MultiStratMM - for maximum profit
Posted: Thu Mar 05, 2009 10:50 pm
Here's a money management idea to make trading profitable - hopefully very profitable.
Just about any strat (strategy) is successful when combined with prudent money management and traded at the right time. i.e trade a trend following strat. when markets are trending, trade a retracement strat. when markets are range bound.
The hard part is identifying the current market conditions and switching strats at the right time which can be at any time (and usually when you least expect it ).
THE SOLUTION:
Trade 2 strats simultaneously and use money management to allocate more money to the one that is winning and reduce the risk to the one that is losing. One strat is trend following the other not.
Initially each strat is allocated a value for RiskPerTrade1 and RiskPerTrade2 = 0.25%.
If the last trade was a winner then increase RiskPerTrade by multiplying it by 1.5
If the last trade was a loser then decrease the RiskPerTrade by multiplying it by 0.5.
When market conditions favour one strat (i.e. it's winning trades) it is allocated more risk to maximise the profits. When market conditions are killing a strat it's position size is wound down to limit the losses. You'll also see that this scales down faster than it scales up i.e. fear is given more weight than greed to protect your money.
The beauty of this is that it automatically does what is possibly the hardest and most important thing to get right with live trading.
Of course you would set a minimum and maximum value for RiskPerTrade. Prudent values would be 0.025% and 2.5% when daytrading. A limit on the days and weeks losses is also prudent. The trend is not your friend if your account balance is trending down.
If anyone sees enough merit in this idea to code an EA I hope they send me a copy - or work together on it. I have many more high probability ideas.
steve b. Mar 6th 2009
Just about any strat (strategy) is successful when combined with prudent money management and traded at the right time. i.e trade a trend following strat. when markets are trending, trade a retracement strat. when markets are range bound.
The hard part is identifying the current market conditions and switching strats at the right time which can be at any time (and usually when you least expect it ).
THE SOLUTION:
Trade 2 strats simultaneously and use money management to allocate more money to the one that is winning and reduce the risk to the one that is losing. One strat is trend following the other not.
Initially each strat is allocated a value for RiskPerTrade1 and RiskPerTrade2 = 0.25%.
If the last trade was a winner then increase RiskPerTrade by multiplying it by 1.5
If the last trade was a loser then decrease the RiskPerTrade by multiplying it by 0.5.
When market conditions favour one strat (i.e. it's winning trades) it is allocated more risk to maximise the profits. When market conditions are killing a strat it's position size is wound down to limit the losses. You'll also see that this scales down faster than it scales up i.e. fear is given more weight than greed to protect your money.
The beauty of this is that it automatically does what is possibly the hardest and most important thing to get right with live trading.
Of course you would set a minimum and maximum value for RiskPerTrade. Prudent values would be 0.025% and 2.5% when daytrading. A limit on the days and weeks losses is also prudent. The trend is not your friend if your account balance is trending down.
If anyone sees enough merit in this idea to code an EA I hope they send me a copy - or work together on it. I have many more high probability ideas.
steve b. Mar 6th 2009