money management HELP!

[rhodytrader]

Originally Posted by Black Knight

You're misunderstanding what I said. Obviously you cannot just arbitrarily bring stops in tighter - the stop has to be proportionate to your time frame and to your particular trading system in order to be effective.

I'm simply saying money management can be approached from 2 different angles... position sizing and stop distance. Strategies relating to stop placement, and management of positions once you're in them, is an entirely different conversation.

Apologies for any confusion.

It's the "obviously" that's a problem. New traders don't intuitively realize what you've just said. That's why whenever I hear/read someone say what you did the alarm bells go off in my head. I've seen way too many traders say things like, well if I put my stop 10 pips away I'm keeping my risk small. They don't realize that while it's true that they may be lowering the amount of loss they are taking, they are also increasing the odds of taking that loss, so really they are increasing their risk (lowering the trade expectancy).

This is also where a lot of the "my broker ran my stops" complaints come from too.

Like you say, stop placement should be based on the rules of the system being employed. Generally speaking, they shouldn't be hit if the market is going to do what the expectations of the trade call for.

As far as position sizing and stop distance being seperate independent variables (which is what it sounds like you're saying), I disagree. They are totally linked together. You cannot change one without changing the other if you're using some kind of specific risk (1%, 2%, etc.). Of course if your risk is variable, then both position size and stop placement can be independent variables.

[Trade It]

Originally Posted by rhodytrader

As far as position sizing and stop distance being seperate independent variables (which is what it sounds like you're saying), I disagree. They are totally linked together. You cannot change one without changing the other if you're using some kind of specific risk (1%, 2%, etc.). Of course if your risk is variable, then both position size and stop placement can be independent variables.

Nice point, I agree.

[Black Knight]

Rhody - point taken on assuming what is "obvious" and what is not. Though I don't recall saying stops & position sizing were independent - quite the opposite:

"if you need to use more lots, you can use a tighter stop. If your strategy or timeframe requires a wider stop, then you need to use less lots."

Though, agree, best to add the addendum "but do not make stops tighter than your system or time frame calls for".

[rhodytrader]

Originally Posted by Black Knight

Rhody - point taken on assuming what is "obvious" and what is not. Though I don't recall saying stops & position sizing were independent - quite the opposite:

"if you need to use more lots, you can use a tighter stop. If your strategy or timeframe requires a wider stop, then you need to use less lots."

Though, agree, best to add the addendum "but do not make stops tighter than your system or time frame calls for".

It was your statement about money management being approachable from two different angles that suggest stops and position sizing being independent.

In terms of "...if you need to use more lots, you can use a tighter stop.", that's one I have a problem with. Needing to use more lots implies to me (and please some one tell me if they take it otherwise) that the trader is aiming for a profit target. In turn, that means they aren't properly concerning themselves with the risk first.

This is where traders get into trouble with tight stops. They want to make $1000 on a trade and can do so if it moves 100 pips in their direction using 10 mini lots (or a full lot). But they only want to risk $100, so they put the stop at 10 pips. They aren't thinking about where the stop should be put, just how many contracts they want to trade. It's all backwards.

[jlmac27]

Nicely put rhody.That made something click up there.They are gambling pretty much.

[Josef Benjamin]

Originally Posted by rhodytrader

It was your statement about money management being approachable from two different angles that suggest stops and position sizing being independent.

In terms of "...if you need to use more lots, you can use a tighter stop.", that's one I have a problem with. Needing to use more lots implies to me (and please some one tell me if they take it otherwise) that the trader is aiming for a profit target. In turn, that means they aren't properly concerning themselves with the risk first.

This is where traders get into trouble with tight stops. They want to make $1000 on a trade and can do so if it moves 100 pips in their direction using 10 mini lots (or a full lot). But they only want to risk $100, so they put the stop at 10 pips. They aren't thinking about where the stop should be put, just how many contracts they want to trade. It's all backwards.

I like that rhody, it makes alot of sense to me...I've been stradeling along the lines of falling into this trap after having a very good month last month...and I relized that I had such a good month b/c I cared for nothing about the money I could potentially make. I only focused on if the trade jumped out at me and at what time of the day is there the most market volatility...nothing blows more than knowing that your hourly position won't see any movement until london time because you want to gain bigger percentages, which can rly move fast either for you or against you.

It's a surprise that I've learned to hate...

so anyways, great post, this rly strikes home with me...so much so I'm printing it out and posting it in front of my trading desk.

[theunder18kid]

umm wow you guys are really smart people...... btw I AM UNDER 18!!!! AND I SUCK AT ENGLISH..... so can you guys put is in simple form? plz? thanks I'm not a english native speaker btw....... so thats y, I'm just saying that I'm not dumb but is Bk saying something about how u can have tighter pips if you use more lots? umm thats kind of stuffed up because if I was going to have more lots ofcourse I need tighter pips and umm u already know that I only got 1k so I can't really have more lots and tighter pips can I?....... (in reality) and also rhody or w.e if I was going to risk 10 mini lots THEN I WOULD HAVE NO MORE TO PLAY WITH(no risk)....... since I need leaverage.....

[theunder18kid]

OHH I GET WHAT U GUYS ARE SAYING!!!! well ur both kind of right......... but hey rhody I'm not stupid.... BK is saying something kind of doens't make good sense... BK ARE U UNDER 18???? cause there are like kids who try to be intelligent and writes stuff to show their intelligence...... and then they stuff up by pointing something they shouldn't have pointed out lol..... both of your points are really basic..... but logical and useful...... even though I already know...... oh btw I have a 67% wining rate now with NO RESEARCH just charting and ye.... lol is that suppose to be good or really bad?.......

[theunder18kid]

how do I become a jr memeber?

[theunder18kid]

umm guys I just deposited 1k into my account and YES I WILL NOT RISK MORE THAT 5% or my account....... kind of stupid? well too bad for me none of you want to gime money. btw I understand what BK and rhody is on about.... I wish I am a jr member...... anyways wish me luck? haha thanks guys for your points. btw my broker doesn't give micro lots and I dont think I can find one that does.... even if there was one I cbf starting a new account. I am going to trade on this one and I HOPE I WILL UMMMMMMMMMMMMMMM BECOME>>>>>>> profitable? haha thanks guys once again