Money Managment ideas
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This is a snippet I coded a few years ago, then requested to add a rate of exchange for currencies other than Euro and added variable ProfitAccrued, which is a way to store profits earned (or losses suffered) at the time a strategy is stopped for maintenance, as PRT does not save history. In my opinion this was redundant, as previous profits or losses could have been written as a + or – value to be added to Capital.
https://www.prorealcode.com/topic/calculating-working-capital-for-money-management/#post-171254.
This is the same code updated to include the DrawDown calculation https://www.prorealcode.com/topic/calculating-working-capital-for-money-management/page/2/#post-172402.
Some additional ideas can be found at https://www.prorealcode.com/topic/money-management-control-risk/#post-104857.
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Anybody know if @nonetheless is okay healthwise?
We’ve heard nothing from him for a long long while?
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That is so very kind of you to ask! I have actually been dealing with a ‘mild case’ of bowel cancer … (surgery, chemo, the works). It’s not as bad as it sounds tbh, i fully expect to be around for awhile.
Meanwhile my bots are ticking away, doing around 3% per week … but doing far better as a daytrader, presently averaging 7.5% per day … no bot is ever going to do that 🤩
best wishes to all!
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@nonetheless Hey, nice to hear from you. We’ve been worried. I wish you good health.
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@nonetheless, it seemed against all odds that GraHal asked again. I didn’t count really, but I’d bet 5 times at least. I had my share too. 🙂 phoentzs as well.
Welcome back !!2 users thanked author for this post.
@nonetheless It’s good to see you again.
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Dears,
Adding here few of my thoughts about mm (here in particular about position sizing in relation to equity) – which is definetely a key element of success/failure for us traders. Not applying it or applying it wrongly can lead to bankruptcy even if trading by itself a profitable strategy. I am not telling that I am doing everything right in these terms, but I am sharing below some of my general conclusions and observations. And I am very curious about other trader’s inputs and contribution. Those who “know” me, know that I am big fan of ultra-stupid-simple strategies (0 indicators, first of all). but I am applying quite complex approach to mm/position sizing at the same time.
For CFDs – where one can finetune position size very precisely – I apply only and only position sizing calculation which is related to certain max loss per trade as % of total equity. But it’s not 1%. Basically every strategy has its own max risk per trade as % of equity, the lowest I have is around 0.25% and the highest around 1.50%. well, the reason is that every strategy has its own performance profile, in particular its own drawdown (dd) profile, but also its own trading frequency and specific performance correlation to other strategies within portfolio. I first of all take a look at the dd as % of equity which every strategy has in the backtest, then reduce/increase % risk per trade in a way so the dd of particular strategy does not exceed certain % of equity (let’s say not more than 5%), then see how strategies’ result impact result of portfolio (indirectly it’s a look at “correlation” of all strategies) – and based on that I might decrease position sizing even more. So my target is to finetune position sizing of every strategy in a way that my portofolio’s max % dd makes me happy! = does not exceed certain limit which I have set to myself. What makes all these calculations additionally (extremely…) difficult is that PRT does not offer any tools for analyzing portfolio’s performance, so it’s quite huge effort to do it manually. And serious difficulty when trading futures is that one cannot fine tune position sizing nearly that precisely as for CFDs unless one has several millions in the pockets.
What I found out in my research is that these are not really cool ideas simply to stop trading (for rest of the day or week or month…) in case one lost or earned certain pre-set amount of money (or lost/won several trades in row) during that particular day/week/month. I tested it for my strategies (some day in quite deep past…), and conclusion was – it’s not worth doing it. Mentally it’s kind of (very) appealing idea, but financially it does not contribute to the long term result, rather opposite. Well, everybody can code those scenarios and figure it out for own strategies if it is worth or not worth doing it. Yet what is the assumption/logic behind stopping trading after certain pre-set amount of profits/losses (or number of winning/loosing trades)? It is: “I know what happens next” – isn’t it?
- After losing xyz €$ (or x trades in a row) one stops trading, because one assumes he/she “knows” next trade will be a loser (again)?
- After winning xyz €$ (or x trades in row) one stop trading, because one as assumes he/she “knows” next trade will be a loser (and reduces those nice profits gained before…)?
In both cases – when losing and when winning – one is in fact afraid of next trade being a loser… in’t it a contradiction? And is it not even more contradictory that at the same time one is not afraid of the possibility that next trade will be a winner (maybe biggest ever?..) – but one will miss it because of stopping trading? When one stops trading he/she assumes that he/she knows something about real probabilities in the markets, the probable outcome of next trade in particular. But is it not the reality, that nobody knows anything in trading at any time? And if one assumed he/she did not know “anything” about real market probabilities before the winning/losing series, why one would assume he/she know “something” after those series?
Probabilities play very nasty games with our brains…
Though myself I have a hard-stop rule (which is not in the code) for a strategy in general: if it reaches dd which – as % of equity – is bigger than in the backtest (which is usually more than 10 years of data), I stop the algo. And assume following:
- There is really something wrong with trading logic in general (if at all then I try to simplify that logic even more and recalculate risk per trade if needed. If simplification totally destroys the results then I might discard the strategy completely… but I never try to “improve” a strategy by making it more complicated…)
- There is nothing really wrong with trading logic, bigger than historical dd can appear any time to any strategy, so I wait (not trading live that strategy) until/if it reaches new equity high, and if it does, then I reduce risk per trade to new level and run it live again…
Have fun!
justisan
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