What's the best way to learn about Money Management

Discussions about Money Management and Risk Control.
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Jimmy
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Position Sizing vs. Money Mgmt

Post by Jimmy » Wed Apr 16, 2003 11:11 pm

Hi George,

It's nice to see another beginner on the board. I too am new to trading, but here's my cut at explaining the difference between position sizing and money management.

Position sizing = Decision about how much to buy or sell at the entry of your trade. The key here is to keep your bet size small and to use money management to pyramid up as the trend goes your way. Utilizing a constant position size methodology allows for proper diversification across markets (i.e. Turtles used a constant percentage risk position size strategy that normalized volatility per unit with the N concept).

Money management = the use indicators/thresholds that signal when to pyramid up and the judicious placement of stops to cut losses short. With a long term trend following system, money management basically allows you to add to winning trades and control losses incurred on unprofitable trades. (i.e. Turtles again used N in their money management technique to normalize volatility across markets).

I would appreciate any of the more experienced traders to clarify or improve upon my explanations. George, you should check out the original turtle rules posted at www.originalturtles.org as a good basis for your trading education.

Best regards and may we continue to learn together,
Jimmy

Maxwell Cintes
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Post by Maxwell Cintes » Thu Apr 17, 2003 12:17 am

Jimmy,

Thanks for the information. I'll check out the link to OriginalTurtles.org.

I found this forum by looking up "Trading System" in google and an ad popped up.

What exactly is the link between this forum and the OriginalTurtle.org, obviously Turtle Trading Software has something to do with turtles?

Karakoram
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Post by Karakoram » Thu Apr 17, 2003 4:01 pm

I found that Dr. THarp's "Special Report on Money Management" to be worth more than it's weight in Gold (at least up to around 600/oz :lol: )

www.iitm.com

Robert Nio
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Another nice site ...

Post by Robert Nio » Thu Apr 17, 2003 9:08 pm

Here is another nice site I ran into:

http://keplerweb.oeh.uni-linz.ac.at/tra ... neyMan.htm

Has lots of info, I liked the MONEY MANAGEMENT section especially.

All the best & happy trading.


Robert

damian
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Post by damian » Fri Apr 18, 2003 2:08 am

I like the potry on the site:

Be bright, give up being right, and
emphaSIZE on Position SIZE !!!

Dave S.
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Originalturtles.org

Post by Dave S. » Fri Apr 18, 2003 5:29 pm

Hi George,

The original Turtles had a 10 year secrecy agreement with Mr. Dennis, and all but one had enough respect for Mr. Dennis to continue to adhere to this. They finally decided to make the Turle rules available for free in a effort to stop othr's explotation.

If you go to http://www.originalturtles.org you can download a copy of the Turtle rules for free.

Dave

Roscoe
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Post by Roscoe » Sat Feb 07, 2004 11:31 pm

Hi George, welcome aboard!

I must repsectfully disagree with Jimmy however: it is my opinion that money management and position sizing are one and the same thing: a strategy to determine the 'optimum' size (as in number of contracts) to take when entering a trade.

There are two basic types of position sizing: Martingale (where you increase the size after a losing trade) and anti-Martingale (where you increase the size after a winning trade). It is generally considered that only anti-Martingale (AM) strategies should be considered.

Some types of AM strategies: Fixed Fractional, Fixed Ratio.

ksberg
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Money Management

Post by ksberg » Sun Feb 08, 2004 12:48 am

Unfortunately, the term "Money Management" is used to mean different things by different traders. Some people mean using stops, period. Some people mean cutting losses. Some people tie it back to risk exposure in the portfolio, some people imply bet size, some even include scaling.

So, when talking to another trader, it is difficult to immediately know what they mean by "Money Management". That is why Van Tharp and others have chosen to use the more precise term: "Position Sizing".

I'll take that a step further. By Money Management I mean the comprehensive set of policies that address at least the following:
  • Position Size (#Contracts/Shares)
    Managing Contingency Risk (Initial Stops, Maintenance Stop Rules)
    Managing Exposure Risk (Heat, Correlation, Direction)
    Scaling Policies (in/out, up/down)
I'm sure there are probably more.

Could you say there is an aspect of money management present in selecting which markets to trade? If that selection involves rules that limit our market choice by the amount of capital, or liquidity, or even how volatility would adversely effect trading results, then I would offer that we're practicing money management by limiting risk.

Thoughts? Comments?

Cheers,

Kevin

Brandonf
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Re: What's the best way to learn about Money Management

Post by Brandonf » Thu Apr 22, 2004 2:01 pm

George Arnault wrote:Hi, I'm a beginner :oops: and haven't yet traded except for a few bad stock investments but I want to learn more about money management.

First, I'm a bit confused, what's the difference between money management and position sizing?

What is the most important aspect of money management?

Why does everyone keep mentioning it?

I found, fortunatly or unfortunatly..you pick, that the best way for me to learn about money and risk managment was blowing up my account a few times. Before that I had read everything about it, knew it in the book backwards and forwards and thought a lot about how important it was. It wasnt till i blew up a few times thought that I honestly respected risk and managment.

Brandon

Brandonf
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Re: What's the best way to learn about Money Management

Post by Brandonf » Thu Apr 22, 2004 2:04 pm

George Arnault wrote:Hi, I'm a beginner :oops: and haven't yet traded except for a few bad stock investments but I want to learn more about money management.

First, I'm a bit confused, what's the difference between money management and position sizing?

What is the most important aspect of money management?

Why does everyone keep mentioning it?
Not to toot my own horn too much...but I have an article in the Wizards section of hardrightedge on money managment and risk managment that i think is good for a beginner. Its a bit dated, but still works.

Brandon

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