Magic Money Management Formula

Discussion in 'Risk Management' started by 777, Nov 4, 2006.

  1. Position Sizing is the key but how do you position size your winning side and losing side of the same contract optimally?

    Anyone wants to discuss and improve on AntiMartingale/adaptive scaling or spread oscillation(STARS) methods?
    #11     Nov 6, 2006
  2. I am interested in all of this but don't have the time to commit to a long discussion. There is a lot of math involved too that a lot of people much smarter than I have already veted out.

    I think I may experiment with an anti-martingale approach and just increase by positions sizes after each win then reduce them after each loss. I will just use Kentucky windage to guesstimate how much or how little to expand/contract.

    I currently have a perfect scenario for testing how to recover from an early large loss scenario. The system I am using is basically selling cheap gamma monthly with very large iron condor spreads and relying on statistical distance as my primary risk management. When strength of trend shows trouble I now try to close out half my position at cost and play the remaining a little closer to the market if it continues. I will need about 3-4 months of moderate to slightly aggressive trading to get back to even on current losses so the temptation to revert to Martingale is very strong. I essentially just "cheated" on a short but brief market dip that I called right and doubled up my credit spreads to the down side. With the last few trading days trending bullish this is so far working very well for me and I was dead center on a 50 point to either side of market Iron Condor. Now the bull seems ready to come out again and charge hard up so I need to watch things since I tend to hold through expiration if I am at least 10 points above the market at the close of trading on SPX this options period.

    #12     Nov 7, 2006
  3. as to antimartingale effectiveness, a good guide of adding size to a winning trade is treating the addition as a new trade entity all itself.

    Often martingale works because coincidentally you are entering at even better value points (higher probability of winning). It tends to fail when you are already out of ammunition and violating general money management concepts to do it.

    I like martingaling - it just requires you scale in small and plan your money management precisely. It certainly increases my trade success rate.

    Its easy to be right - just difficult to time it.

    I like the Bruce Kovner 1% portfolio percentage total risk per trade (or even more ideally, per trade idea). Use that to determine maximum size.
    Then scale in under that.
    #13     Nov 7, 2006
  4. LowRisk


    Good money management may make a bad system workable and a good system great.

    Regarding blowups, too many traders pressed too hard on things that just looked fantanstic. If you normally trade 500 share lots, 1000 or 1500 shares should be your absolute size limit. If you can comfortably trade 2000 share lots then maybe 7000 or 8000 should be your limit. And DON't be a pig.
    #14     Nov 8, 2006
  5. There's a difference between curve-fitting the equity curve and money management.

    All previous posts are still talking about curve-fitting. Position sizing is based on controlling risk, and without understanding / assessing risk... there's no point...

    Discussions on static martingale... good/bad system... expectancy... is still not even considered money management or position sizing.
    #15     Nov 10, 2006
  6. "I like the Bruce Kovner 1% portfolio percentage total risk per trade (or even more ideally, per trade idea). Use that to determine maximum size.
    Then scale in under that."

    which is still dependant on what you trade, etc.

    i scalp index futures. i NEVER scale into a winning trade


    i am peeling off contracts at targets, but NEVER adding. and it definitely works for me.

    in a market that is usually rotating, adding to winning trades does not work, at least with my setups

    just a thought . certainly works with others
    #16     Nov 10, 2006
  7. How does one backtest and optimize with curve fitting? Is it possible? I ask because I am started to learn about back testing and optimizing, but I don't want to fall victim to curve fitting. TIA

    #17     Nov 10, 2006
  8. kut2k2


    And if you don't have an edge, the best money management in the world won't save you.

    The edge is knowing when to trade; money management is knowing how much to trade. Apples and oranges, but mixed together. :cool:
    #18     Nov 13, 2006
  9. That's true. Most profitable traders keep telling newbie traders like me the above seemingly truth in order to make us believe that is truth. :D
    #19     Nov 14, 2006

  10. ^ Nice.
    #20     Nov 14, 2006