There is a problem with money management teachings

To add comments, please log in or register
Mrluck07
426
Mrluck07  
Some people say that one should not invest more than 2% of total balance, but why it's 2%, not 3 or 4? This 2% rule is not a formula, because every formula does not work if you change the constants. So we can say that this 2% rule is only an arbitrary number, and other people just repeated it. We need money management formulas, where are they? There is kelly's formula, but it's for gambling, not trading, can someone here show me money management formulas? Thanks
Marco vd Heijden
Moderator
8168
Marco vd Heijden  

I like bananas.

But i like cookies more.

I use whatever formula that works for me.

If that is 1% , 2 % or 4% then so be it.

I can even go as far as saying, i will price this particular trade a $20, or, if i'm optimistic, a $50, and in very few cases $100, so i know on forehand what my max loss is.

Hey ! that is pretty darn close to predicting the future.

See that ? i know on forehand the worst case scenario... what else would i need ? hmmmmmm....


Yes you need money management when you are throwing irresponsible risky big amounts/sizes of lots.

Or, when your account is too small to deal with the draw down.

But do you really think that i lay awake at night thinking about this.

No sir, this process happens fully automatic and has a direct relationship with the available capital.

It's as simple as hitting buy and sell.

The problem is in your head.


You was going away to practice and you'd come back with the results, where are they ?

Zee Zhou Ma
1495
Zee Zhou Ma  

If you dig the web, you will come across this table below. 

I have not found the formula to it, but everyone is using it for reference. 

Someone may have authored a book, and put this table in as a kind of findings. 

The formula could be proprietary to the trading company that uses the trading strategy.

To recover a loss and then breakeven, you need to risk higher amount. Eg. if you lose 5%, you need to win 5.3% to gain back to previous account size.

And if you lose 50%, you need to gain 100% back.

So, if you want to trade safe, you should lose less than 5% of your account. Beyond that, it will become harder to trade.

It depends on fund money manager strategy and confidence in the team, a low 1-2% could mean the team is still weak, and need to improve.

A higher 4% could mean the team is confident to make it back if it loses.

If you have one good elite trader, he can withstand maybe 10% drawdown and still breakeven. 

But with a team of traders, you have to use the weakest trader as the benchmark. 

It is up to the fund manager to decide.

And also up to the client to accept, depending on whether he is conservative, moderate, or risk taker.

Files:
1.jpg 189 kb
Mrluck07
426
Mrluck07  
Marco vd Heijden:

I like bananas.But i like cookies more.I use whatever formula that works for me. If that is 1% , 2 % or 4% then so be it.

I can even go as far as saying, i will price this particular trade a $20, or, if i'm optimistic, a $50, and in very few cases $100, so i know on forehand what my max loss is.

Hey ! that is pretty darn close to predicting the future.See that ? i know on forehand the worst case scenario... what else would i need ? hmmmmmm....Yes you need money management when you are throwing irresponsible risky big amounts/sizes of lots.

Or, when your account is too small to deal with the draw down.But do you really think that i lay awake at night thinking about this.

No sir, this process happens fully automatic and has a direct relationship with the available capital.

It's as simple as hitting buy and sell.The problem is in your head.

You was going away to practice and you'd come back with the results, where are they ?

 The way you described i can see you use some kind of money management, but it works by feelings, but the capacity to smell the scent of risk is not present in everybody, i think a fixed formula could be more precise. There is a formula: velocity = distance /time, the constants are not changeable, but this 2% rule is not a formula, is just a number that someone pulled out without proving actually why 2% the correct lot size, not 3% or 10%. The problem with this approach is that you see a lot of gurus and everyone says something different about money management, so it does not look like a science, but more like personal style, i think there should be a standard money management procedure to teach everyone how to correctly calculate lot size.


Zee Zhou Ma:

If you dig the web, you will come across this table below. I have not found the formula to it, but everyone is using it for reference. 

Someone may have authored a book, and put this table in as a kind of findings. 

The formula could be proprietary to the trading company that uses the trading strategy.

To recover a loss and then breakeven, you need to risk higher amount. Eg. if you lose 5%, you need to win 5.3% to gain back to previous account size.And if you lose 50%, you need to gain 100% back.

