Money Management

Discussion in 'Trading' started by MasterGambler, Aug 21, 2012.

  1. Is there anything more to money management than position sizing and setting drawdown limits?

    I have a rough way of doing money management that works for me.

    Position Size
    Small --------------- Large

    Max Drawdown Allowed
    Small --------------- Large

    Percentage Win Rate Required to make gains. (Equal capture to stoploss.)
    51-53% ----------- 60% and greater. With large drawdowns and large positions very large win rates must be maintained.

    With small positioning sizing and small drawdowns your drawdown handicap will be small. Eg... If you have a bigger drawdown it will reduce your buying power lowering your odds...

    The bigger drawdowns and larger position sizes the higher win rate percentage must be achieved to make positive gains. Just common sense way of looking at it.

    Anyone have exact ratio's though? Kinda curious what the exact handicaps are...

    Then there is the ultimate money management strategy applied by some of the greats like Warren Buffet. Margintale!

    Let me see if I can calculate this out...
    If you have $100 and you lose $50. That is a 50% loss. In order to make back that loss you need a... 100% gain. So... if you maintained 50% losses and 100% gains... That would require a win rate of 2/3 if your talking equal sized bets...

    So... Lose 50%... $50... Win 50% get $75... Win 33% get $100...

    So in order to get back to breakeven you needed to win 33% more... So with 50% drawdowns you need a win rate above 83%?

    Ok, I think I have my math wrong... Someone help me here, lol...

  2. How did you become a MasterGambler without knowing the answers to your questions?
  3. My subconscious knows the answers. It's just nice for the conscious mind to know them too.
  4. Lucrum


    Oh he's not a master gambler, he's a wanna be master troll.
  5. Sigh.......:) I should keep a eye on the thread ratings more ;)

    There is more, such as when to manage position sizing and when to quit or take a break.
  6. Combining your math above and this article's math, is 33% drawdown an optimal trailing stop on account balance?