Money Management Strategies

[oxraydarsu]

Strategies are used? I read about Pyramiding in Beau's book and I was wondering if anyone uses that egy. It sounds kind of risky? Pyraminding is trading on each trade with the identical percentage of your account. Beau's book suggests 10 percent of the account on each trade but that sounds kind of large.

[aziz65]

Fiji,



The MM Approach that Merlin describes I Utilize, taken from Van Tharp's book.



I also did a little work using a spreadsheet on the topic. Actually, I took a spreadsheet of yours, and adapted it for the purpose. One thing that I added, aside from the field for the further risk% to be employed on the profits and so determining the extra contracts traded, was a column that calculated the NEW, overall risk % of the commerce.



By consolidating the initial risk % bucks, lets say 2 percent, and the risk % in bucks on the profits for use I was able to determine how much risk each trade was risking overall, concerning the account equity, irregardless whether it had been first capital or profits.



When I extrapolated my current returns out into time, I achieve degrees of overall risk per trade that I am uncomfortable with. Once reaching levels of risk per trade or higher the swings from the account can turn out to be too large for my liking. So I decided on a manual pre-determined cap. So that when the account does reach these amounts instead of truly risking let's say 2% initial capital and 5 percent of profits, if the overall risk per trade became higher then 4 or 5% per commerce it'd be capped there.



What I do not know is Asymetrical leverage. I have read in some of the articles that Asym-Lev's ramifiions could be debilitating to a account. I am under the understanding that an account with $25,000 or less may truly be negatively effected by this, and since the account equity gets greater it becomes less of a factor. But I do not understand why. I can not figure it out.



This can be an opportune time to handle this subject because if it effects my account or not, I would rather be in the know, and I'm sure many others will profit from the explanation of it.



What exactly is Asymetrical leverage?

What causes it?

Why does it harm a smaller account rather than a bigger one?

What energetic exists between account size, position sizing and Asym-Lev, and what exactly can the trader do to reevaluate it has effects? Possibly using super duper mini's like with Oanda or even FxSol for example until the account fairness reaches from it's reach?
Who's that masked man?





Thanks. I'm looking forward to your reply.

[Punkpky]

um. . .the Pyramiding I understand means when the economy moves in your favor adding contracts to your position.

Some investors even pyramid in a loosing place, which is very risky.

When you examine the results from last months FXCM King of the Mini winner, he had been utilizing Pyramiding in winning positions. I believe they left over 200% in a month...

[oxraydarsu]

What would you consider windfall profits?

[Punkpky]

I've researched money management plans extensively. I've reasoned their efficient use comes from a approach yielding a high win/loss ratio that has a string of losses and wins.

Therefore, Money management could be best paired with the trigger that causes one to input coupled with a MAE and MFE analysis of that particular trigger.

Entrance is your key....lack of immersion is the enemy

A reasonable Predictability of your sign, can be used with a martingale kind money mangement. . .and in some systems a anti martingale stategy works best...

I shall talk about and establish a what I call a reverse martingale method together with predictable sequences of losses and wins. . .someday when I feel for this. . .stay tuned...

Michael B. Savant, I understand that you simply use martingale on your cash/carry plan and it works well.

But with martingale in directional trading (were you earn or lose money because the market moves in a certain direction) is the fastest way to SURE RUIN. You have to use anti-martingale in such cases, there's absolutely no way around it. Thats not my opinion, thats a fact proven by the world's best scientists.

The issue with martingale MM plans is that you will be wiped out from the first string of losers. And all systems. The traders assignment is to stay in the sport, the assignment is to create money.

[Punkpky]

Mm is made out to be a good deal more complex than it needs to be. The simplest method of gambling X percent of your portfolio on each trade (aka percentR) is normally the best. You'll realize that even the biggest, most advanced traders still use %R.

[oxskacsapas]

Well, to some extent I agree with Merlin which MM is being made complex than it should be. As straightforward as it gets, as better it will function, that is exactly what I think.

There are always two types of trades, higher odds ones and low probability ones according to your egy. It's just straightforward to use 1 lot for low probability trades and two for higher probability ones given that the risk per transaction stays inside your acceptable range in both circumstances.

Which makes it complex is not bad, the calculation itself might be complex, but the idea itself needs to stay simple. You can choose what I have just stated and create a complex execution or an easy execution, and most likely, they will end up almost the very same effects, so why bother.

