TheBramble
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A generic catch-all that gets bandied about as one of, if not THE key factor in successful trade execution and management.
What is it?
What is it?
Always good to get a balance. LOLA crock of ****.
Position size, based on initial risk, as a function of total trading capital is one element of money management. Spot on.I always thought it was about how much you risk on trades, with any added rules about when to quit, or when to skip trades. For example, I'll risk 1% on a particular trade, never let more than 3% be at risk in total, and if I lose 3% I quit for the day, and if I gain 6% I quit for the day etc.
But it seems from reading others posts that some consider it to have something to do with how you exit, stop placement, trailing stops, taking profits. I may be in the minority here.
We’re trading to make money.It is an interesting question because the anal will call some of your definition 'Trade Management"
If you have 2 systems, and you risk 1% on both of them per trade, and yet one has a much bigger edge then you're an idiot.
I’m not a big fan of statistics and quantifying edge. Trading performance statistics tend to ‘congeal‘ early on in the run. Slightly more valid as you increasingly reduce the span of time over which you’re assessing them and move closer to present day performance, but even then, of questionable value.However: I have never gone along with this 1% bullocks though.
It doesn't take a genius to work out that a bigger edge should have more risked to be efficient (which let's face it, is what we're aiming at, if it was just to make money we could put our accounts in the bank). Therefore, everyone should be risking different amounts, different systems should have different amounts etc.
I understand the 1% for beginners to preserve capital, but if your edge increases significantly, and you're consistent etc etc, you should be risking more, if you're not, I put it to you that either
a) you need to work on your psycology
or
b)you were risking far too much before your edge increased.
If you have 2 systems, and you risk 1% on both of them per trade, and yet one has a much bigger edge then you're an idiot.
Of course. Risk of ruin only comes into it if you risk too much. I'm not saying you should risk more than 1% on the 10% system, just more than you risk on the 90% system. Surely that's obvious?
I always thought it was about how much you risk on trades, with any added rules about when to quit, or when to skip trades. For example, I'll risk 1% on a particular trade, never let more than 3% be at risk in total, and if I lose 3% I quit for the day, and if I gain 6% I quit for the day etc.
But it seems from reading others posts that some consider it to have something to do with how you exit, stop placement, trailing stops, taking profits. I may be in the minority here.
Position size, based on initial risk, as a function of total trading capital is one element of money management. Spot on.
As on ‘when to quit’ that comes under the heading of cutting losses and running profits, both equally woolly and generic terms. They get quoted a lot, but when you’re there looking at your live position, precisely what is cutting a loss; letting it hit your initial stop; assessing the changing dynamics of the market and instrument you’re in and deciding it ain’t as good a call as you initially thought?
And letting profits run is an equally glib phrase. You’re a pew pips/points up – and have been for the last 6 weeks…You don’t want to grab at pennies, but on the other hand, if you don’t have any set expectations of profit per unit time, when will you call it a day? Some would suggest that’s time management. It’s not. It’s money management.
The 1% per trade max 3% at any time are both examples of MM in practise. Wont suit everyone, but it is the empirical data I was hoping we could start to flush out in this thread.
I use an initial risk of 2% (used to be 1% for many years) and a 10% total exposure rule.
The cut losses/let profits run aspect is one that I imagine will get the most exposure for reasons that will be obvious. But I’ll also be championing my own favourite, timing:value for money.
A competent trader will be looking at time exposure (the risk of just having an open position over time) and earnings per unit time. He’ll close a position in either state for the single same reason. That the basis for getting into the trade no longer holds OR it has not delivered on schedule.
who would you want working for you on your trading capital: A guy who delivers 100% returns with a 50% drawdown or a guy that delivers 10% returns with a 5% drawdown?
Much of this depends on the time frame for the trade being taken. For day-trading I would not risk more than 1% of capital per trade but for swing or position trading I would risk considerably more.
I’m not a big fan of statistics and quantifying edge. Trading performance statistics tend to ‘congeal‘ early on in the run. Slightly more valid as you increasingly reduce the span of time over which you’re assessing them and move closer to present day performance, but even then, of questionable value.
I guess if you had more than one system with different edges (I wondering why would you trade any other than the best?) those comments would be quite valid. I don’t so they make no sense for my trading style.
Yeah, I’ve looked at ramping up my stake and been through all the good Kelly stuff (which BTW was based on signal:noise in telecommunications lines – and some think that makes it perfectly applicable to calculating trading positions size – LOL) and if I wind in my trading performance stats into any current model, sure I could (should?) be trading much bigger size.
But when I do ramp it up, I don’t get the same good ‘feel’ about running the trade and I’m less likely to stick to my rules. Tough one to quantify under a Money Management heading other than perhaps ‘level of comfort absolute amount at risk’.
I certainly consider myself a cautious trader and don’t plan to change. But on the other hand, who would you want working for you on your trading capital: A guy who delivers 100% returns with a 50% drawdown or a guy that delivers 10% returns with a 5% drawdown?