Correct Money-Management using Price-Action (huhh??)
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Thread: Correct Money-Management using Price-Action (huhh??)

  1. #1
    When I first learned about money management, I essentially learned two things:

    1) limit your risk to at most 2 percent of your equity.

    And

    2) Plan your transaction to acquire atleast 200 or 300 per cent of what you're risking. If based on the technicals, that is not feasible, then do not take the transaction.

    Then I read a very long thread regarding price action, and I have even begun to use it . The problem is, when I see a possible transaction to take with price action, it's hardly ever 200 or 300 per cent of my risk. Usually it's a sure fire way to gain a hand full of pips, from my own experience.

    Query: Am I really not carrying the right trades? Should I be searching for larger swings? Does this MM scheme have to be modified? HuhhH?

    Some guidence please.

    Thanks Beforehand.

  2. #2
    The traditional theory of risk reward ratio trading is bullocks for me to be honest. The market makes a habit of ruining the best layed out plan, so to attempt to understand that your goal is 3 times your stop is shooting at fairies in my opinion.

    I consider it this way... have I given myself a great prospect of winning than losing, and do I have a higher prospect of winning more than I am risking... as simple as that, risk/reward ratios are all well and good but to me they mean small in the end of the day. I know this goes against the grain, but each to their own I guess.

    A very simple traditional example of the type of trade would be buying at support, you understand your stop can be relatively near cause you're buying in an expected exhaustion point, and when support holds, then you can hazard a guess (cause that's all it is) that the move would be rewarding enough to take the trade, if you gain more than 300 percent of your stop space, who understand and who cares, allow the market tell you when to get out.

    Maintaining the percentage of your overall account at risk down though still has some merit, but really it's pretty easy to know if you're risking too much, simply wait for this anxious squirmy feeling, that's when you understand.

  3. #3
    Akuma99;
    Thankyou for the honest Response. It has given me confidence. After two decades of part time study I agree with your statment although I'm still not qualified to answer a question like this. Winning is what's importand. You can't frame the market to some ratio.

  4. #4
    Reward/Risk ratio? Oh yeah, that is that 2:1 or even 3:1 thingy is not it? I've been meaning to get around to studying up on that, but I've been too busy earning money.

    Reward is an unknown variable in my transactions. Sure, my transactions have profit targets, but if price will really hit those targets, I don't have any idea.

    When I enter a transaction, I don't understand what my Reward will be (if any), but I do understand exactly what my risk is. My objective in each transaction I make is to reduce and eliminate the entry risk as quickly as possible. I'm not seeking to earn money. That's a coincidence if I earn money, but my focus is on reducing risk.

    By way of example, let's say I put in a trade with a first stop loss of 40 pips, which represents 2% of my equity. My reward is represented by R and is an unknown until after the transaction is closed
    Hence my entry reward/risk ratio is R/40. In the event the trade moves in my favor, and I'm ready to move my stop upward by 20 pips, my reward/risk ratio then becomes R/20. I don't have any clue what the numerical value of R/40 and R/20 are, but I do understand that the ratio has been doubled, and my risk has been halved.

    If I am ready to eliminate risk by shifting my stop to break even, then my ratio becomes R/0 that has a value of infinity. I don't know about you, but I've found having a reward/risk ratio of infinity has proven to be profitable.

    Dial

  5. #5
    Quote Originally Posted by ;
    The conventional theory of risk reward ratio trading is all bullocks to me to be honest. The market makes a habit of ruining the best layed out plan, so to attempt to understand that your goal is 3 times that the stop is shooting at fairies in my personal opinion.

    I consider it this way... have I awarded myself a fantastic prospect of winning than losing, and do I have a higher prospect of winning over I'm risking... as simple as that, risk/reward ratios are all well and good but to me they mean little in the close of the day. I know this goes against the grain, but each to their own I guess.

    A very simple traditional case of the type of trade would be buying at support, you understand your stop can be relatively near cause you're buying in a potential exhaustion point, and when support holds, then you can hazard a guess (trigger that is all it is) that the move would be rewarding enough to select the trade, if you gain more than 300 percent of your stop space, who understand and who cares, allow the market tell you when to get out.