Thanks,

Nader

[Punkpky]

As ive said, I adhere to percentR for MM (risk a constant proportion of portfolio on every transaction). This really is a simple concept that works.

I really do have another MM plan that I love to utilize. Its commonly called %RP. This really is where you bet a percentage percent of your portfolio on every transaction, PLUS a proportion of you profits.

For example...

initial portfolio size = $100,000
present portfolio size = $120,000
present portfolio gain = $20,000
%R = 1%
percentP = 1%

with plain percentR, you would be exceeding 1% on every transaction (1% of $100,000 = $1,200).

However with percentRP, you would be exceeding $1,200 one % of earnings (1% of 20,000 = $200). You would thus gamble $1,400 on every transaction.

If your account has no gain in it, %RP will act exactly like %R. its only once you show a gain that you begin to risk a proportion of your earnings on each trade.

This really is a good way to cultivate your accounts fast, and I normally find it simpler than optimalF egies that attempt to achieve the exact same feat.

[almacucs]

I would be alright if I had half of the money management skills you guys are discussing.

[Punkpky]

When I had half of their money management skills you guys are discussing, I'd be alright. Just read http://www.amazon.com/exec/obidos/tg/detail/-/0070647623/qid=1129108191/sr=8-1/ref=pd_bbs_1/103-7804379-9802234?v=glances=booksn=507846, its MM made easy. Youll get it. Once you learn the methods, you may realize you shouldnt have been trading without knowing them

[jtteanpkm]

using martingale in directional trading (were you make or eliminate money because the market moves in a certain way) is the quickest way to SURE RUIN. You have to use anti-martingale in such cases, there's absolutely no way around it. Thats not my opinion, thats a fact proven by the world's best scientists. Not only that it's been proven even more conclusively with a huge series of the worlds biggest losers.

FT

[jtteanpkm]

mm is made to be much more complied than it has to be. The simplest method of gambling X percent of your portfolio on each transaction (aka percentR) is normally the best. You'll find that the largest, most sophistied institutional traders still use %R. Provided that you have the right kind of account for place size alloion to steer clear of asymetrical leverage issues it's all about the most robust money management through the broadest variety of systems and market conditions out there.

Ft

[jtteanpkm]

because ive said, I adhere to %R for MM (hazard a constant percentage of portfolio on each transaction). This really is a simple concept that works.

I do have another MM plan that I like to utilize. Its called %RP. This really is where you bet a percent % of your portfolio on each transaction, PLUS a percentage of you profits.

For example...

initial portfolio size =100,000
current portfolio size = $120,000
current portfolio profit = $20,000
%R = 1%
%P = 1%

with plain %R, you would be exceeding 1% on each transaction (1% of $100,000 = $1,200).

But with %RP, you would be exceeding $1,200 1% of profits (1% of 20,000 = $200). You would risk $1,400 on each transaction.

If your account doesn't have any profit in it, %RP will behave exactly like %R. its only once you show a profit that you begin to risk a percentage of your profits on each trade.

This really is a superb way to cultivate your account quickly, and I normally find it better than optimalF approaches that try to accomplish the same feat. I made a spreadsheet around that exact kind of system that allowed placing a different hazard level for those equity and profits. I played round and experimented with quite a few scenarios. In the end I found it was easier just to increase more than (% r) position size as profits attained certain amounts and that equity curve was simplest to control and more tangible that manner. In the end it was a version on a ratio position sizing plan.

FT

FT

[Punkpky]

i know, i know. Ya keep testing and testing, and you end up back where you began gt; percentR. when it has to do with MM, simple is exceptional.

The only time I use the percentRP is in loion of an optimalf egy. And that is not.

[jtteanpkm]

I also did a little work with a spreadsheet on the topic. Actually, I adapted it to the purpose , and took a replica of yours. 1 thing that I added, apart from the area to the additional danger% to be used on the earnings and therefore determining the additional contracts traded, was a pillar that calculated the NEW, total danger % of the trade. LOL. Among the spreadsheets had that feature that I'd disabled before submitting it since it was outside the topic that I was addressing.


By consolidating the first risk % bucks, lets say 2 percent, and the danger % in bucks on the profits for use I was able to determine how much risk each trade was risking total, concerning the account equity, irregardless if it was first capital or earnings. After much research that is precisely why I'd concluded it was simpler just to adjust over all risk level as the account improved. Once I'd seen that mixing the danger of proft and original equity just escalated to a sliding scale of danger I determined it didn't much matter how you go about it that you just require a risk profile that reflects your own body and market doctrine.


