Aliassmith Psychology 101 and other stuff

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aliassmith
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Re: Money Management for Short Term Trading

Postby aliassmith » Tue Nov 02, 2010 5:17 pm

cwn6161 wrote:
pablo101 wrote:
aliassmith wrote:
cwn6161 wrote:
aliassmith wrote:I have been lurking around since my last post and "grinding it out" in the
trenches. :)

I believe I have something note worthy to share and give back to the
Kreslik community where I have been given so much.

A lot of the MightyOne posts rattle around in my head, over and over. I
have thought countless hours on his info. The parts about poker and
his last order adding process for long term trading stuck with me the
most.

The thing is I don't trade long term charts, but I know that MightyOne's
lessons can be adapted to short term trading. So I will share my adaptation
for those of us that are not "power traders" and willing to risk it all on
a single roll of the dice.

More Risk is More Risk
I remember this but didn't understand it for awhile. I did finally get the
meaning behind MightyOne's encrypted lesson. You will see as I move on
what it means.

I now envision trading as a poker game that has players available at any
level of play you desire. All the players sit at the virtual table of forex and
battle it out hand after hand and day after day. Each player having his own
style of play to create an edge.

So my poker roll is $10,000US and if I lose it I'll have to go make
deliveries to get a new roll like the guy in the movie Rounders. Now
who wants to do that? The focus is survival and profitability.

Phase 1 I buy into a game with $400 (4%). I get into a small stakes game
using 4:1 to 6.25:1 leverage and grind it out until I make $400 in profit.
What did I just do there? I took their money. So now I use their money
to take even more of their money.

Phase 2 I buy into a game with their $400 and get into a little higher stakes
game. My leverage will be 8:1 to 12.5:1 and I'll grind it out until I make $800 more.

Phase 3 I buy into a game with their $1200 for an even higher stakes
game. The leverage will be 16:1 to 25:1 and I grind it out until I make
$1600 more.

Phase 4 I buy into a game for their $2800 for an even higher stakes
game. The leverage will be 32:1 to 50:1 and I grind it out until I make
$3200 more.

The Poker Tournament is finished!

If you add it up I'll have took $6000 of their money and made it mine.
That is 60% return on my capital for a 4% risk. :)

Something to be clear about is you must start back at phase 1 when your
profit cushion is gone, you complete all the phases, or you are having a
hard time at the current phase and don't feel comfortable.

I above is an example and should be "tweaked" to fit individual styles of
trading.

If you are unclear about the More risk is More risk comment think about
this. I risk 4% of my capital which is about 80 to 100 pips to make 80 to
100 pips in phase 1. From phase 2 on I risk 0% of my capital to make the
additional 56%. :idea:


I think I'm a tad confused about the risk portions. Below is the thought process in my head - where am I going wrong?

P1 - risk 4% ($400) to make $400 in 80-100 pips. Once made, close trade.

P2 - risk 8% (really 4% is original capital, 4% is profit) to make $800 in 80-100 pips. Once made, close trade.

P3 - risk 16% ( 4% original capital, 12% profit) to make $1600 in 80-100 pips. Once made, close trade.

P4 - risk 32% ( 4% original capital, 28% profit) to make $3200 in 80-100 pips. Once made, close trade.

Because you are increasing leverage and your stops/targets are the same amount, is the only thing changing your entry size? And in that case, isn't it 4% risk each time of base capital?


So you are a little bit off I think. First thing is that it doesn't have to be
single trades. It can be used with scalping up to swing trading multiple
trades.

Phase 1 is the only phase where I risk my money. You can risk what you
want depending on your trading style. Risk 4% to make 4% or 1% to make
1% etc. It can be over 50 pips or 200 pips whatever.

Phase 2 I risk my "profit only" so I'll have 40 to 50 pips to work with trying
to make 80 to 100 pips.

The thing is it can be tweaked many different ways depending on comfort
level and trading style. The whole process is used to limit risking my
money and use other peoples money to take the risks.

Another reason it is used would be to push my wins. If you have ever
read Phantom of the Pits that would make more sense.

Unless you are a superstar trader like es/pip risking 1% = 5 pips each and
every trade with 90% accuracy then you need to figure out how to put less
of your capital at risk and push your wins.

At least in my mind I have it set-up to when I trade bad I risk the least
amount. When I am trading well I am risking larger amounts of other
people's money and none of mine. :)

So to recap with the basic formula:
P1 I risk x% of my base capital to make x%
P2 I risk only the profit I made in P1 (increase lot size)
P3 I risk only the profit I made in P1 and P2 (increase lot size more)
P4 I risk only the profit I made in P1,P2, and P3 (increase lot size more)
Go back to P1 recalculate with new account size.


I've a little trouble understanding this MM, can you guys give an example of the increase in lot sizes when you get to phase 2, 3 and 4 please?

Thanks for the post Alias, this is nice food for thought


Sure! Here's an outline I'm playing with:

P1 - risk 75 pips to make 75 pips. 75 pips is 4.5% for me, so my size is 3 microlots.
P2 - do the same thing over, using the 75 pips I made prior. Size still 3
P3 - Use my 150 pip profit to make 150 pips. Size is now 6.
P4 - 300 pips to make another 300. Size now 12.

