There are various money management strategies.

First. One could adjust to amount of risk taken to the likelihood of each trade. First, you only trade with small capital. And when the odds are in your favour, you commit a larger capital in proportions. I don't have a strategy that would use this sophisticated money management but in theory this might be needed.

Second. Don't count the risk on "individual trades". Instead counting the risk on a series of trades. Since he risk is counted on a serious of trades, it is possible to take larger financial risk on the series. The statistical likelihood of loosing is less. So this way, I can commit 10% of risk capital instead of 1%.

Third. Scaling in and out of risk. If I have 10.000 trading capital, and I would be willing to risk only 1% on each trade. I could only risk 100 on the trades. And this result in a very low profit ratio. Higher risk capital gives higher potential gains.

In the scaling strategy, I would risk 10% of the remaining capital in each trade. (10% is an example here.)

If I loose, I have 90% of my capital left, so again I only take 10% of the risk of this capital. And so on. This way, I can suffer a large serious of losses and still come back. In fact, even after 10 losses, I would still trade with risking 348. A considerable larger amount than risking 100 on a trade.

with higher capital in each trade, if I would only risk 1% on each trade. So I would have a potentially larger change of making profit.

Fourth. This would be a combination of the second and third strategy. If I have a strategy that has an 80% probability of winning trades (with very low deviation from the average), I can easily risk more than 10% on each trade. Mathematically, it would be possible to calculate the ideal amount but this is not a mathematical dissertation.

Subscribe to:
Post Comments (Atom)

## No comments:

Post a Comment