Once I extrapolated my existing returns out into time, I attain levels of total risk per trade that I am uncomfortable with. Once reaching levels of 7 percent risk per trade or higher the swings in the account can become too large for my liking. So I decided on a manual pre-determined cap. So that when the account does reach these levels instead of actually risking let us say 2% on first capital and 5 percent of earnings, if the overall risk per trade became higher then 4 or 5% per trade it would be capped. You've got a fairly large risk tolerance. Either that or you've got a fairly large win ratio.


What I don't know is Asymetrical leverage. I've read in a few of your articles that the effects of Asym-Lev could be debilitating to a little account. I am under the understanding that an account with $25,000 or less can truly be negatively effected by this, and as the account equity gets greater it becomes less of a factor. However, I don't know why. I can't figure out it. With a %hazard MM system you can't control your risk really close to the constant level of danger that you want to achieve if your position size jumps in massive increments. Envision trading 100k place size using a 25k account. If you define your risk to a constant 2 percent you'll be able to danger 500.00 which means trading one contract using 50 pip ceases or two contracts with 25 pip stops. If your stops needs to be at 30 pips, what happens? Then you can just trade 1 contract that means danger of 1.2 percent with a single contract or 2.4 percent with two. Put simply your leverage is either too little or too big in that scenario but whenever your account reaches 30k you can exchange 2 contracts with 30 pip stops and also have just 2 percent risked.

As soon as you jump from 1 contract to two your leverage doubles from when you're trading a single contract. So between 25k and 30k you're risking less than two percent. Really much closer to 1 per cent for a great part of the time. If your projected equity curve permits 2 percent danger you don't make quite as much cash if you're winning as you should since you aren't risking 2 percent. If you're losing you will lose much less by not risking much but in a positive anticipation system using a wonderful distribution of wins and losses you will not be maximizing your profits. Thus you lack a symetrical leverage and based on how your trades work this out can help or hurt you. My research proves that it is going to hurt you a good deal more often that it is going to help you. I've mostly found scenarios where a constant risk is much more rewarding than fluctuating risk.

To resolve the issue of asymetrical leverage all you need is a smaller place size in relation to your account dimensions. With FOREX trading the very best results I've found indied that having the ability to initiate position dimensions in 1000.00 increments was greatest for accounts under 20k. Often these are called micro mini. After 20k or so graduating to a mini or 10k increments in exchange size... etc. I have not used it FXCM includes a module that permits sizing trades to an exact percentage and will correspondingly produce a position size to an exact dollar amount that reflects the exact percentage. I think there's a minimum account size needed.


What exactly is Asymetrical leverage?

What causes it?

Why does it hurt a smaller account and not a larger one? If your minimum position size is too big concerning your account dimensions the exact same thing will also occur to a larger account. A great example is back when SP contracts required 15 to 20% of margin and there were no mini contracts. A person trading these contracts and a %R MM approach would experience a great deal of asymetrical leverage with 500k and see its effect with accounts to the low millions.


What lively exists between account dimensions, position sizing and Asym-Lev, and what can the dealer do to reevaluate it's effects? Perhaps using super duper miniature's like with Oanda or FxSol such as until the account equity reaches out of it's reach? Right.


Who's that masked man? Huh?

FT

[aziz65]

PERFECT.

Thank very much for your answer.

[Punkpky]

Fiji you edited my own post! Its easy to become confused between the edit and quote button

[jtteanpkm]

i know, i know. Ya keep testing and testing, and you end up right back where you started gt; %R. when it has to do with MM, simple is exceptional.

The only time I use the %RP is set up of an optimalf egy. And that's not at all. LOL. You are. Probably you use %RP (if you dust off it) since it gives you a different way to check at risk than because it is any better even in these rare cases. If you do use it most likely it is more testing and when experimentation than for your PF trading?

Personally I tried it out as somebody (I think it was Van Tharpe or Willi) mentioned it in their advertising literature like it had been a novel idea, and so I mimicked it to see what it had been about. In the end of the afternoon it is an eye ching marketing thought to market a novel spin on money management. It is enlightening to play.

FT

Sorry Merlin trouble fixed.