Thanks Sir for very good explanation.
I did not get this one point:
If I start with 10 lots and make 200 points, how can I add 1 lot? Because I should be adding 1 lot only after every 1350 points (1.5*Max Loss)? Need some more explanation here.
I did not get this one point:
If I start with 10 lots and make 200 points, how can I add 1 lot? Because I should be adding 1 lot only after every 1350 points (1.5*Max Loss)? Need some more explanation here.
Vipul,
Am not very good at math. Please bear with me if i had made any mistakes in multiplication, percentage calculations.
Let me get this straight. You have a system that makes 2000 pts per year. 900 pts max DD in the last 5 years. 75 pts avg win and 35 pts avg loss (apprx 1:2 RR) with a winning %age of 40.
1. As your max loss is 900 points, i would add 1 lot every 1350 points(1.5x) . Your max loss is high for the points you are making per year(on average)..This is the safest way to include lots but its gonna be very slow.Fixed ratio or fixed fraction would be immaterial when the max loss is high, in my opinion. Further pointers will elucidate that.
2. I thought the SL is average 35 points, but you say it is 75 points in this pointer..Initial SL is not a criterion in fixed ratio but plays a role in fixed fraction.
3. It is very difficult to devise money management for a system that has 'x' max loss and '2x' profit. It becomes more difficult when we trade less than 8-10 lots....as scaling down is very difficult...For assumption, lets say you are trading 8 lots(600 qty) and you hit a 1000 pts DD, you would have lost 6 lacs(out of your 12 lacs capital - 1.5 lac/lot)..that is 50 pct of your account size. How comfortable are you losing 50 pct of your account size?..say, your account is 2 crores..how comfortable are you losing 1 crore? It takes 100pct to come back to 2cr again. This is exactly why it is difficult to give a 'scaling down' approach for a system that has 1:2 (max loss:average profit) parameters.
But, if you add a lot only every 1350 or better 1800 pts, then there wont be a need to scale down. Say you started with 10 lots, then when you make 200 points, you would have made 2000 points (in a literal sense) and you can go to 11 lots....so, it helps to start with 10 lots with your specific system parameters.
4.Read Ryan Jones Trading game book for getting a hang of fixed ratio method. But lemme say this again Vipul - it is very difficult to devise a money mgmt system with the 1:2 (max lossrofit) parameters...
So, if i were you, i will take another look at my system and its parameters (ofc, you did not ask about your system but i thought i should add this point anyways).
Hope it helps !!
Am not very good at math. Please bear with me if i had made any mistakes in multiplication, percentage calculations.
Let me get this straight. You have a system that makes 2000 pts per year. 900 pts max DD in the last 5 years. 75 pts avg win and 35 pts avg loss (apprx 1:2 RR) with a winning %age of 40.
1. As your max loss is 900 points, i would add 1 lot every 1350 points(1.5x) . Your max loss is high for the points you are making per year(on average)..This is the safest way to include lots but its gonna be very slow.Fixed ratio or fixed fraction would be immaterial when the max loss is high, in my opinion. Further pointers will elucidate that.
2. I thought the SL is average 35 points, but you say it is 75 points in this pointer..Initial SL is not a criterion in fixed ratio but plays a role in fixed fraction.
3. It is very difficult to devise money management for a system that has 'x' max loss and '2x' profit. It becomes more difficult when we trade less than 8-10 lots....as scaling down is very difficult...For assumption, lets say you are trading 8 lots(600 qty) and you hit a 1000 pts DD, you would have lost 6 lacs(out of your 12 lacs capital - 1.5 lac/lot)..that is 50 pct of your account size. How comfortable are you losing 50 pct of your account size?..say, your account is 2 crores..how comfortable are you losing 1 crore? It takes 100pct to come back to 2cr again. This is exactly why it is difficult to give a 'scaling down' approach for a system that has 1:2 (max loss:average profit) parameters.
But, if you add a lot only every 1350 or better 1800 pts, then there wont be a need to scale down. Say you started with 10 lots, then when you make 200 points, you would have made 2000 points (in a literal sense) and you can go to 11 lots....so, it helps to start with 10 lots with your specific system parameters.
4.Read Ryan Jones Trading game book for getting a hang of fixed ratio method. But lemme say this again Vipul - it is very difficult to devise a money mgmt system with the 1:2 (max loss
rofit) parameters...So, if i were you, i will take another look at my system and its parameters (ofc, you did not ask about your system but i thought i should add this point anyways).
Hope it helps !!
