The money management formula that i use
I came up with this money management system after several searches, this field is very important and kind of neglected, if you have a good strategy but don't have money management, you don't have a plan, here is the tutorial of the system:
Advantages:
- it tells you how much to invest, what to do
- the bigger your balance gets, it invests less % of total balance
balance (example) : 1000 USDstep 1:
create your own coin, let's call it mrluck coin, 1 mrluck values 10 USD, for example. So i have 100 mls
step 2: make a backtest of your strategy, and get the winning % result. For example, your backtest is 70% wins.
step 4: now i want to know how is the chance to win 2 trades ( lets call this WT, in this example WT=2) consecutive: I calculate:
70- 30% = 49%. So now i know that the chance of 2 consecutive wins is 49%. Let's call this "CW", so CW=49
step 5: Divide 100 for CW value, in my example, it will be 100/49 = 2.04
step 6: Now multiply your balance for step5 value: 100 mls * 2.04 = 204
step 7: Now you get the square root from step 6 value, for WT times, in my example, its 2, so i take the square root of 204 2 times = 1 time is 14, second time is 3.74
So 3.74 is the lot size, for every trade that i must make, and i will make 2 consecutive trades, according to step4 rule
3.74mls --- 1 trade - reinvest everything -- 2 trade
3.74 --- 1 trade - reinvest everything -- 2 trade
3.74 --- 1 trade - reinvest everything -- 2 trade ...
If WT were only 1, the calculation would be for only 1 trade, the calculation: 100/70= 1.42 , then balance *1.42 = 142 , then the square root of 142 for WT times (1 in this example)= 11.91, and the trades would be
11.9 mls
11.9 ...
The main advantage is that the more your balance increase, the less you have to invest, it does not make money fast, but it's sure to make money, based on statistics, it's possible to use this to make high risking money, if you lose on high risk you can come back to
this system to recover your high risking money and try again
Interesting concept. So bad for Brazil, likely this world cup is full of surprise ;)
Interesting concept. So bad for Brazil, likely this world cup is full of surprise ;)
Example: 100 mls, and the backtest is 40% (Worse backtest)
The calculation for each investment would be
(100/40)= 2.5
2.5*balance = 250
square root of 250= 15.8
The answer to invest each trade is 15.8.. So I will invest more if my backtest is worse?
Please correct me if I am wrong.. Now i am puzzled.
Example: 100 mls, and the backtest is 40% (Worse backtest)
The calculation for each investment would be
(100/40)= 2.5
2.5*balance = 250
square root of 250= 15.8
The answer to invest each trade is 15.8.. So I will invest more if my backtest is worse?
Please correct me if I am wrong.. Now i am puzzled.
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(updated) I came up with this money management system after several searches, this field is very important and kind of neglected, if you have a good strategy but don't have money management, you don't have a plan, here is the tutorial of the system:
Advantages:
- it tells you how much to invest, what to do
- the bigger your balance gets, it invests less % of total balance
balance (example) : 1000 USDstep 1:
create your own coin, let's call it mrluck coin, 1 mrluck values 10 USD, for example. So i have 100 mls, and the MLs coin balance is 100
step 2: make a backtest of your strategy, and get the winning % result. For example, your backtest is 70% wins.
Example: 100 mls, and the backtest is 70% - The calculation for each investment would be
(100/70)= 1.42
1.42*balance = 142
square root of 142= 11
The answer to invest each trade is 11