Best Money Managements
I'm going to share all the best money managements I know, and so are you. Ok? Let's do each other a favour to beat the banks a.k.a. forex market makers.
Let me put the fact straight. Best system will fail in long-term if it is without proper money management, and bad system can turn profitable if you put on good money management. Economy has its cycle, so do the markets and trading systems. With the right money management, you'll ride good cycles, make good profits, and skip most of the bad cycles/losses.
Ever wonder why you've made more than 500% profit so easily only to lose all of it plus principal in just a few days? Then you're trading without proper money management. You're not disciplined; therefore, all your winnings are guaranteed to lose sooner or later. It's no big deal now! Learn these money managements now and you'll keep the winnings forever.
Alexander Elder 2% and 6% Rules
You should never risk more than 2% of account equity in a single trade. This protects you from blowing up your account with just a few bad trades. If your account equity is $100,000, maximum loss of any single trade allowed is $2,000. To enforce this rule, you have to set stop loss "less than" or equal to $2,000. That is usually a stop loss of at most 200 pips for a 1-lot contract or at most 50 pips for 4-lot contract. Never let a trade lose more than $2,000!
In addition to the 2% rule, you are allowed to risk only 6% of account equity in any given month. That is $6,000 out of $100,000 equity. Any time you see drawdown of current month exceeds 6%, stop trading until first day of next month. Then you'll have another 6% to risk in the new month. Assuming account equity is $94,000 at the start of new month, you can risk only $5,640 for the rest of new month. ($5,640 is 6% of $94,000).
Note that you don't recalculate the 2% and 6% for every trade. You only need to compute them at the very beginning of the month and apply it on every trade for the rest of the month. When new month starts, note down your account equity and compute 2% and 6% of it. If your account equity was $100,000, 2% of it was $2,000, and 6% of it was $6,000. At the opening of new month if equity is down to $94,000, 2% of that is $1,880, and 6% is $5,640. Therefore, in this new month, don't lose more than $1,880 per trade or in overall don't lose more than $5,640.
These two rules will save you and your precious money during bad times, and will maximum your profits during good times. It limits the losses while letting the profit runs as much as possible. You will ride a streak of profitable trades but skip most losing trades.
Apply this money management to your trading today! Get disciplined and become professional trader.
This is taken from my article at:
Here is a good artical I got from David Jenyns.
Here's A Sneaky Technique I Use To Fine-Tune My Stop Losses.
And another on trailing stop.
Who Else Wants To Know How To Maximize Their Trading Profits?... Trading Stop Losses Are The Key.
Last edited by Drivefast; 04-06-2007 at 06:38 PM.
What I do is... I keep track of my tades when Im testing out a new system. I use excel to help plot out what is the max stop needed to make a trade work. I track the max stop needed over a period of time and then graf it. I divid the graf into zones and figure out what stoploss for that period of time will give the best profits. When Im done I know what zone I should be looking at to put my stoploss in then I continue to try and refine it from there.
This is hard to explain without physically showing it, so I hope you understand.
I am pasting this here to see if there is anyone who might like to give it a go.
MT4 MM EA
Visual Position Size Calculator
But another idea that could be also interesting.
Below is an Idea I think all MT4 traders would find it interesting. I don't know how to code it. I just paste and copy to make it up.
The green line will be the entry price. All we have to do might be just draging it to where we want. Then we also drag the Red - Stop Loss to our desire price. As we drag the Red line, the lot size should start to calculate and display on the screen - say -0.001 or 0.01 or 0.1 or 1.0 or etc.
1 .When we launch the indicator, we can input the type of account - Standard - mini -micro etc.
2. The amount of our account.
3. Percentage risk
4. Risk ratio
5. The size of the lot display on the screen.
6 Where it should be on the screen
7. The colors of entry/stop loss
Can any Master Programmer be kind enough to explore this idea?
Thanks - Picture on next post - Sorry
I consider Money Management this...
I don't use stops - I used to - then I discovered every one of 'em got hit..just by enough to take me out of a winner..
So, I quit using them, I went to a "mental stop" instead..
Brokers work against traders - say what you want - bash me all you want - I believe it 100%
they can't touch my mental stop...
SO, in response to this -
MONEY management is an ABSOLUTE to successful trading...
I always know my margin call point...with all the positions I have open, I always know how far the market has to move for me to get a margin call.
I made a spreadsheet that I list ALL of my current trades in - and it calculates what my margin use % is, and how many pips I'd have to be concerned about the market moving before a margin call
For myself, I like to keep total margin used at 4% or less...
at about 3.25% on 200:1 leverage - I'm at about a 1500 pip margin call point..
and yes, I've had to hold some trades for a while - but, they've all ended up being winners...
and yes, drawndown positions do affect your margin used % of course,
BUT, this is "figured" before the trade is ever taken..
I know this goes WAY against what we've all been taught - but 95% of us are losing all the time..
So, doing the same thing over and over again and expecting a different result is insanity right?
So, if you want drastically different results - you have to make drastic action changes right?
EVEN WITH a substantial amount of drawdown - I've still kept margin at or around 4% - yep, many think it's risky...
this market is all about direction - get that right and you'll be fine - set your system up or adjust your system so you know where you should be concerned about a trade LONG before a margin call on your account - set an alert - and text alert to your phone - keep your brokers phone # in your cell...
display the discipline to let a trade go if you know it's going too far...LONG before it goes too far to become a problem...
I appreciate your more "positive response" re: my stop loss thoughts - Many have gone into instant bash mode after reading or hearing the idea for the first time...
So, more than just a "click of thanks" -
It is very different - it does a little bit of getting used to - but after all, we're in a marathon, not a sprint...
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