I have some basic MM rules written out, could someone let me know what I am missing on this list of rules or how it can be improved?
Money Management
A) Risk per trade can be 1%, 2% or 3% of current account balance.
1% for higher risk trades.
2% standard risk.
3% for higher probability trades.
B) All trades must have a minimum risk/reward ratio of 1:1.
C) 9% maximum drawdown permitted in one trading week.
D) No more than 6% of current account balance exposed in the market at any one time.
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What other rules do you use?
I could live with A and B and D but C would be harder to abide by.
C - If you set a DD limit per week, and let’s say you incur the maximum DD by Monday night, do you have to cease trading until the next Monday am? And if you suspend trading, how are you going to make any gains?
I know a lot of traders suspend trading after X losses in a row and maybe that even included Mark Douglas but I can’t make sense of that. The only way to let a profitable strategy win is by running it: the fewer the trades you allow yourself, the more likely your results will vary away from profitable.
Thank you Tommor, I agree with you and that is a good point, that is exactly why I put it up here so I could get some different views like that. I will amend that and take if off, maybe something more like if I have 4 losses in a row to take a 1 day off break in order to re-analyse the losing trades.
Is there anything I else I am missing from the list that stands out?
I’m always having to resist making things more complicated for myself, but accepting that risk -
It seems that periodically, the markets as a whole (equities, forex, commodities and even bonds etc.) dramatically change their attitude to risk - becoming either more risk-tolerant or more risk-averse. So we sometimes see almost everything suddenly reverse its expected direction. You could use the Dow as a proxy for risk tolerance and when it starts reversing dramatically, increase or reduce your position sizing or market exposure accordingly. But this is a long way from an exact science.
Money management goes beyond mechanical risk/reward. That’s just the tip of the iceberg.
You profit then what do you do?
You take a loss now what, log a journal?
I don’t ever notice anything said on forums that address the crux of money management. It needs to be progressive, instills discipline and longevity for any of you learning with respectable accounts.
Don’t believe the “wash, rinse and repeat” bs.
Well, I keep my trading journal on Google Sheets, so if it loses I log it, if it wins I log it. I see losses as a price of education so they do not worry me. I am trying to hammer down some MM rules to make sure I am doing it right, I do understand theres no right or wrong and it differs for everyone but if there are bits that I am missing it is good to get opinions on it.
hi,
Money management is very important for making some profit out of investments. So you have to keep a record of all the details of your current trading as well as previous ones. Forex Trading belongs to profit as well as loss. Both are the aspects of Forex Trading.
Sometime you earn some profit and sometime you may face loss. So money management is very important. As you clearly mentioned that never exposed current account balance in the market.
Thanks a lot for sharing this.
Its obvious that if you risk x amount and have profitable trading strategy you will be profitable in the long run but the biggest problem is in the psychology I think.
When I struggled to become a consistently profitable trader I made a lot of mistakes because of my psychology. So I started a emotional trading journal, after every trade or every hour I wrote down how do I feel, am I tilted, anxious or do I feel calm. If I spot myself in a bad emotional state I will take couple minutes to meditate and my emotional state will be back on the right track. This helped me to avoid a lot of mistakes.
Yes if you are aligned with the market and with your strategy. Yes if you can execute it objectively. Yes if your strategy is still working (market conditions are maybe temporary not right for your strategy). Yes if fear and greed are not controlling you.
There are a lot of reasons why you should sit out. And the best time to do it is probably after several losses in a raw.
When one of the above reasons is not true anymore or temporary is probably the right time to take a break. Just take a break. It will be of great benefit in the long run. You don’t really need to understand why. Just take a break.
But hey, you could track your results after every 5 losses in a raw and see how are your results for the rest of the week on any of these weeks. If your results are good, just ignore the rule and keep trading.
I kind of agree. Several losses in a row means either you failed to follow your own rules because they were ambiguous or too complex, or you failed to follow them because you were emotionally incapable, or because it was a curve-fitted strategy which has now exited from its environment of effectiveness. But these factors should be considered and checked routinely after every trading decision.
What I really mean is the blanket rule to stop trading for a blanket period, say 1 day, say 1 week, merely because of a series of losses, when you already know you have a viable and profitable strategy. That would be dumb.
yeah ! Your trades are not going to go any way without proper money management rules. Personally as a trader, i can not trade until i have framed these rules for my trades now. It has become that important for me now.