That’s a anti-martingale. I doubt it will help much if at all, because it won’t improve your edge nor your mm. What you save with smaller risk after a string of losses will be burned with the big losses after strings of winners.
While the market has a memory then there is also the fact that your trades have no memory related to each other. So, what you are doing with a anti martingale is more gambling, less trading. Instead of focusing improving mm on top of a bad edge I’d rather look for getting a better edge. Because if you have a proper edge you need no fancy mm tricks.
Regarding the amount of risk - may everybody use what he want. Tho, I’d not go beyond a digit on each trade. That’s with a bot and not by hand. By hand I’d not go beyond 2%. Because I’m not a harakiri trader.
I wasn’t arguing with the maths, I was arguing that for me it would not be a sensible real-world route to follow, as I just don’t like big drawdowns on my account, and like my trading reliable, steady and consistently profitable.
I realize that you are joking about not trading at all being better - we’re both here on a trading website, so I guess that we both want to trade - but I am fortunate in being full time at this, so have a larger account than many on here, so risking 1% and making a double-digit return pcm on that gets me where I want my trading to get me. I realize that if I don’t agree with your approach then that is the same as you disagreeing with mine (I think that that is was you are saying), but I think I agree with you. Obviously I risk 1% because that means that a string of losses does not set the account back too much in percentage terms. I know that it is possible that I could have, say, three consecutive losing months. It has never happened, but I want a system in place that means that I could handle that, both practically and psychologically. So I never have more than four trades open (with exposed Stops) at one time and I never risk more than 1% per trade. Obviously I have those rules in place as I don’t like large drawdowns; they bother you less, so you risk more per trade. As long as we’re both happy with our approaches, we’re both right. Even if I think you’re a little mad and you think I’m a little safety-first!
What I see on this site pretty regularly, though - and I am [I]not[/I] saying that you are in this position, but this has prompted my participation in this thread - is newer traders upping their risk per trade in order to earn a better income from a smaller account. If an account is $500 then risking $125 per trade is easier, generally, than that same level of relative risk on a $500,000 account. I started trading, with a £2,000 account, with the same rules in place that I use now on a much larger account. There is nothing wrong with risking more per trade as long as the reasons for doing that are sound. For me, if a trader is taking on a large risk per trade because they want to accelerate their earnings, then that is a mistake, as that decision has not been taken for trading reasons. However, if there is a consistent strategy in place that makes a good return and works for larger accounts then that is quite different, imho.
Anyway, this is at risk of becoming circular but that’s what I think.
I don’t really see any difference between day and swing trading, in respect of the amount risked on a trade or the applied leverage.
You’ll just have to adjust your position size accordingly (i.e. decrease it), if you don’t want to find yourself with a stop-loss of 2 pips, which might get hit before you even lean back to watch your trade develop.
In general, day trading allows larger position sizes, since the expected swings are smaller; therefore, swing trading requires more capital than day trading, position traders need yet more.
Brokers decrease the permitted maximum leverage with growing account balance to stay within their own risk criteria.
The only way around that would be to split your trading capital, spreading it over various accounts which you’ll then control simultaneously by trading, for instance, with MT4’s MultiTerminal Platform.
Not every broker offers this though.
Many brokers however will negotiate custom leverage, so you might just ask your broker for an arrangement. Probably he’ll want a certain monthly minimum trade volume in return.
I don’t really see any difference between day and swing trading, in respect of the amount risked on a trade or the applied leverage.
There is a difference if you plan to risk 25%. A SL of 20 pips means more/bigger lots traded than a 100 pip SL. While the lot traded for the second may result in an appropriate margin level, the first one doesn’t. That is what i meant.
1) SL = 100 pips => 2.5$/pip => 2.5 mini lots size => (250 * exchange_rafe )$ required as margin => Possible
2) SL = 20 pips => 12.5$ /pip => 1.25 standard lot sizes => (1250*exchange_rate )$ margin required => NOT possible
And with 500:1 leverage the second case IS possible.
I guess this would depend on your broker’s margin requirements, but assuming leverage of 100:1, then you’re quite correct …trading with 25% risk and a 20 pip SL would require margin greater than your account equity, although you would only need leverage of 125:1 for required margin to equal the balance in your account. A 20 pip SL does seem a little on the low side though, although I’m quite open to being corrected if there are market conditions or other circumstances where this would be acceptable (perhaps that’s for another thread?).
You could increase your SL and reduce the margin requirement by virtue of the fact that you are reducing your position size, but I assume that’s not the object of this (virtual) exercise!
It’s even more difficult for traders using US brokers (always assuming they would want to risk 25% of their account anyway) where the max. leverage is now 50:1 and the margin requirements are greater.
*** Apologies, I didn’t read the latest posts before submitting this, I realise you have gone over most of this already ***
Yes, of course … that’s why I said you’ll need to adjust (i.e. decrease) position size.
Position size should be chosen according to S/L, never the other way round.
The second case’s calculation should be 2500*exchange rate, not 1250 … which makes it even worse.
And a leverage of 1:500 I don’t even want to think about, hehe (shiver).
I think its 1250 after all
And as for the second line in the quote, i really dont understand guys/gals with this mentality. What difference is it to me if i have 500:1 or 100:1 if i only risk x% / trade?? It only reflects in the margin locked in. Why get so scared ??? I REALLY dont understand it.
