Money Management - page 7
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I've heard (so many times) that I need it, but I don't know what exactly it is. What am I talking about? Money management, of course!
There's a good number of traders who claim that money management is the single most important thing to success in the forex. Considering its apparent importance, I think I should learn more about it. I understand it to be the amount of money that you risk on a trade. But, how do you measure that risk? In dollars, pips, percentage of equity? Is there a single answer? How does money management separate the winners from the losers in this market?
If I have a strategy that has a SL of 100 and a TP of 10, is that considered BAD money management? If so, then how? Seems more appropriate to just call it a stupid strategy, to me. Is it possible to have a strategy without money management? What would that look like?
I also have EAs that have features that create lotsizes based on a percentage of account equity per trade, which of course, is money management. These little features don't make the EAs into winners though. No matter how you slice a the cake, a strategy that loses, is going to lose, no matter how large your lot sizes are.
So what IS the story with money management?in simple words, is to manage the open trades so the trades has room to move and don't have your trades closed by margin call, sure its more than this, but this is the basic idea
http://www.babypips.com/school/money_management.html
i think money managment and risk managment is for guy who have more than 100,000 in their account
not for the ones trying to get 80% return on a 3000 dollar acount
i think money managment and risk managment is for guy who have more than 100,000 in their account
not for the ones trying to get 80% return on a 3000 dollar acount
Money Management is also for those that want to stay in the market, without putting money into their live account every six months.
Money management is about how to mutliply your account by 100 within a year.
Understand your probability, average winner, average loser, etc. and modify your stakes.
Trade safely!
Bluefish
Money management is about surviving in the sea full of sharks.
i think money managment and risk managment is for guy who have more than 100,000 in their account
not for the ones trying to get 80% return on a 3000 dollar acount
I like your point.
This is what MM is?
I don't know. "Money management" sounds more like "common sense" to me...
And by the way, this was a serious question, perhaps I could get some more serious answers. I REALLY want to know what money management is.
Thank you, MiniMe for the link.
I don't know. "Money management" sounds more like "common sense" to me...
And by the way, this was a serious question, perhaps I could get some more serious answers. I REALLY want to know what money management is.
Thank you, MiniMe for the link.Ryan,
With out getting into to much detail, let’s just get to an example. I will use my money management rules to explain (however, it’s a bit higher in risk than the standard found in all the trading books I have ever read).
My rules:
(Assuming an account with $1,000 equity @ 200:1 leverage)
I like to use no more than a 10:1 gearing on a trade set up. What this means is that I can open an order of 2 mini lots (or a number of orders that add up to 2 mini lots). This will require $100 of margin, or 10% of my total equity (thus 10:1 gearing). As I get to $1,500 in equity, I would then be able to buy a total value of 3 mini lots (margin requirement would equal $150 – 10% of the account). At $4,000 it would be 8 mini lots and so on.
If however my account was $1,000 equity @ 100:1 leverage, I would only be able to buy 1 mini lot to be at my 10:1 gearing limit. If the broker offered 50:1, I would only by .5 mini lots, and so on. In all these case my purchase would only affect my margin up to 10% of my total account equity – I hope this makes sense.
The other side of it is how much you are willing to lose. I will usually allow for half the loss of the required margin used to put on a trade. If you recall in the first example, I used $100 of margin (10:1 gearing), so I would be willing to lose $50. Therefore on 2 mini lots it would mean a 25 pip move against me.
The general rule of thumb in all the books says, risk no more than 2%, and try to get at least a 6% profit. I find that this guideline never really appealed to me as my trading method is a bit different, and risking 2% of the equity does not give me enough breathing room.
Anyways, the bottom line is that everyone needs to have their own set of rules similar to what I have posted. Figure out the gearing you plan on using (obviously giving consideration to the leverage your broker allows in your account). Then figure out the most you’re willing to risk, and that’s pretty much it. As your account grows, your leverage and gearing stays the same, but position sizing gets bigger. In the end you are always faced with the same percentage of risk on any trade, regardless of whether your account has $300 or $1 million.
I hope this helps,
MM
Thank you, Mr. Marketz. Very helpful.
My pleasure Ryan.