The people who read this blog are not average. Most have serious intent to trade with a definable edge and go to great lengths to understand it and monetize it.
Most of you know that I use a private money management algorithm for trading ONS and FirstStrikePlus. I have no complaints about it, but many have wondered what money-management direction they should take for their own trading.
Fixed fractional methods are popular and many professional funds use them. Many following this site's systems use a fixed fractional approach risking 1/2% to 2% per trade per week. In other words, a total of 2.5% to 10% of total equity divided by the 5 markets we trade. Those who risk less have done great this year, those who risked more have done VERY well this year.
There are as many different money management possibilities as there are people. Some of you are very concervative, believing that there is a lot of time to conduct trading and others who believe that they want to get down to it and really put their capital at risk for an uncertain but potentially substantial reward.
I received the following email from a gentleman who has been researching money management and offers to show others the fruits of his effort. It isn't a style that I will likely use, but it shows how tolerant the author is to risking his profits. And you can imagine the profits obtained trading this style when markets act like they have the past few weeks.
The email follows:
Hi Joel-
The year is nearing the end I would like to take this opportunity to
express my deepest respect and appreciation to you and your endeavour
to educate the others.
Although I am not sending you emails on regular basis with updates on
my trading, I would like to say that the FSP and ONS has been more
than rewarding to me. I have been able to execute both strategies very
successfully which proved to me that one, as a trader, doesn't have to
spend hours with the charts and just couple of hours per week is
needed for decent profits.
In my previous email I have mentioned that I have been following the
DIBS for the most part of the year. I have however decided to drop
this system in favour to FSP and ONS being the only systems I will be
trading - all starting by January 2009.
I have also mentioned that your money management is staggering. I was
not able to match your performance which kept me thinking and testing
different ideas all over again. With a help from my friend
statistician/mathematician we have derived at the mm that, as you say,
keep profits during losing streak and adds on risk when the system is
winning.
Namely, that I would start the week with 5% for all 5 currency pairs
and should I win say 3% by the next coming Monday; I would invest the
gains for the next week totaling in 8% (5+3). If the following week
was a loser- say by 2%, I would decrease the base risk by 2% next
coming week, risking only 3% (5-2) over the 5 pairs.
This easy system of scaling the risk exposure depending on previous
week profit/loss has been quite a difference as opposed to just a
fixed percentage risk. Observing your mm approach I have learnt that
the profits in forex and any market for that matter is achieved by
sound money management technique with a very simple methods such as
those you teach.
I have mentioned my mm system not because I have achieved something, I
am sure you already know this kind of approach, but rather to
encourage you to talk more about money management in your blog. If it
would be your intention to reveal this approach or something similar
as I am sure many readers of your blog would benefit from it. Please
feel that this is just a suggestion/observation....
Best regards
Xxxx
-----
Thanks Xxxx! I'm sure it will give others something to think about. I do know that if you have a number of weeks in succession which are profitable, your profits can explode quickly. Thank youalso for your sentiments. The IFCN methods have been very profitable as of late, and not just because the markets have been perfect for them.
We have had many losses, as any of you who trade the systems can attest. I know that numbers of you almost refused to trade the USD/CHF because of the long string of losses it attained this last year. If you stopped trading it before this month, you are very sorry now. That is the way statistical/behavioral methods work. Very difficult emotionally and practically intolerable for typical traders.
They continue to work.
-----
I got stopped out of the long Gbp/Jpy trade after all the commotion in the last 24 hours. It happens. It also goes to show what kind of profits can be obtained with just a couple very strong pairs.
Some of you have wondered if you should place a trailing stop to protect your gains. Entirely your choice. What if you had decided to take just 150 pip profits on all of the winning trades this week. What would your profit situation be? Better or worse?
You get large equity gains by holding on to winners and letting them decide when they are done going your way.
The week's remaining FirstStrikePlus trades:
- gbp/usd: Long @1.5173, stop 1.4993.. Trade in progress.
- eur/usd: Long @ 1.3676, stop 1.3417. Trade in progress.
- gbp/jpy: Long @139.23, stopped at 135.91 for 332 pip loss.
- usd/chf: Short @ 1.1582, stop 1.1763. Trade in progress.
- usd/jpy: Short @ 89.21, stop 91.51. Trade in progress.
Trading account equity: $1,869.50
Silver position equity: $400.00
(Current XAG price: $11.40 – 200 unit position average: $9.40)
TOTAL Equity: $2,269.50
As I was preparing this for posting, I got a call from an Oregon trader of FirstStrike-- He said that as of today he was up more than 14% for the week. Congratulations for placing the trades, AND holding on. That is the more difficult part.
Joel Rensink
www.infiniteyield.com
PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: newsletter@infiniteyield.com and tell me to which address you would like it sent. Please do not use AOL, Hotmail or Yahoo addresses. They've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!
1 comment:
Incredible moves! I'm having a really good week too. I usually will move stops a bit once I have 1.5 to 2 times the amount of pips I originally risked. That cost me the GBP long this time around. I can't complain too much... I kept 100 pips which offset much of the loss in GBP/JPY, and I'm up huge in the other pairs. In fact, I'm at a new equity high... up over 500% now since starting in May. It's just as simple and as hard as taking the trades as they come. I know I have a long, long road ahead, but I have more proof now that I'm capable of getting where want to go. (And I'll need to remind myself of that when the inevitable drawdown is underway.) Take care...
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