money management HELP!

[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.....

[Black Knight]

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.

Well, here you made the assumption, I'm afraid. I said it can be approached from two different angles, which is what people often forget. I never claimed them to be independent of one another. Quite the opposite in fact - I was attempting to clarify the relationship between them, as evidenced by my prior quote:

Originally Posted by Black Knight

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.

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Originally Posted by rhodytrader

This is where traders get into trouble with tight stops.

The stop (and target) should be proportionate to the strategy and the time frame, I was under the impression we've both already agreed upon that. Though I need to correct you on "tight" (by itself) being the cause of trouble... "too tight" a stop, yes. There are also (legitimate) strategies which can tell you pretty quick whether the trade you envisioned is actually there or not (such as a key support or resistance level failing). So why stay in longer when you already know you're wrong? Also, I know many (successful) traders who will "chip away" and take several entries to "get it right", and they don't mind the ones where they were "wrong" precisely because they used tight stops and their target more than makes up for it.

Obviously risk/reward is a factor here. I advise people to pass on the 1:1 trades. Then you're just trading to be trading, which is called gambling.

Where most beginners fail is, you're right, unrealistic expectations. They use too many lots and get into positions they cannot afford to tolerate through the noise (my initial post was an attempt to help with precisely this problem). And, you're right, they use stops which are too tight for the strategy they are attempting to employ. But, provided the strategy calls for it, tight stops can also be used effectively. I have trades currently open with a stop of 20, and some with a stop 150 pips away. It all depends on what you're doing.

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Originally Posted by rhodytrader

They aren't thinking about where the stop should be put, just how many contracts they want to trade. It's all backwards.

Great point here. People are reading this without the benefit of years of trading, or having had read your book (or mine). I'm assuming if they're talking money management then they already know how to pull the trigger (which is only once you already have your stop and your target and therefore a clear idea of risk/reward). I also assumed this was a single thread in a larger forum, and not a book to be read start-to-finish or to be all-inclusive.

The truth is actually the reverse. You should know your target & stop going in, and the stop (along with your equity) determines how many lots you get to use.

My point simply was that, if you find yourself using less lots than you like (not for profit motive, by the way, but for the ability to perform proper trade management and the ability to scale out of positions with multiple targets if required), then you can also perhaps look into strategies which have tighter stops and closer targets as an alternative (not merely tighten your stops on your existing strategy - please!).

Another great idea would be to start using micro lots - again the goal is not immediate profits, it is learning how to trade, and how to properly manage positions once you're in them (sorry folks, entry is 5% of a good system - at best).

Thanks for the great discussion, Rhody - good stuff here.

[rhodytrader]

The stop (and target) should be proportionate to the strategy and the time frame, I was under the impression we've both already agreed upon that. Though I need to correct you on "tight" (by itself) being the cause of trouble... "too tight" a stop, yes.

I agree that it should be "too" tight, but unfortunately many new traders have no real understanding of the difference. That's why I get nervous when I see someone just use "tight" when addressing an audience that includes newbies because too often that gets taken literally to traders' detriment.

My point simply was that, if you find yourself using less lots than you like (not for profit motive, by the way, but for the ability to perform proper trade management and the ability to scale out of positions with multiple targets if required), then you can also perhaps look into strategies which have tighter stops and closer targets as an alternative (not merely tighten your stops on your existing strategy - please!).

THERE IT IS! That's exactly the clarification I was trying to get.

Great point here. People are reading this without the benefit of years of trading, or having had read your book (or mine). I'm assuming if they're talking money management then they already know how to pull the trigger (which is only once you already have your stop and your target and therefore a clear idea of risk/reward). I also assumed this was a single thread in a larger forum, and not a book to be read start-to-finish or to be all-inclusive.

You definitely don't want to make those assumptions. As other senior folks in this forum will attest, there are a lot of new forum members who just dip in on a particular subject, sometimes without even having gone through the School. The very nature of this site brings is a lot of totally inexperienced folks. When you make statements in certain ways they take them literally without understanding the nuances more practiced traders would.

[Black Knight]

Originally Posted by rhodytrader

The very nature of this site brings is a lot of totally inexperienced folks. When you make statements in certain ways they take them literally without understanding the nuances more practiced traders would.

