Money Management - page 4
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What is the expected success rate then? What is your opinion as to why decisions based on price action would not produce at least 50% success? As one poster mentioned, complete randomness would allow for a long trade to occur in an obvious down trend. Yet, price action would not allow for this to happen. Why does this produce less than 50% success?
My idea was that there would be no stoploss, but that positions would continue to open (long above & short below previous positions), and that all positions would close only when a set profit is made. So, it would essentially hedge until there was a profit. I think an indicator that shows the strengths of currencies compared to other pairs.
I would actually prefer that you keep posting since you have shown to be very experienced on the topic.
I'm not sure if what you just posted answers my questions though, and a lot of the confusion stems from my idea of randomness. I'd like to clarify that the first entry is random, but the subsequent orders are not as they are defined by the price action. This is so when in an uptrend, the system recognizes that and only places trades in the direction of the trend.
"You might be under the impression that price moves randomly, the truth I suspect is that you would only be partially correct and this can actually easily be proven. Price has cycles of linearity and non-linearity which can easily be charted etc."
Actually I am under the opposite impression. I recognize that price is not necessarily random. That is the whole basis for the system. I make the expectation that if price moves in a certain direction x amount of pips it is likely to continue for x amount of pips. Price has momentum. The system is assuming a 50/50 shot on the initial trade to enter the market. On the trades following the first, the market will give the edge of showing you what direction you should be going. In an uptrend you should only be making long orders, in a downtrend only short. The idea of the 50/50 shot on the first trade was to emphasis my point that pips are available anywhere on a chart and that to wait for an indicator to tell you when to enter the market is not necessary.
I replied to the poster you quoted on FF by asking, well what happens then when we make our TP/SL unequal? Having different TP/SL levels is a form of money management. Is price action still useless in determining a direction for our trades? That's the biggest question I have right now. Why can't we just use price action to trade efficiently? Like I said, in an uptrend it would allow for only long trades. In a downtrend only short trades. The problem is when it ranges. I then make the observation that if it ranges, we can make our TP/SL zone large enough that it does not whipsaw trades and only enters one or two losing trades just as it would on a reversal. That's another idea to the system is it enters many consecutive trades in a trend, but only a few in a ranging market. Or, as mentioned, our zone is small enough that it can profit in ranging markets.
Again that's my biggest problem understanding right now. Why can't we use simple price action? It would trade almost like other systems, yet allow you to always be in the system. For example, say you're watching a S/R system. Price bounces off a resistance level. You would enter short since price reversed. Would it be wise to go long in this instance since resistance has been confirmed? If it rallies again it could just confirm resistance again to form a double top or it breaks resistance in which case this system corrects itself and puts you long again. Meanwhile the person playing S/R was betting that it would not break resistance again and therefore is short while price rises. Then, what S/R levels are important? That depends what time frame you're looking at. Two people can look at the same currency and have different opinions on where it's going to go. Why not just let price determine where your trades say it should go? Matt
Oh boy !
These are my opinions of which I am convinced and they do not imply that you should be. At the very least I would like for them to highlight the divergence between your theory and reality.
This is so wrong I do not have words to describe it. The market will give you NOTHING, simply stopping you out is not a sign to go the other way, it could mean a myriad of different things, such as volatility is high at the moment, way higher than your stop levels give it credit for to name but one. I think what you are trying to get to is that there is a “golden figure” that the market will turn against you which would signal a reversal, this is simply NOT possible for reason stated below.
First off, trends are not of the same length each time, one is 30 pips, other is 150 pips, there is no predictable order to that unless you start with patterns etc and price projections, but I really do not have time to go into all that now. Bottom line, you can not categorize them into 50 or 100 or whatever boxes by limiting your orders and stops.
Secondly, the time frame that you choose to do this on has a big role which as far as I can tell you have ignored. To demonstrate, it is common knowledge and can easily be proven that the lower the time frame the smaller the trends and visa versa.
Your stops and TP’s need to within the range of the time frame you pick I really have trouble explaining this clearly, but bottom line, the wider your spread that you create between your stop and tp, the more chance the market has to prove you wrong you on the other hand see this as a blessing. If your spread is 100 pips, that already is more than say the range for the Euro (currently about 80 pips per day) on a daily time frame. Say you enter short at the open and get stopped out 50 pips higher up, there is probability for another 30 pips more or less or more if you are lucky some times. The trouble is you are trading within the daily noise (volatility, range whatever) and not outside it as you think you are.
