Monday, 11 October 2010

Great Expectations

Money management strategy is one thing that traders often overlook. Doing the back testing and gathering the statistics empowers you with the knowledge and confidence to increase your trade size to match your business requirements.

This knowledge provides you with your trader's profile. You could, through back testing, find a high win setup that provides a short tight target and a corresponding tight stop. These are usually momentum trades in specific contexts. 

For example, if you had a setup that gave you a consistent 2.5 ES points and a 70% win rate that works with a 3.5 point stop loss, your stats would be winning 17.5 points and losing 10.5 points out of every 10 trades.

If you make this trade, say, 20 times a week then you could expect to make 14 points a week per contract or $620 after commissions. Now if you are a 5 lot trader then your weekly earnings can be $3,100 per week.

I have often spoken about the maths of trading. I believe that this is one of the keys to CP. There used to be a TV program here in the UK called Jim'll Fix It, where Jim went around solving all sorts of problems for other people. In this case you will have to Fix It.

No comments:

Post a Comment