Great point. I will keep this in mind for future posts, thanks.

[theunder18kid]

OK FIRST OF ALL I"M NOT STUPID omg I said nno more than 5% cause I ONLY GOT 1k FFS, anyways I've being trading for 2 days now and its being OK.....

here is what I did over the two days(I DID A LOT OF TRADING.... )
I managed to profit about 40 pips over the two days... LOST ALL OF IT WRITING THIS POST FFS. this is what happened. the GBPJPY was going up and then when it started going down I sold and profited about 50 pips(today), (lost like 50 pips yesterday) anyways I did the same for the GBP and profited about 30 pips GBP is the only this I trade. anyways I thought that the GBPJPY was going reach its bottom soon SO I PUT A BUY ORDER at 211 and a stop loss way before at like 212.3 or something. and I also put a sell order at 215.5 and stop loss and all that(30-40pips) anyways after about 5 hours of staring at the screen(I DONT HAVE S SYSTEM) I managed to pocket in 100 pips. and then I waited for the GBPJPY to FALL to 211 or less so Icould buy in again. I did some altering(stop loss and limit) to my orders so I was kind of messed up.( I NEVER TAKE RECORDS AND I DIDN"T TAKE DIS ONE DOWN OMG.....) anyways while I was writing this(was writing before but I wanted to tell u guys my activities so I went to check my records....... AND THEN THERE IT WAS. I SOLD AT 211 instead of BUY OMFG WTF. 211 was at like the very bottom and I SOLD, with no fundemental data to support( accident anyways) and NOTHING so I waited and thought hey the GBPJPY is actually forming a flag! maby god is trying to help me? so I left it there(already -30 pips), and after about 10 min it went down to 210.97 or something like that so I was like wow it actually went lower! and looking at all the stuff and with the UK's **** report I thought maby I can make it through with maby 30 pips? so I just left it there( didn't think properly..... haha) anyways I left it there and it went up and down and then asshole buyers started to buy the GBP/USD which affected the GBPJPY BUT since GBPJPY react to USDJPY most my position was still swinging. I didn't want to take a loss so I thought I'll put my stop loss at 211.45 since thats the resistance. ANYWAYS after about 50 min it went up. asshole buyers finnaly pushed it back up. I lost 60 pips which gives me a negative 10 pips over the two days.... oh wait 20 pips I think..... something like that. so ye NEVER LEAVE ORDERS IN UNLESS U GOT IT NOTED!!!! AND DONT JUST LEAVE UR POSITION If IT WAS AN ACCIDENT , OMG I FEEL SO stupid haha but hey u win some u loose some. hope you guys learn from my experience. thanks for the help btw I'm doing pretty good in forex right now so ye. lost 2% of my equity but umm didn't u guys say only risk 2%? haha I'm looking at 5% right now since I trade really volatile pairs. DONT FLAM ME PLEASE JUST SHARING EXPERIENCE. and btw I might start a blogg or something. but I am a lazy guys so..... dam I waited all day for the SIGNAL AND I STUFFS IT UP FFS BY TRADING THE OTHER WAY. I WONDER HOW I DID THAT. I dont remember putting a sell att 211 I remember I put a buy but doesn't matter I guess.... u win some u loose some ey? lost 2% right now maby do better next time haha. I'll update my profile every friday if I dont feel lazy. anyways I stayed up today cause I got half day off tomorrow at skool. DAM I COULDA MADE LIKE 200 PIPS FFS AHAH thanks guys hope u LEARN FROM MY EXPERIENCE!! THANKS AGAIN. and BK I'm 17 and u've being trading for 14 years right? so how much profit in % do u make every months? or year? just curiouse thanks guys

[Josef Benjamin]

hey man, are you like, just mentally retarded or something...no seriously, only retarded people act and talk the way you do. I know 12 year olds who have more common sense then you do...You mention alot of your mistakes and faults, but than find ways to justify them, instead of growing up and admitting you were wrong.

Just shows that you still have a lot fo growing up to do before you even think about becoming a profitable trader...so goodluck to you i guess