Thirdly, intraday trends do not run continues from the one day to the next, although on the daily chart there might be successive higher bars or lower bars, what goes on inside them is a different story, every new day in FX is a brand new ballgame, new news new everything. If you base your entry on a 1 hour chart, that price action has nothing to do with what happens tomorrow. The 1 hour price action is within the daily possible range and your risk and reward is smack bang in the middle of that, again you are actually trading trend following inside consolidationand any newbie here can even tell you what the result of that is over the long run…
This is why I keep on insisting you get practical and look at this from a market perspective and not theory, your theory needs to be based around what it possible in the market, not what is supposed to be, the market will not give you an edge NEVER EVER, forget it, you need to create one by identifying entry points that has the least amount of risk of turning against you PLUS if they do turn against you, the entry position should be such that you could identify your mistake at the soonest time and at the least cost. If you need the market to fall 50 points against you before you realize you are wrong and your reward is only 50 pips, good luck ! Simply assuming that that can be solved my making the TP higher to say 60 is a fools game you are entertaining your mind with, reality if you knew it, does not work like that. If you had experience in real trading and building systems, you’d know this. If you need to make 50 per trade and your system is such that the market only need to turn 30 for you to see clearly and statistically that your trade is a bummer you’re in business.
In my thread I started about stats, I mentioned research I did on the 5min Euro for example. This research showed clearly that I can safely put a stop loss x amount away from the high of the bar just before my entry. The research shows that 93.4% of the time, when my trade is correct, the market will never breach level x (including spread cost and offset cost for both entry and exit). My average profit on my 5min trades are about 2.5 times the maximum that my level x can be set to and my accuracy rate or odds or probability whatever you want to call it is 67%. This system is about price action and repetitive occurrences of certain conditions.
The edge of this system which is feeding me and my household is divided between the statistical significant stop loss and the dynamics of the entry mechanism. Money management is the magnifying glass as it only affects the trade size, adding more lots later on is not really money management in the true sense of the word. Those are simply new trades, each with their own story and need their own money management. Entries and stop losses determine when you win and loose, money management determines how much you loose, do not confuse the two concepts.
From your expectations it is clear that your definition of price actions has gone horribly wrong somewhere, price moving in a preset block of say 50 pips is not price action. Back to the drawing board !!!
Get practical, look at the market, see what it does, what it can do, how many times it does it etc, statistics can help in this regard, what you are chasing now warrants no further attention from my side at least as I think and have explained as simple as I could that it is a total waste of time because you do not have a link between your theory and reality and there is none, I have given you many reasons, other people have tried also, read what we have said, we have made clear points or me at least. I can not render more input until you display some factual research to prove your theories; it seems all you do is go around starting threads all with the same old story, different people bla-bla-bla. You are simply to lazy to figure this out for your self, or just looking for attention, if it was help you were looking for, you have had a crap load off that passed your way to straighten your thoughts out, you have then deliberately decided to ignore that, which brings me back to the foot note on my previous post of why I do not bother explaining stuff to much, people simply get something in their heads, and truth and reality simply does not exist or becomes their number one enemy.
I’m out of here, period !
FX Sniper
FX Sniper
I could write at considerable length in response to your previous post, but I wont, other than to say that it was a truly great and thought provoking post, and Im sure many others appreciated it too.
regards
mick
Gidday Cardio
I like your approach it is very similar to the one attached. Risk based on 2% of your free margin would be my preference rather than equity only because it takes into account what is left after you are leveraged on open positions. I was just thinking would it be able reverse the risk calculation and to add a profit percentage e.g. If your position gains 5% a profit stop is triggered and then moved for every 2% gained after that. Or what ever percentage you choose. I think this approach incorporates a bit of both money managment (Cash at risk) and trade managment. (The way out of a position and the protection of profit)
How many times have people seen a good profitable position turn sour on them due to poor trade management?
Money management is much like raising kids you encourage the good
behaviour but you will have a limit on how much misbehaviour you can stand. 
It is possible
Hi
I think it is possible to modify the money management as you ask. I have modified my version so many times since posting this - I will post up an updated version soon. My latest thoughts are not to worry so much about MM, but to first just get one's system going - MM can alway be added on at the end.