Money Managment ideas
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- This topic has 32 replies, 12 voices, and was last updated 9 months ago by pppittpeter.
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01/30/2024 at 1:29 PM #227104
Hoi Peter!
I see it like this, that mm you describe fits very good to your very specific trading strategy/system, its core parameters being, if I see it correctly: lot of relatively (=compared to losses when losing) small winning trades with very rare relatively big (again – compared to profit per trade when winning) losing trades, so on one hand extremely high hit rate (as you show: 98%), and so in fact I imagine that it makes sense to grow number of contracts as fast as you can, as you indicate – whenever accumulated profit makes it possible to add 1 contract more. Fine so far, I imagine that this method works as long as hit rate stays that or similar high and especially as long as you don’t face some 2-5 (or more?) losing trades in row. In charts you show it seems like one losing trade is wiping out profits of some 20-30 profitable trades in row before, meaning equity will possibly look everything but not funny after losing 2-3-4-5 trade in row? Considering “black swan” nature of markets one probably cannot exclude that happening? So, does your real trading or at least back-test looking into 2-5-10 years history show that stable extreme high hit-rate? And maybe even more important: don’t you face significantly longer series of losing trades, like more than 2-3-4-5 in row? And if you face – how do you deal with that?
Well, my strategies are very different from yours described: they all have low/very low hit-rates, so plenty of relatively small losses, partially long series of losing trades, and rare but relatively big winners. Long series of trades winning big in row are close to not existing. Quite typical shape of equity and profit/loss per trade distribution for strategies look rather like in the example attached. Just based on the “statistics” I have rather to expect my next trade being a loser, and therefore I assume it would make little sense for me to increase number of contract / position size every time after having a profitable trade. Hence what I do is re-setting my position sizing after each month’s closing for all strategies at the same time. If it was a losing month – all strategies will receive as input lower equity than month before and run with smaller positions – in proportion to the equity lost, and vice versa if a month was profitable. My tests were showing that it gives no benefit to re-set position sizing after each winning/losing trade, (it would mean also huge workload, not able to code that…), and not even after each winning/losing day (still some additional workload but manageable). Weekly re-setting would be kind of minimum period and fine – and quarterly is too large period, compounding effect seems to almost disappear with that low frequency of position size adjustments. So in the end I decided deliberately for the frequency of monthly re-setting, compounding works just fine enough, and workload is at acceptable level.
What I conclude for myself from these discussions: different strategies require/justify possibly very different mm 😊
02/19/2024 at 12:09 PM #228391On my end, I lean towards strategies with lower hit rates and occasional big wins. It’s a different ball game altogether, right? I’ve found that adjusting position sizes monthly, based on overall performance, keeps things manageable and helps mitigate risk without overwhelming workload.
02/19/2024 at 12:56 PM #228394Your trading strategy sounds interesting. It’s cool how different approaches can yield success in the market. Your emphasis on high hit rates and incremental contract growth definitely has its merits. It reminds me of a time when I stumbled upon this app that paid users to play games – talk about a fun way to make some extra cash.
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