Money Management

"Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find."
Gibbons Burke

Below is an small attachment for a start, other materials can be added later.
Please post your comments etc.

Source for the attachment :

Attached Files

tog4.pdf (876.0 KB, 114 views)

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May The Odds Be In Your Favor

Some reference books related to money management posted in this thread.

http://www.inditraders.com/81452-post5.html

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May The Odds Be In Your Favor

I am very curious about money management. Is it really necessary one to read tons of books on the topic? I see how money management can be effective in saving from deep draw downs in trades. I also believe that I understand how scaling in in profit positions can maximize gains. But what else is there beyond the 2% rule? I have the feeling that everything boils down to that and many websites and books promote just that.

I also downloaded this software to calculate position sizing. It only has these options

No Model
Fixed Units
Fixed Dollar
Float Percent Units
Fixed Dollar Risk
Fixed Percent risk <-2% rule applies here

So, is there any gain from trying to study long books on the topic?

Edit: I am not trying to look smart. I really want to know what more experienced people think.

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“I heard once that you can make excuses in your life and you can make money, but you can not do both at the same time.”

Originally Posted by novicetrader

Money Management "Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find." Gibbons Burke Below is an small attachment for a start, other materials can be added later. Please post your comments etc. Source for the attachment :

Here are my 2 cents on it -

1) Identify a trading system which suits your personality and backtest its success rate i.e how many trades out of 100 were successful
2) Fix your trading capital.. for example 1 lakh
3) Define risk:reward of per trade your system is able to produce for example 1:2 wud be a good ratio to start with
4) Define how much u can lose per trade for example 500 (.5% of your trading capital) or 1000 which is 1%
5) Now if you say that you system produces 70% and above successful trades with risk:reward of minimum 1:1 or more that means that u still earn on 40 out of 100 trades.

Thanks
Abhinav

Quote:

5) Now if you say that you system produces 70% and above successful trades with risk:reward of minimum 1:1 or more that means that u still earn on 40 out of 100 trades.

Please explain little further...

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Originally Posted by vishyvishy

Please explain little further...

In simple words it means that even if you win say 1 buck each on 70 trades
and loose 30 bucks in losing trades, you are still left with 40 rs. after 100 trades

Originally Posted by Loser Anonymous

In simple words it means that even if you win say 1 buck each on 70 trades and loose 30 bucks in losing trades, you are still left with 40 rs. after 100 trades

You said it all..thx for covering me buddy...

Originally Posted by luke

I am very curious about money management. Is it really necessary one to read tons of books on the topic? I see how money management can be effective in saving from deep draw downs in trades. I also believe that I understand how scaling in in profit positions can maximize gains. But what else is there beyond the 2% rule? I have the feeling that everything boils down to that and many websites and books promote just that. I also downloaded this software to calculate position sizing. It only has these options No Model Fixed Units Fixed Dollar Float Percent Units Fixed Dollar Risk Fixed Percent risk <-2% rule applies here So, is there any gain from trying to study long books on the topic? Edit: I am not trying to look smart. I really want to know what more experienced people think.

Here is a link to my blog page where I have discussed money mgmt. and position limits.

Position Limits

Here is another link to the Position Limit Calculator hosted by Google Docs which can be downloaded or used online.

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momentumsignal

i also signal at this blog here

Originally Posted by luke

Is it really necessary one to read tons of books on the topic?... But what else is there beyond the 2% rule?...

Whatever be the level you are operating and whatever be your methodology, it boils down to few Performance Metrics

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Asatoma Sat Gamaya...

What Traders Can Learn from Good Poker Players - MoneyShow.com
Many people consider trading and poker pure luck, but this is not an accurate observation. Average traders and average poker players taint the outside world with images of luck, quick riches, and pure fantasy of the actual grind that is required to succeed. Many factors run parallel with poker and trading, but the average Joe would never understand why because he or she just listens to what the “talking heads” on television say. Luck may and will play a small part under certain circumstances, but rules, odds, and risk and money management are the largest components of the two entities. It’s a grind. Trading for a living and playing poker for a living is a grind, a full-time business.