Can money management alone create any edge?

Discussion in 'Risk Management' started by Ricter, Mar 8, 2005.

  1. Ricter


    Say you're operating in a 50/50 environment, are there money management methods that can keep you in the black?
  2. no not mm... but exit strategy can.
  3. The answer is no. Without getting too deep into it, it's because the expected value of a linear combination of random variables where the coefficients are a partition of unity (i.e. bet variation applied to a trading system) is equal to the expected value of the unaltered sum of the random variables.

  4. No, it generally can't.

    Use of stop-loss might in some very particular cases, but these cases are far too seldom even to be cared of.
  5. I've met a few that said they had similar...

    Number of winners similar to the number of losers.

    Yet, they were very profitable.

    Thus, its obvious that their profits per trade is greater than their losers per trade.

    Where's their edge?

    One said it was position size management...

    Knowing when to increase size...knowing when to decrease size.

    Not sure if that phrase position size management falls under the unbrella of money management.

    Another puts his emphasis on how he managed his initial stops when they were hit...

    Sometimes after a stop was hit...he did nothing and just start preparing for the next trade signal.

    Other times he reversed the position upon a stop being hit.

    Other times he reversed the position while it was a loser but prior to a stop being hit.

    I remember another guy told me he hedge against any losing position.

    He was using some spread forumla or method i didn't understand.

    Personally, my trading improves when I've gotten back to back good nights rest or feel well rested prior to my first trade...

    Something I've noticed in the past 2 years since my son was born. :cool:

    I guess proper sleep is an edge.

    I'm able to concentrate more (less mistakes)...

    I'm not as emotional (anxious, anxiety, feeling mentally exhausted...all bad for trading).

    My point, there's edges out there...they obviously don't need to be in the initial entry signal.

  6. FredBloggs

    FredBloggs Guest

    sorry, im way too thick to understand what this means, but as others have eluded to, trade management is more important than money management. yet money management does come under the wide umbrella of trade management.

    so although its important, and can make a difference, it is always trade management that is our edge - more so than entry technique or money mgt alone.


    NihabaAshi made an excellent point as well. personal management is also very important. i would add diet and exercise into the bag. not saying we all have to be salad munching marathon runners, but we do have to be of sound mind, body and soul.
  7. in a 50/50 sum game, then yes, mm can create an edge, maximise winning steaks and minimise losing streaks, you can't apply this to trading because you have 2 very very little problems....slippage and brokerage...:mad:
  8. gnome


    Yes, in a sense.

    The *only* thing you can be sure about in trading is "not taking a big hit on a single trade"... this is true because your behavior controls the size of loss.
  9. i am not a mathematician so i have done empirical research on it. no edges to be found.
  10. exactly. thanks for keeping it simple.
    #10     Mar 8, 2005