Oh, lol, I multiplied your proposed S/L by pip value … need coffee.
Regarding the leverage, you’re right, of course. As long as one fixes an appropriate risk percentage and sticks to it, all is good.
The problem with high leverage is that it tempts overtrading (position size-wise, I mean), which might result in too tight a stop-loss; systems like that look nice on paper, with high R:R ratios, but tend to be short on the win-loss ratio due to getting stopped out very frequently.
I am definitely not advocating 1:10 leverages only (actually I keep on ranting about CTFT’s 1:50 rule), but personally, my risk appetite is sated with 1:100, with the possible exception of really violent moves, as displayed by XAUUSD over the past few weeks … and then only with [B]very[/B] tight stop-losses: that way, a spike in the wrong direction and very early in the trade (once the movement has carried the trade up enough, such a spike won’t matter anymore) will only cost me comparatively little, while the prospective gains are huge. Trades like that have an R:R ratio of 1:15 or more, with me, and rarely exceed an hour or an hour-and-a-half.
Risking a higher amount doesn’t make it gambling, the [B]way[/B] you trade determines whether it is gambling or not. If you check out the maths then after a string of wins AND losses you actually end up better off with 25% risk than any other level so I don’t see how you see it like that but anyway, each to his own.
I think what’s coming across from everyone here with the ‘gambling adventures’, ‘harakiri traders’ etc is that despite 25% being the optimal level to risk, assuming your win ratio is at least 50% (otherwise you probably need to go study more) that everyone is in fact human and psychologically would not want to risk that level. If we were all robots that there’d be no discussion here, but of course we’re not. Even my suggestion to lower the risk with each loss is not needed, that was merely another psychological crutch since the law of averages will say that it works best as is, just 25% every trade regardless.
to me the best way to keep up ur 2percent is …use 2% of ur capital to start for lik 1 month…den check ur total acct balance again…den use 2% of dat the nxt month…and continue wit it dat way…dat as work so perfect for me so far…keepin it simple wins it in forex.
Hey everyone, I’m new to the forum, it’s early days demo trading but loving reading the posts here and I wanted to chime in with something occurring to me here, I may be wrong so go easy on me if I’m missing something!
OK, it seems to me the initial Math doesn’t support 25% being optimal in all cases and that, actually, the order that the Win/Loses come in matters greatly.
For example, If you were to assume that that your Wins and Losses come in alternately then you’re actually going to lose Money pretty fast.
You may find the optimal risk using Kelly criterion and this would be mathematically provable as the best risk percentage given a set of constants; however, remember some of those assumed constants are actually variables.
Specifically, risk ratio and win percentage will likely change in time. Currency flows change. If they do, you could find yourself losing a lot of money rather quickly with a 25% risk.
Then again, nothing ventured, nothing gained…
“Tell me punk, do you feel lucky?”, Clint Eastwood.
Personally, I would start with small risk. If a system gained consistent profits over time, I’d increase risk, approaching optimal percentage using probability theory. If, I encountered more consecutive losses than I would expect to be statistically likely, I’d re-evaluate. But then, I am somewhat new to Forex. My background is Computer Science. I’d put most weight on what Forex veterans have to say.
This is an excellent thread. Thanks all…
Welcome to the forums Dagga! On the surface, it looks like what you say is true. However, if you look at my spreadsheet in the first page, you’ll see that even with a horror run of consecutive losses, you will come out ahead in the long-term. The order of your wins and losses does not matter.
There are a few problems with position sizing based on kelly criteria. If you plot the curvre of returns v risk % you tend to see that returns increase steadily with increasing risk, until the optimum value, but after that, they fall off very sharply. 25% might be the optimum, but 26% leads to catastrophic losses.
As someone else has pointed out, markets are statistcally non stationary, and as a consequence, the optimum percentage could be 15% over a particular period, 22% over another, and 25% currently. If you trade at 25%, and the market reverts back to 22% you are dead meat.
In practical terms, most people cant cope with the volatility of trading at these risk levels, Its quite common to experience drawdowns in excess of 90% when trading at optimal f. A 90% drawdown on a small account, and a 90% drawdown when you have serious money at stake is 2 different things.
One thing I have learned in the 10 years or so that I’ve been doing this, is that you can never underestimate just how long a losing streak might last, or how you’ll react when it happens. Coping with prolonged drawdown at 1% risk is hard enough, I cant imagine how anyone could handle the sort of volatility, whatever the maths says. If you want more money, you trade more capital, and you attract more capital by reducing volatility, not increasing it.
I guess that Daggaland calculated with 25% risk and 25% gain (which I did, too, when having tried to reproduce your numbers for the first time).
Daggaland, KingKavair calculated with a 25% risk and a 50% gain, to achieve a Risk:Reward ratio of 1:2.
Using these numbers, his original calculation is correct.
In case you are now shaking your head in incredulous wonder (or are outright laughing) at somebody expecting 50% gain on his trading account with every single trade: everybody on this forum with more than six months trading experience reacted in the same way.
It’s utterly unrealistic, of course … I think the whole topic has been brought up more as a mathematical exercise than a serious trading strategy in the first place.
If there really was a way to increase a trading account by 50% with every trade, by now General Motors, Microsoft and probably one or the other European Government (:D) would queue outside my office with loan application forms in their hands, hehe.
