Hello there, would like to know what is the best money management system while trading, is it better to increase the size of our position when we lost in order to recover quickly our losses or decrease the size?
IMO, It is best to size your trades based on your risk comfort level and your level of confidence for that set up.
Borrow 10M to 100M in this world of 0 interest rate. Average down on SPY everytime you lose. Borrow more if you run out of money. Get win rates of 99.9%. Profit.
'Confidence' is a deceptive trading emotion. The 'more confident' is more likely to be 'more wrong'. And many a trade which one feels uncomfortable with turns out a winner. My suggestion to OP, trade a fixed position size all the time. It's one less hassle to deal with going this way. If your bank grows, then inch it up a notch.
Here you go - this excerpt is from a web site. Just keep in mind we are at our worst in draw downs, it's a good idea to get more defensive. Don't get taken in by the gamblers fallacy, that a string of losers is a sign that your due to have a string of winners - it does not work like that. Ed Thorp's advice on drawdowns. He suggests lowering your position size during rough patches and then ramping up again as you come out of them. "If we lost 5 percent, we would shrink our positions. If we lost another few percent, we would shrink our positions more. The program would therefore gradually shut itself down, as we got deeper in the hole, and then it had to earn its way out. We would wait for a threshold point between a 5 percent and 10 percent drawdown before beginning to reduce our positions, and then we would incrementally reduce our position with each additional 1 percent drawdown". This is an extremely robust risk management technique used by almost all the trading greats. https://www.newtraderu.com/2017/11/14/lessons-trading-great-ed-thorp/
Hi themickey-Sorry, But I strongly disagree. I would say that proper trade allocation is part of risk management and come second only to developing a profitable strategy. If you do not have the ability to rate your setups or trades before you decide on the proper allocation, I believe strongly that is a factor in a lack of success. Why would I place the same size trade on something I have a good expectation vs a great one?
Risk no more than 2% on any given trade. If you have a small amount like $1,000, divide that by 20 or $50 per trade. You are risking 5% of your capital per trade. That is still a lot and you can still blow up and lose that $1,000. Take no more than 3 trades. You are risking 15% of our total monies on a worst case scenario of losing all 3 trades. Do not double down and risk more because you lost monies. You will lose monies trading which you should be able to accept. This is what matters, your gains when you win should be multiples of our losses. Say, you place some trades and win 30% of the time but, each time you make $250 back on each $50 you risk. When you lose, you lose $10 each trade. So, in 10 trades, you lose 7 times for a total of $70 but, in 3 trades you win $200 each time in profits. When you sum it up, you won $600, lost $70 for a net gain of $530 despite, winning only on a 30% clip.
yes if you traded 1% of aum and are down 4% increase by 2%, when down 9% increase by 3% of remaining aum, 16% increase by 5% of remaining aum, 25% incresae by 7% , 36% increase by 11% etc etc this will put you in the money as soon as possible
Same advice from one of my favorite books: https://books.google.com/books/abou...CEC&printsec=frontcover&source=kp_read_button