So, if you want to trade safe, you should lose less than 5% of your account. Beyond that, it will become harder to trade.

It depends on fund money manager strategy and confidence in the team, a low 1-2% could mean the team is still weak, and need to improve.

A higher 4% could mean the team is confident to make it back if it loses.

If you have one good elite trader, he can withstand maybe 10% drawdown and still breakeven. 

But with a team of traders, you have to use the weakest trader as the benchmark. 

It is up to the fund manager to decide.

And also up to the client to accept, depending on whether he is conservative, moderate, or risk taker.

Thanks, i'll use this table to calculate risk, seems very useful

Marco vd Heijden
Moderator
8168
Marco vd Heijden  
Mrluck07:

 The way you described i can see you use some kind of money management, but it works by feelings, but the capacity to smell the scent of risk is not present in everybody, i think a fixed formula could be more precise. There is a formula: velocity = distance /time, the constants are not changeable, but this 2% rule is not a formula, is just a number that someone pulled out without proving actually why 2% the correct lot size, not 3% or 10%. The problem with this approach is that you see a lot of gurus and everyone says something different about money management, so it does not look like a science, but more like personal style, i think there should be a standard money management procedure to teach everyone how to correctly calculate lot size.


Thanks, i'll use this table to calculate risk, seems very useful

There is no such thing as trading on feelings.

It's all hard math and is a necessary element of success.

The moment you say 'I think', you lose.

But you gotta do what you are good at.

In my case, trading and coding.

And in your case talking and thinking.

Amir Yacoby
1218
Amir Yacoby  
Marco vd Heijden:

There is no such thing as trading on feelings.

It's all hard math and is a necessary element of success.

The moment you say 'I think', you lose.

But you gotta do what you are good at.

In my case, trading and coding.

And in your case talking and thinking.

Yes, whats with the 3 strategies(indicators) you had with each 70 pct success rate? Its way more then enough..
Waseem Raza
9998
Waseem Raza  
Mrluck07:
Some people say that one should not invest more than 2% of total balance, but why it's 2%, not 3 or 4? This 2% rule is not a formula, because every formula does not work if you change the constants. So we can say that this 2% rule is only an arbitrary number, and other people just repeated it. We need money management formulas, where are they? There is kelly's formula, but it's for gambling, not trading, can someone here show me money management formulas? Thanks

Just plan for 3% growth everything will be fix as MM, Leverage Risk etc 

EA-trader
651
EA-trader  
Amir Yacoby:
Yes, whats with the 3 strategies(indicators) you had with each 70 pct success rate? Its way more then enough..

It is called the billionaire's DUNNING KRUGER EFFECT , 99 % of forum traders suffer from it ,they fink they have a 70 % hit rate system and noobs should believe them.


If that is true ,please send me all your old underwears.I can also be successful billionaire by wearing them

Marco vd Heijden
Moderator
8168
Marco vd Heijden  
Amir Yacoby:
Yes, whats with the 3 strategies(indicators) you had with each 70 pct success rate? Its way more then enough..

I rarely code indicator robot, there is no use to it.

Maybe you meant this one ?

https://www.mql5.com/en/forum/261220/page2#comment_7959343

Help in coding Trading View strategy in Metaeditor
Help in coding Trading View strategy in Metaeditor
  • 2018.06.28
  • www.mql5.com
Hi everyone, I am new to Metaeditor. I have programmed one strategy (quite simple) for TradingView, and now I would like to make it automatic...
Amir Yacoby
1218
Amir Yacoby  
Marco vd Heijden:

I rarely code indicator robot, there is no use to it.

Maybe you meant this one ?

https://www.mql5.com/en/forum/261220/page2#comment_7959343

I thought @Mrluck07 said he has 3 indicators that each performs 70 % success rate and he was supposed to leave the debates here and go trade his grail..

I
Marco vd Heijden
Moderator
8168
Marco vd Heijden  

Yeah we all know hes full of s.

Just opening one meaningless topic after the other.

While we are trading and making cash, i won't ever want to swap with him.

To add comments, please log in or register