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With regard to Fixed Ratio Money Management brought up by John Sweeney, there are two (atleast) perspectives on the subject. The first is a mathematical view with the aim of maximizing returns. The other is a psychological veiw with the aim of being able to continue to pull the trigger on new trades and allowing one to get a good night's sleep. FRMM makes no sense if the goal is to maximize returns as there are other money management techniques that do this much better. I believe it's primary function is to provide a method of managing trades that is complimentary to the traders ability to cope with losses. As an example, I am a mathematician by training and trade a system based on probabilities. I know by virtue of the odds, that having 6 trades on that all become losers is extremely remote ( 4 in 10,000 ) in addition it has never occurred in any of my back testing, yet in the instances where I have had more than 5 trades on in different markets, I have been very uncomfo!
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rtable and found myself worrying about my positions. The solution for me was to trade fewer markets so that this became a rare occurance. Naturally I sacrificed some on the bottom line, but I am able to trade and enjoy it rather than worry about it. In other word it doen't make financial sense but it does make peace-of-mind sense.
All the Best !
Bill Shumake
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