Position Sizing, Risk & Money Management Strategies For Futures Trading

#11
Very good thread to discuss about after all I strongly believe money/risk management is the holy grail which can turn a bad trader into a winner and winning trader into an expert trader.

Expecting more views from others. The rule I usually follow is max risk cap is my portfolio should not exceed 20% of my capital and single trade should not exceed 2% of my trading capital.

I check the possible max draw down in my system and have 2 times of that amount separately, so that even if I go bust I can still start all over again without reducing my position
I like your rules, and basically agree with your post, except this ....

'I strongly believe money/risk management is the holy grail which can turn a bad trader into a winner and winning trader into an expert trader'

Do not agree.

This is a very common misconception in trading (for that matter, any kind of speculation, even gambling, poker etc). No amount of money management expertise, or any kind of betting progression or system can make you winner by itself, YOU NEED to have a positive edge, once you have a proven edge, no matter how infinetessimily (spelt tht wrng) small, you can compound your money forever and money management will come into play (i.e. those who have an edge and dont follow it are most probably doomed). So you see my contention is that even though a trader with an edge absolutely needs to practice sound money mangement (Defense)(Even though agro MM strats are there, you still need it), you CANNOT turn a trader with NO edge into an expert trader just through the sole use of sound MM (not offense).
Basically its like a death by a thousand cuts, you keep getting stopped into ruin, you get me ! Search for a certain poster named Hanover on FF, he has some extensive proofs on this (close to proofs can get in this industry lol), i would rather not rehash them. Basically use google, you will get it.
Its just like moving your stop to breakeven or scaling in or out, weather to use targets or a trailing stop etc. No one method will get you the most, all have pros and cons depending on market conditions. Matter of fact, sound MM suggests many pros who do not risk more then 1% of their acct on any one trade, BUT this is not the best or most optimal way to make your account grow (look up Ralph Vince and read his stuff regarding optimal f), its just that personal utility suggests protecting your acct ( and livelihood) first ie the chips you have are more important then the chips you can get (think poker tournaments), thus sound MM will protect your edge, not create, neither enhance it.

Good luck and keep it up.

P.S. The reason i picked this post out of probably 500 read tonite was because I too was misinformed and had the illusion of MM making everything right (and bought into the whole, psychology is 60% MM is 30% system is only 10% b.s., think about it, psych and MM are so intertwined, they are practically the same as you position size is the most important decision in the trade). But this is not so, aspiring traders would do well to put in the 10,000 odd hours of screentime (give or take a few thousand hours) and create an edge they are 'comfortable' with. Side by side a look into yourself and your psyche during these years will help out in its own way when the time comes. Then with sound MM and a couple of busted accts, you can be off to the races. This is not a game, and trading is not called the final frontier for nothing (you can basically write your own check with an edge), this is a lot of hard work, a lot. Out of a 100 traders who try to go pro (not counting part time traders or hobbyists, saying PRO, only 5 will be profitable after say a 1000 trades (if your a daytrader, less as u jump up in timeframes), so maybe a year plus, BUT in five years only 1 will remain. Only ONE. These are obviously generalized numbers, but the point is made..... finding an EDGE is crucial and NOT easy, but absolutely vital to have to attain any kind of success. Otherwise its just luck, and we know how that goes.
 
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Cubt

Algo Trader
#12
Of course, we need an Edge before Money Management comes into picture. But what i wanted to convey was people spend so much of hours/days/weeks to find that edge.

But even with normal Moving average cross over system you can make BIG money with good MM.
 

jahan

Well-Known Member
#13
Of course, we need an Edge before Money Management comes into picture. But what i wanted to convey was people spend so much of hours/days/weeks to find that edge.

But even with normal Moving average cross over system you can make BIG money with good MM.
Yes ur so true.....no matter how good ur edge is if u risk too much...there r chances to go broke on a single trade or when have series of loosing streaks.

Regards,
 

hmp

Well-Known Member
#14
Dear Cubt
What I gather is you dont keep stoploss.Instead every trade your maximum loss is1000 points to quit.Am i right?
 