End result is 600 pips. 600/75 = 8. 8*4.5=36% return.

Now sometimes I will shoot for 2:1 returns if I see momentum in the direction I'm trading. That means the range for return if I complete the phases is 36-72%


Looks like your P1 and P2 are really risk (4.5%) 75 pips to make 150 pips
at 3 micro lots. +(9%)
P2 would be 75 pips risk to make 150 pips at 6 micro lots. +(18%)
P3 would be 75 pips risk to make 150 pips at 12 micro lots. +(36%)
Maybe end at this phase and start over at P1
450 pips for 61%

If you look hard at what you had you was actually accelerating your risk
to your capital, where you should be only accelerating the risk to capital
made in phase 1.
Trade Your Way as Long as It Makes Money!

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cwn6161
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Postby cwn6161 » Tue Nov 02, 2010 5:29 pm

Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.

aliassmith
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Postby aliassmith » Wed Nov 03, 2010 1:46 pm

cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.
Trade Your Way as Long as It Makes Money!

cwn6161
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Postby cwn6161 » Wed Nov 03, 2010 1:53 pm

aliassmith wrote:
cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.


Yeah you got it, sorry for the confusion. I'm shooting for each phase being one trade. I have two chances per phase to move onto the next before I must start over.

aliassmith
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Postby aliassmith » Thu Nov 04, 2010 4:00 pm

cwn6161 wrote:
aliassmith wrote:
cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.


Yeah you got it, sorry for the confusion. I'm shooting for each phase being one trade. I have two chances per phase to move onto the next before I must start over.


Thanks for interacting with my about my money management strategy.
Since I have been discussing it on the forum instead of in the vacuum of
my office, I have been able to take a better look at my numbers.

I believe I was able to put together a better process based on less risk
and working within the confines of this new 50:1 leverage.
Trade Your Way as Long as It Makes Money!

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cwn6161
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Postby cwn6161 » Thu Nov 04, 2010 4:29 pm

Thank YOU for bringing it up! With a weekend to really dive into the idea, I went from a method that would add one zero to my account in a year to a new method that could add 3 zeros :shock:

I did have to modify my final phase for 50:1 leverage as well. Still, the return is 76% at the end of the phases - for 3% risk.

jarnapal
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Postby jarnapal » Thu Nov 04, 2010 4:57 pm

aliassmith wrote:
cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.


Thanks aliassmith,

If I lose 2 times in a row in P1 do I use the same P1 rules on my 3rd trade ?

aliassmith
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Postby aliassmith » Thu Nov 04, 2010 5:12 pm

cwn6161 wrote:Thank YOU for bringing it up! With a weekend to really dive into the idea, I went from a method that would add one zero to my account in a year to a new method that could add 3 zeros :shock:

I did have to modify my final phase for 50:1 leverage as well. Still, the return is 76% at the end of the phases - for 3% risk.


Glad I can help!
Trade Your Way as Long as It Makes Money!

aliassmith
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Postby aliassmith » Thu Nov 04, 2010 5:17 pm

jarnapal wrote:
aliassmith wrote:
cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.


Thanks aliassmith,

If I lose 2 times in a row in P1 do I use the same P1 rules on my 3rd trade ?


At the start of P1 take your current/real account balance and calculate
the risk like you are starting from scratch each time. You lose 2,3 times
and bust out a 60%+ it is still all good. Lose to many times in P1 then you
probably should take a look at your execution.
Trade Your Way as Long as It Makes Money!

jarnapal
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Postby jarnapal » Thu Nov 04, 2010 6:31 pm

aliassmith wrote:
jarnapal wrote:
aliassmith wrote:
cwn6161 wrote:Is that because I'm only shooting for 1:1 in the phases?

How about this:

25 pips = 3%
3% = 6 lots

P1: risk 6 lots (25 pips) to make 24 lots (100 pips) (12%)
P2: risk 12 (25 pips) lots to make 48 lots (100 pips) (24%)
P3: risk 24 (25 pips) lots to make 96 lots (100 pips) (48%)

Total: 84%
Each next phase uses half the profit of the prior.


I really don't understand your last version of it.

I think this is what you mean, using your $500 account size.

P1 risking $15 to make $60 risking 25 pip to make 100 pips @ 6 minilots
P2 risking $30 to make $120 risking 25 pip to make 100 pips @ 12 minilots
P3 risking $60 to make $240 risking 25 pip to make 100 pips @ 24 minilots

Nice potential although it depends if 25 pips risk is big enough.


Thanks aliassmith,

If I lose 2 times in a row in P1 do I use the same P1 rules on my 3rd trade ?


At the start of P1 take your current/real account balance and calculate
the risk like you are starting from scratch each time. You lose 2,3 times
and bust out a 60%+ it is still all good. Lose to many times in P1 then you
probably should take a look at your execution.


That's what I wanted to know

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