Forget Money Managment!

[moby1]

I will try to explain once more:

If you wish to survive in trading game you must scalp the market only when is safe to scalp! It is all about drawdowns!

Here is not a question about WHEN is safe for scalping but mathematics about draw-downs?

You must be mathematician to understand what are you betting against!
I am betting against money managment and i don't have large draw-downs as money managment has!
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Example:

Let's say that we gonna use same leverage in both cases! (1PIP = 1USD)


Scalping
If I take 3pips of profit for 5 times in a row then I have 15 pips of profit!
But if I lose 20 pips at sixth try then I will have -5pips altogether!
Draw-Down in this case is -5pips.

Money Management
If I lose 3 time in a row for 20 pips I will have -60 pips draw-down!
And suppose that I take 60 pips of profit (MM 1:3)on a forth time my balance is zero!
Draw-Down in this case is -60pips.
Question is:

Which case has a larger Draw-Down?
----------------------------------------
scalping only 5 pips of DD
MM 60 pips of DD
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Who will first touch the zero sum balance????


What are the odds for taking 3pips against 60 pips?????

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One question for the end :
Which Money managment will have larger Draw-Down 1:2 or 1:3 ???
(Little help: what is harder to take: 3pips,30pips or 100pips???)
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I hope that I have explain this so everybody can understand!
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Conclusion:
Money managment mustn't use large leverage as scalping system because of large DD!!!
So MM can not benefit from large leverage as scalping system with low DD!!!

 

[Trader333]

Money management is not a trading strategy as you are implying in the above post. It is a decision process and aligned to how much risk you are prepared to take in any given trade or number of trades.


Paul

 

[moby1]

Money management is not a trading strategy as you are implying in the above post. It is a decision process and aligned to how much risk you are prepared to take in any given trade or number of trades.


Paul

You are absolutely right! My mistake! What I meant was all strategies that uses money managment!

 

[HowardCohodas]

Money management is not a trading strategy as you are implying in the above post. It is a decision process and aligned to how much risk you are prepared to take in any given trade or number of trades.


Paul

Hmmm. In general, I agree.

However, there have been some interesting studies that show that a random entry with money management that utilizes stop loss at entry and trailing stops is profitable given that the market trends approximately 20% of the time.

I reproduced the results of others as I experimented with the parameters of the money management rules. Ran tens of thousands of tests using Monte Carlo methods on real market data.

I am not advocating random entry as a strategy. Although it seemed that my market decisions early in my investing life seemed pretty random in hindsight. However, the experiments give credibility to the notion that money management is critical to trader/investor success.

 

[moby1]

So what about psychological pressure when you taking 3pips of profit against 80pips of profit?
How many times you have around 60 pips in profit and waiting for another 20 pips to get 80pips and fully fill money managment rules and price has bounce for 30 or maybe all 60 pips and hit your stop-loss??? Isn't that a pressure? Why didn't you take 60pips of profit when you have a chance?
I understand you have been telling to yourself price is moving in ABC formation (higher-high,higher-low and reverse).

 

[HowardCohodas]

So what about psychological pressure while you taking 3pips of profit against 80pips of profit?
How many times you have around 60 pips in profit and waiting for another 20 pips to get 80pips and fully fill money managment rules and price has bounce for 30 or maybe all 60 pips and hit your stop-loss??? Isn't that a pressure? Why didn't you take 60pips of profit when you have a chance?
I understand you have been telling to yourself price is moving in ABC formation (higher-high,higher-low and reverse).

If you have established your money management rules to optimize your profitability over many trades, where is the pressure? Either you believe in the money management rules or you don't. Do you believe and you still feel "pressured" into making decisions outside the rules? Do you have regrets at profits left on the table because you followed your rules? Then perhaps you don't have the psychological makeup to be an effective trader.

 

[moby1]

If you have established your money management rules to optimize your profitability over many trades, where is the pressure? Either you believe in the money management rules or you don't. Do you believe and you still feel "pressured" into making decisions outside the rules? Do you have regrets at profits left on the table because you followed your rules? Then perhaps you don't have the psychological makeup to be an effective trader.