#16
. But what i wanted to convey was people spend so much of hours/days/weeks to find that edge.
As they should. It is ALL about the edge, you CANNOT win without an edge.

"But even with normal Moving average cross over system you can make BIG money with good MM"

Again respectfully, NO, forget about BIG, you cannot make ANY money with good MM, you need an edge, no amount of MM will save a negative EV trader.
Read my post above again.

P.S. You will go broke trading MA crossovers by the way.

P.S. All indicators, esp Ma's are derived from price. What should you be looking at ....... Price obv. Not much else is needed. Does not mean it's easy, its VERY hard, and eludes people with even top IQ's. This is one of the hardest skills in the world. MM is absolutely neccessary, and vital, but NOT the reason you win.
 

smartcat

Active Member
#18
P.S. You will go broke trading MA crossovers by the way.
Vik, can you explain this statement of yours? Any experiences?

I think a trading system that is based on moving averages will make money when the markets are trending nicely (either UP or DOWN). But they will lose money when markets are stuck in a phase. Whipsaws will result in losses.
 
#19
Vik, can you explain this statement of yours? Any experiences?

I think a trading system that is based on moving averages will make money when the markets are trending nicely (either UP or DOWN). But they will lose money when markets are stuck in a phase. Whipsaws will result in losses.
Im gonna try,

Two things

1. Every big move can be explained by an MA crossover (duh, since its derived from price, a move will show a crossover in the footprints, this is my view of looking at it)..... try and read this again, cause the italics show the reason that is implicit. See if the nifty moves a 100 pts on the 1 min chart, OBV a crossover happened, cause pt A where nifty ended was a 100 pts away from point B. Actually pretty simple. Sometimes you catch the ride back thru a crossover, all well and good. BUT, not all crossovers lead to a MOVE. Bam, thats it.

2. Why is it that people think (this is a general comment), mostly on this board i have see, that determining trending and ranging phases in the market, BEFORE, it happens, is like making eggs, easy??
People want brokerage firms to outlay smaller margins and higher leverage based on the previous determination of weather the day will be "range bound" or not.
Everyone can trade the left side of a chart, but it is the right edge that counts. Take a look at the minute chart for nifty on friday, nice trending chart, 6 or 7 clean 10 point scalps. What about today rhough, CLASSIC ranging day. How about tommorow ???? Any guesses?? ((And please no 1 minute or daily chart discussion, just assume all charts are the same, 1 min or 1 month)) ((Fractal)). Some ppl like the 9,21 some the 8,13 some 5,13 ... cpme on ......... it's all taking the price and working with various sets of previous prices. And it is very hard to predict what follows, taking averages of past prices and watching them interact with each other is a very poor way for a professional trader to turn the odds in his favor i.e an develop an edge.


Look the market trends less then 20% of the time, and when it does, there are many better ways of trading a trending market then MA crossovers, and realize the fallacy here, almost any sound method can make money when trending, but all you really need to look at is price.

An example (i use this live everyday or lol when it trends)
THE price action pullkback

Keep a 20 EMA up on the screen (this is a guideline and the only line that goes on my charts, other traders are prone to respect these 10,15,20 ema's, so they do add some superficial support at times when the mkt is trending as countertrend traders love to take profits here and new traders love to initiate positions here).

Watch for a breakout, open up or anything that triggers a new trend, when the pullback happens (which it will 100% of the time) (this is usually profit taking, ie a buyer becomes a seller the min he closes his position, and nimble countertrend traders initiating shorts making up a key concept in the market called Double Pressure), watch for two dojis in and around the 20 ema, sometimes one is enough, watch the shape of the pullback (should be nice and diagonal) and buy the first break to the upside (assuming uptrend here). This is a quick explanation of a quite well known way of trading price action setups. I can expand in the future if need be.

I am not presenting rocket science, just use google and research what u can find on MA's, i am not very good at explaining in type,more importantly ask yourself. Look at the logic. Obviously if it works for you, then kudos to you, but you asked for my reasons.
 
#20
I am doubtful on Nifty. Is it possible to use the same strategy in stocks.

I got L&T lot and just sold it today. I am fearful that the script might be rigged.