Alternative Money Management Strategy

Post by **falsedave** » Sun Apr 12, 2015 6:34 pm

I have had what seems a simple money management idea. I've coded it up into one of my personal EA's and it appears to work Amazingly well. To good to be true in fact, I'm convinced there must be something wrong somewhere.

What I'm after is a different EA that I can try and add it into. One that only trades one pair so I can backtest it, doesn't grid and one that often gets a string of winners, doesn't matter on the length of string of losers really so long as its not excessive.

I've looked at a few but cant seem to find one that does as I'm looking for.

Post by **falsedave** » Tue Apr 14, 2015 10:01 am

Sorry guys just re-read my previous post realized It sounded like I was taking from the community but not giving back. I was trying to ascertain if my idea would work first before putting it forward and the EA I was testing couldn't be posted because it uses a retail indicator. So I'll outline the concept below.

Basically the idea is for an alternative MM strategy with few rules. Its seems pretty simple but it appears to work *very* well when it hits a streak.

[*] Start with x% account risk
[*] If the trade wins the next trade only risks the amount gained from the previous trade
[*] Rinse and repeat

[*] If a trade loses reset back to original % risk and start again.

The only problem I can see is that you need a streak of 2 or greater to profit. But if you hit a streak of about 6 onwards the thing literally Erupts into profit. It can potentially take 1000 to 1,000,000 in a 16 trade streak. With a 2:1 Risk/Reward it creates a maximum % risk of only 25%

The EA I tested got a streak of 26 !! It was incredible , but i'm pretty sure it was down to an error in trade logic. I've already started using an adaption of this for my manual trades which proved pretty successful in the last few weeks USD bull run.

I know there are a lot of guys out the much better than me at the maths of this. What do you reckon ?

RedLineFred · Post by **RedLineFred** » Fri Apr 17, 2015 3:40 am

It will be interesting to see how this works out for you, but on my calculations, the first time you have a loosing trade all the profits will be wiped and you'll start from the beginning, whereas the standard 1% of account trade loss will not rob your entire profit.

Increase the risk and you'll increase the returns, provided you keep winning. But one loss and you start back at the beginning.

Only slightly better than martingale where you could drop to zero.

Post by **falsedave** » Sat Apr 18, 2015 3:37 pm

When you have a losing trade the streak is over and risk is set back to 1%. Each trade only risks what the last trade won.

For example starting with £500. 1:2 Ratio

First trade 1% risk : £5 risked - £10 reward - New Balance £510.
Second trade £10 Risked - £20 reward - New Balance £530.
Third trade £20 Risked - £40 reward - New Balance £570.
Fourth trade £40 Risked - £80 reward - New Balance £650.
Fifth trade £80 Risked - £160 reward - New Balance £810.

Now say we lose on the 6th. Our balance was £810.

Sixth Trade £160 Risked - £160 Lost - New Balance £650.

Our risk is now reset:

Seventh Trade 1% Risk : 6.50 risked - £13 reward - New Balance $663

With a standard 1% risk. You would be looking at only £520.24 after 5 wins 1 loss.
I've worked it out in a spreadsheet. It actually works out much better even with lower win rates than standard 1% Risk. I'll pretty it up a bit and add it to the next post.

I realize mods that this is not now a coders post but more a Money Mangement. Please move it to the appropriate Sub Forum.

RedLineFred · Post by **RedLineFred** » Mon Apr 20, 2015 3:07 am

Sorry Dave, I misunderstood and thought you were risking the whole profit above the initial account balance, and hence my comments.

If its only the last trade profit, then i can see this could work quite well.

Post by **Elixe** » Mon Apr 20, 2015 1:25 pm

falsedave » 18 Apr 2015, 16:37 wrote:I realize mods that this is not now a coders post but more a Money Mangement. Please move it to the appropriate Sub Forum.

Here you go

xfactornos · Post by **xfactornos** » Wed Apr 22, 2015 2:26 pm

What ever happened to your testing? Are you still trying this?

Post by **falsedave** » Thu Apr 23, 2015 8:03 pm

Bear with me I'm typing up my spreadsheet to present my findings. Unfortunately I'm pretty crap at spreadsheeting so you'll have to bear with me.

Post by **forexdj** » Tue Apr 28, 2015 4:08 pm

falsedave » Thu Apr 23, 2015 11:03 pm wrote:Bear with me I'm typing up my spreadsheet to present my findings. Unfortunately I'm pretty crap at spreadsheeting so you'll have to bear with me.

That's quite interesting. Waiting to see your findings.

Post by **drunka** » Thu Apr 30, 2015 4:42 pm

If you risk only 1% from your initial deposit it means you either have a system with a standard to low winning ratio or you are carefull with you maximum drawdown / risk to ruin (whatever sum this means to you).

when you switch, with your new balance you risk a lot more (25%) which means you should have a really high winning rate and don't care so much about drawdown. That doesn't make sense!

If you have a sound system with a high winning rate you should (generally speaking) risk more than 1% since risk of ruin is low (compared to a system with low winning rate and high R/R) and always much less than 25% but be more constant

example with the 5 winners and 1 loser
your system:
500€ -1% risk -2:1 - switch to 25%
5 winners / 1 loser: 663€

other system 1 (aggressive approach)
500€ - 5% risk - 2:1 R/R
5 winners: 800
aftrer 1 loser: 766€

other system 2 (more conservative)
2,5% for deposit + 5% winner pot - 2:1 R/R
500+25
+25+27,5
+25+30,25
+25+33,275
+25+36,6
-12,5-7,63
5 winners = 777,6€
after 1 loser = 757,5€

cheers

edit: concerning the % number, what is high and low depends of course on your systems and risk appetite. the actual numbers I used here are just more or less random numbers to demonstrate what I mean.