Money Management

Discussion in 'Risk Management' started by springsnow, May 22, 2004.

  1. Hello all,
    I'm trying to improve my money management and have heard
    about this elusive ( for me at least) 50/50/301-2MM system,
    could someone give me a link to a site explaining this system?
  2. FredBloggs

    FredBloggs Guest

    Ive noticed one thing about mm -

    all us retail dudes talk about 1% 2% 5% etc of capital to risk on a trade, monte carlo etc

    all the pro traders ive spoken with (pro = in a bank trading other peoples money) laugh at the idea of mm especially x%. How can you win with such small size they ask. their idea of mm is over or under committed to a market. if their gut is pushing them, they put the whole farm on the position.

    does any one trading their own bucks take this approach?
  3. well as far as i'm concerned halving my size has helped me ending
    a rather long serie of losers buy allowing me to place a larger stop, this is not sky rocket MM but it has shown some concret results. And i'm rather ready to learn some just to see how far
    money management can help....
    any clue anyone concerning this 50/50/30/1-2MM system used
    for forex market as far as i know?
  4. jrkob


    Fred, please refer to the Theory of Ruin.

    In my opinion, limiting your risk on each trade to x% or x$ is nonsense. It depends on how long a series of losing trades can be, according to your system.

    Personally, I commit a lot more than 5% capital on each trade. But it doesn't necessarily means I am a completely stupid person.
  5. If you have a system that has Positive Expectancy. You then take it to the next steps of checking for Risk of Ruin and setting your position size by using Kelly Value ~ Optimal F in order to maximize your reward and minimize the risk.

    Do a search for these topics and you will trade with maximum efficiency. :cool:

    BTW... you will even find calculators for these metrics, on the web, if you aren't a systems trader.
  6. On a more general note, can anyone advise some good classic money management books?
  7. Hey springsnow,

    All you need to do is a web search and an ET search for the the 4 things I mentioned above (in bold). Learn it. It's all that you need to know other than proper exit strategies. But, Ralph Vince has some descent books.
  8. rwk


  9. mmillar


  10. JackR


    Although not a classic in the true sense I think you might find "Trade Your Way To Financial Freedom" interesting, particularly if you a newbie as I am. Author is Van K. Tharp. It is a book on trading, but is not a "recipe" book. He discusses a number of money management approaches and describes them succinctly.
    THere are a number of reviews of the book in the Book section of this board. It is classed as a "psychology" book.
    #10     May 25, 2004