also a good sign that luck was at play here rather than a great skill in trading. Still - I'd certainly buy him lunch to pick his brains about it.
Taleb should be mandatory reading for anyone reading too much into even their own results.
1. I didn't say you were not correct. But without substantiating documentation Sir... it is still just your opinion , to which everyone is entitled to have one.
2. This entire argument is silly unless someone is going to post a reputable, verified field study that lends credence to one side of the argument over the other. But alas this is the internet where facts and documentation never enter into the equation.
3. Everyone is entitled to their own beliefs.
Regards,
TMFT
I'm just a simple man trading a simple plan.
My daddy always said, "Every day above ground is a good day!"
Actually, the arguments FOR 10% a day are silly. They exist for a reason, to give hope to the undercapitalised. I know a few full time traders, some of whom run a fund. They have quite a laugh when they hear about this stuff. It is the stuff of people focused on reward and not risk.
Of course, we could argue that it is 'possible' that if you flap your arms fast enough that you will take flight. Still you would have to be fairly naive to request a study to prove/disprove this. It is simply common sense that it is not possible. So it is with claims from undercapitalized traders (many of them still paper trading) that it really is possible, they just haven't done it yet.
The fact is, you don't need to study something that people new to trading hope for but people with experience know is outlandish. You just have to wait for the penny to drop in the newbies.
In trading, if you aim for the stars, you shoot yourself in the foot.
As long as it also includes why humans cant either
lol
Jon
Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