I am just saying that there is a much lower pressure to take 3 pips of profit than 80 pips!
Our body automatically respond with optimism when position go against us and with pessimism when we have position heading in our direction.
Question:
Why 90% of traders are trading against human nature? (they wish to become super-humans-traders)

 

[HowardCohodas]

I am just saying that there is a much lower pressure to take 3 pips of profit than 80 pips!

I never look at pips, or points or cash at risk in absolute terms. I only look at percentages. That way I stay focused on my rules. For the most part, the rules don't change whether the money at risk is 100 or 10,000 (of the currency of your choice). And, for the most part, I don't pay attention to time frame. If I show a 9% return on funds at risk, it matters not to me if I've held the position for seconds, minutes, hours, days, weeks, ...).

I say "for the most part" on time frame because my strategy focuses on a narrow range of time frames (from 1 to 60 days). If I make my 9% in 5 days. Great. If I make my 9% in 59 days. Great. It's the 9% I want.

I say "for the most part" on the amount at risk because when I am qualifying new rules I trade with small money rather than serious money.

 

[the hare]

I am just saying that there is a much lower pressure to take 3 pips of profit than 80 pips!

No there isnt. You'd have to be certifiably insane to take 3 pips.

 

[moby1]

No there isnt. You'd have to be certifiably insane to take 3 pips.

I am using leverage 1:10!
If I trade eur/usd then 3pips= 0,3% of my balance!

 

[moby1]

I never look at pips, or points or cash at risk in absolute terms. I only look at percentages. That way I stay focused on my rules. For the most part, the rules don't change whether the money at risk is 100 or 10,000 (of the currency of your choice). And, for the most part, I don't pay attention to time frame. If I show a 9% return on funds at risk, it matters not to me if I've held the position for seconds, minutes, hours, days, weeks, ...).

I say "for the most part" on time frame because my strategy focuses on a narrow range of time frames (from 1 to 60 days). If I make my 9% in 5 days. Great. If I make my 9% in 59 days. Great. It's the 9% I want.

I say "for the most part" on the amount at risk because when I am qualifying new rules I trade with small money rather than serious money.

I can understand that, I was trading that way in the beginning!(after 4years of trading) But I didn't wanna just to be profitable! If you continue searching there is something very valuable!

 

[NVP]

is anyone else completely lost here ?..........I wish i'd never stated reading this thread

N

 

[goose4]

Thats such a great post howard:clap:

Do you have them studies? Any links or something.

I did something like this years ago but included series of wins and losses going on random bets.

What I did was only bet when you have a win-this means with long series of losses you avoid them as your not playing them.And you take advantage of the series of winners.Even great traders have series of losers.

Its shows that you only need a small edge like 5% with good money management to be a pro.

Kind regards...

Hmmm. In general, I agree.

However, there have been some interesting studies that show that a random entry with money management that utilizes stop loss at entry and trailing stops is profitable given that the market trends approximately 20% of the time.

I reproduced the results of others as I experimented with the parameters of the money management rules. Ran tens of thousands of tests using Monte Carlo methods on real market data.

I am not advocating random entry as a strategy. Although it seemed that my market decisions early in my investing life seemed pretty random in hindsight. However, the experiments give credibility to the notion that money management is critical to trader/investor success.

 

[HowardCohodas]

Do you have them studies? Any links or something.

My filing system is superb, if not messy. It is the retrieval system that frequently fails me.

The tests I did, (I'm guessing around nine years ago) are on computers at least three generations ago. When this discussion began, I looked for the reports and the code. No luck yet.

The thought of moving scares the heck out of me.

 

[oiltrader81]

many scalpers are losing enourmous amount of money now because the black box trading is destroying all their returns. Automated trading accounts for something like the 60% of forex markets.

analysing book orders and analysing volume do not work anymore

 

[forker]

many scalpers are losing enourmous amount of money now because the black box trading is destroying all their returns. Automated trading accounts for something like the 60% of forex markets.

analysing book orders and analysing volume do not work anymore

Where are you sucking your 60% number from? I think you are talking out your a55

 

[moby1]

Has anyone try to scalp the market when there is low volatility?

 

[NVP]

Has anyone try to scalp the market when there is low volatility?

can you define low volatility ? :smart:

N

 

[moby1]

can you define low volatility ? :smart:

N

Yes I can!

 

[wackypete2]

Yes I can!

and....?