I was wondering if anybody can recommend any book about money management. I came across to âThe trading gameâ, that I am reading now. Basically recommends an antimartingale approach witch is well known. Also, I am a a discretionary trader and maybe some tactics that apply to system traders might not be appropriate for me I would appreciate any information that you might have on the subject. Regards Hamb
IMHO, the major problem with what you learn about money management in the books is they never address personal psychology. You have to comfortably be able to pull off what they suggest doing. Rarely is that consistantly doable especially with a descretionary methodology. Money management is indeed the most important part of your plan. Get some ideas together and backtest them (manually if need be) and see which one(s) just feel right. If it backtests profitable AND you feel at ease doing it, work on that path.
Don't know about the books...I've seen a few advertised....I always keep in mind: 1. Probability of the move 2. My risk level to profit goal (what is my profit goal and how much am I willing to lose to get it). 3. Bet and/or 4. position size The common thread i see with most successful traders is the absense of major disasters....I know van tharpe wrote a book on position sizing...anyone read it?
"Trade Your Way to Financial Freedom" is the book by Van Tharpe. The single best thing about this book is the strategy of position sizing. The rest is so-so and spawns fodder for threads about things like random-entry systems which isn't really what this book teaches. Keep in mind that the title says "Trade Your Way". You may also want to look at Ed Seykota's risk management ideas at www.tradingtribe.com
The idea is to get defensive when thinks go wrong and offensive (betting more), when equity increases. That protects your account and your sanity in bad times and gives you the opportunity to to accelerate your profits in good times. Now I have to formulate a plan and follow it. I am sure some of you work the some way. Thanks for the responses Hamb
Truthfully, most of what I learned was from other traders. Alex Elder's Trading for a Living .......has money management as a chapter. I have not read a book that is totally about it.
This subject is something I have been wanting to explore more and more lately. Someone recomended this web site as a simple, cheap, but powerful program that works within Excel. http://unicorn.us.com/trading/prosizer.html A more advanced money management scheme is something I am considering working into my position trading around the first of the year. Opinions are appreciated.
There is 2 things to distinguish: Risk management and Money Management in the restricted sense of optimisation (position sizing,..) used by Ralph Vince for example - the author of the classical "New Money Management". Of course there is some overlap between the two. The most important one is the Risk Management because it relates to the alpha risk type in term of probability theory which is the risk of being in error whereas optimisation relates to the beta risk type which is only the risk of missing some opportunity. Missing opportunity cannot conduct you to go broke (although it should be modulated in details but I simplify here) whereas not knowing the alpha risk can get you broke. People focus too much on Money Management thinking that it is the "secret" of wealth - perhaps because of sellers of books/systems which have interest to put the accent on Money management rather than on risk management. Yes you will see people who become rich suddenly because they applied martingale rule (BTW so called anti-martingale rule is also a martingale rule mathematically it is amusing how marketing tried to disguise to people things through fake name !) but what you see is the "survival bias" of chance that's why the same person when ruined later is incapable to reproduce the same exploit. Money Management is only useful when Risk Management is already under state control. Then it becomes easy to optimise that is to say use Money Management (using probability with or without Monte-carlo, Linear Programming). In conclusion: "PREMATURE optimisation is the root of all evil" It is in fact Knuth's famous maxim in software programming but as you can see it can apply to other field since Money management is about optimisation. Doing Money Management before doing the essential part of Risk management is also the root of all evil (it will conduct to overfitting and constant tweaking for example).
Many claim that money management can multiply the return in a positive expectation game. It can't help a negative expectation game. Any thoughts for an even game? ie in a coin flipping is there any impact in the long run? It should not have any impact in my understanding. Any mathematicians out there? Hamp