[QUOTE=“odysseus11;613457”]money management is the key to success, but no one realizes that. The first and most basic thing you need to understand and be confident in is the mathematical EXPECTATION of your method (expectancy). This is step 1. And if you cant calculate it accurately, you CANNOT proceed to step 2. I believe most traders fail because they believe their method or system has a positive expectancy, when in fact it does not. In this situation, the money management is not relevant. You will blow your account sooner or later, regardless. HOWEVER, if and when you use a system that has a positive mathematical expectancy that you can BELIEVE is accurate (or close), step 2 is to choose a money management method that maximizes your gain. People saying “risk 1%, risk 2, etc” are quoting a type of money management called “fixed fractional”. This type of money management has its advantages and disadvantages. I believe the best money management method is called “Fixed Ratio”. It was originally developed by Ryan Jones. You can google him and “fixed ratio” and read all about it (there is a book at Amazon too). But BE CAREFUL! Ryan Jones famously actually blew his accounts using his own “fixed ratio” money management. I believe personally that it was because his trading methods actually did not have the expectancy that he believed they did, and therefore the other metrics he used in his version of fixed ratio turned out to be too aggressive. I actually have seen several people come up with variants of “fixed ratio” that are much more forgiving vs losing streaks and some of these are referred to as “smoothed ratio”. Google for these threads on forums, they are around.[/QUOTE]
I have read about fixed ratio and can’t see the point if trading forex. The problem with not being able to add a contract is non existant due to being able to trade in 0.01 lots.
He is basically risking more on a small account and lowering the risk% as the account grows. I don’t understand why you would need this system for this. Just risk the % you feel comfortable with. I like 0,5-0,25%. If I had a 1000000$ account then maybe I would lower it to 0,1% since the that is so much money risked in a position.
Also it doesn’t take into account the actual risk you are taking (the stop).
I risk a % if my account. The lot size depend on the stop loss. A swing trade is therefore often smaller and a scalp larger.
I risk a bit higher % on setups with larger win %.
I use scripts (power trading scripts that I modified) for this so it is REALLY easy.
Fixed ratio just seems contrived when trading forex.
Or what am I missing?