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Mindset's Money Management
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Mindset's Money Management

  #1 (permalink)
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Mindset's Money Management

I have been trading full time for about 4 years and I don't normally post my stuff on forums but there seems to be a genuine attempt here to help traders so in that spirit let me add my 10 cents.

The holy grail is in fact a Holy Trinity;

1. Positive Expectancy - read Van tharp if you don't know what this is. Search these forums.
2. Position Sizing & good money management
3. Excellent Journal keeping

Please note the system you use is almost irrelevant. ( that will upset a lot of people)

I attach a very simplified version of my journal to make a couple of points.

First - I pay very little attention to $$ - its no good making 4 out of 5 good trades if you lose all the profit and more on the fifth. $$ are really only ever useful at the eod when you tot up.
Risk/Reward ratio is CRUCIAL to success.
Hence you must record Risk multiples - if you don't know about R read Van Tharps book.
Keep your stats right up to speed - I spend an hour per day simply updating my spreadsheet - which now consists of over 3500 trades.
this body of information will tell you everything about your signals and your psychology. It will also reveal new patterns to trade in my experience.

It's boring, it's tedious but the better my records the better my trading. Here is one example.

If I KNOW that a Signal No 1 has a 55% win rate with an average expectancy of 1.75R how difficult is it to keep to the trading rules I designed. It's not a backtested performance algorithm but real (or sim) trades done by YOU the trader - you own the figures.

Hope this is helpful.

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  #2 (permalink)
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Mindset,

Yes! Yes!

I hope you will share more thoughts on this in the future.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

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  #3 (permalink)
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Journal


My first Thanks - appreciate that BM!
May I say what a great forum site you have designed here - gold star.

I don't want to get too evangelical about journals though - maybe others will contribute or better a new trader might ask questions.

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Mindset,

Thank you for the post; I can't agree more with how important the journal and tracking statistics of your trades. It took me a while longer than it should have for the journal I created here, but the spreadsheet with statistics has been around a while. There are a few others which shared their ideas on this as well.

Thanks again,
Gary

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Looks interesting Mindset...appreciate the input! Here's a short little interview with Dr. Tharp for folks that haven't heard of him. Dr. Tharp Interview

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  #6 (permalink)
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truer words...


Quoting 
Let me explain it this way. Expectancy is the mean R-value of your trading system. Thus, if you have a trading system with an expectancy of 0.75 that gives you 100 trades per year, then you’d probably make 75R on the average per year. That’s a pretty reasonable system. Now, if you risked 1% per trade, then you’d probably make 75% per year trading that system…maybe even 100% with compounding.

However, let’s say that you make one mistake each week. And let’s say that every mistake you make costs you 2R. That means that over the course of a year you’ve cost yourself 104R in mistakes. And your system produces an average profit of 75R per year. That means that the net result is a loss of 29R. I’d say that probably describes what happens with most traders that have a reasonable system.


Been there and bought the T Shirt.


Last edited by Mindset; October 2nd, 2009 at 01:50 PM.
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fxlionpromo View Post
nice interview

Hi...Thanks. A few of the comments that stuck with me.

  • 1."Itís really simple (trading). You find stocks (or futures) that are going up in as close to a smooth, straight line as possible. When you find them you buy them. And when they stop going up, you sell them. Itís that simple; and good trading really is that simple."
  • 2. (for stops) "Just use a 25% drop in price for stocks or a 3 times volatility stop for futures." (for exits) "Trail the 25% stop (recalculating it every time your stock (or contract) makes a new high) or trail a 3 times volatility stop."
  • 3. (position sizing) "Risk Ĺ% of your equity per position if you are a beginner or 1% if you know you are making money."
  • 4. "Buy whatís going up. Sell whatís going down. Risk about 1% per position. Itís not that hard."

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  #8 (permalink)
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Money Mgt

In addition to keeping raw stats of your trades I also find aan app called snagit really useful to capture the trade at setup, entry and exit. ( I have no relationship with snagit other than as a user). I have it setup so that this process all happens with one hotkey.
If you then put a link into your spreadsheet you can review successful and unsuccesful trades with both analytical and visual input.
It also makes reviewing large nos of trades so much easier. eg the whole week

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  #9 (permalink)
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Mindset View Post
In addition to keeping raw stats of your trades I also find aan app called snagit really useful to capture the trade at setup, entry and exit. ( I have no relationship with snagit other than as a user). I have it setup so that this process all happens with one hotkey.
If you then put a link into your spreadsheet you can review successful and unsuccesful trades with both analytical and visual input.
It also makes reviewing large nos of trades so much easier. eg the whole week

Yup, excellent - I recommend Jing only because it's a bit simpler, to my "students" who ask me for help etc, and they have to document screen shots of their entries and exits. Jing is handy mainly for very quick uploads of videos, which I do very often for users on the forum, but I also use SnagIt pro and it's a fantastic tool if you need to mark up a chart.

BTW, I just re-read your original post, and wanted to say bravo once again, I hope more people will listen and follow your advice.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
 
  #10 (permalink)
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Big Mike


Not used to all these compliments - you will make me

I hadn't heard of Jing but as it's free and made by the same co as snagit looks great value!
As boring as it is I have found record keeping to be an invaluable source of refining trade entries and trade management.
Once you have seen something a hundred times you tend to think yep that is an edge!

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