    Maintaining the percentage of your overall account at risk down though still has some merit, but actually it's pretty simple to know if you're risking too much, simply wait for that nervous squirmy feeling, that is when you understand.
    Hi Akuma99,

    An EXCELLENT answer.

    Straining a commerce to go to a specific price point is a sure way of blinding the trader to where it's actually going. The trader can be conscious of goal factors that you could be more wwwwrong. (It is always difficult to say that word!!) .

  6. #6
    Quote Originally Posted by ;
    Reward/Risk ratio? Oh yeah, that's that 2:1 or even 3:1 thingy isn't it? I have been too busy making money, although I have been meaning to get around to researching up on that.
    OK so primary goal: eliminate risk. Achieve a trade that is free.

    (Do not worry that you just lost two 40 pip trades, and just won 3 worth 12?)
    Quote Originally Posted by ;
    (My goal in each trade I make is to reduce and then eliminate the entry risk as quickly as possible.)
    I guess it also helps to have a system that's reliable. It's the only real leg, although that seems obvious.

    I will definantly use what you have shared. However, you ought to be aware of, '' /0 is undefined.

  7. #7
    Quote Originally Posted by ;
    Reward/Risk ratio? Oh yeah, that is that 3:1 or even 2:1 thingy is not it? I have been meaning to get around to studying up on that, but I have been too busy earning money.

    Reward is an unknown factor in my transactions. Sure, my transactions have profit goals, but whether price will really hit those goals, I don't have any idea.

    When I enter a transaction, I do not know what my Reward will be (if any), but I really do know exactly what my risk is. My objective would be to reduce and eliminate the entry risk as quickly as possible. I'm not seeking to make money. That's a coincidence if I make money, however, my attention is about reducing risk.

    For example, let's say I put in a trade with the initial prevent loss of 40 pips, which represents 2% of my equity. My reward is represented by R and is an unknown until after the transaction is closed
    Hence my entry reward/risk ratio is R/40. If the trade moves in my favor, and I'm able to move my stop upward by 20 pips, my reward/risk ratio becomes R/20. I have but I do know that the ratio was doubled, and my risk was halved.

    When I am able to get rid of risk by shifting my stop to break even, then my ratio becomes R/0 that has a value of infinity. I really don't know about you, but I have found having a reward/risk ratio of infinity has been demonstrated to be profitable.

    Dial
    Another Superb answer.

    It's amazingly easy to find out who the professional traders are on a forum. All you have to look for is your NO BULLSH*T replies.

    No hidden keys, no effort to market something to newbie traders, all advice freely (and willingly) given, and a clarity and flexibility in their trading egies.

    Perhaps even more importantly, the most professional traders (instead of sign vendors ) readily admit that there isn't any HOLY GRAIL!!

    Trading Forex is a war. . .you set your egy to your transactions, then you go to battle. Should you win, you get rewarded. . .if you lose, you are financially injured. Maintain superficial to the wounds.
    And each day is a new struggle.

    It's simple, but it isn't easy.

    Having said all that, should you treat Forex as a company, this remains the very best company in the world.

  8. #8
    Quote Originally Posted by ;
    OK so chief goal: remove risk. Accomplish a trade that is free.

    (Do not worry that you just lost 2 40 pip transactions, and just won 3 values 12?)


    I guess it also helps to have a system that's reliable. It's the only real leg, although that seems really obvious.

    I will definantly use what you've shared. But you should be aware of, '' /0 is undefined.
    Hello 4X,

    That is right. You do not need to think about losing 2 40 pip transactions and winning 3 values 12, in case you've got a ratio on a SERIES of trades. It is not feasible to understand the R/R ratio of a given trade until after the trade is closed, as explained in my previous article. Butonce you've a series of trades that are closed that has been generated by the combination of your trader self, your own method along with your MM, then you can calculate your systemic R/R.

    A system Contains TRADER METHOD MM. The series R/R can be affected by changing any of those three.

    Yeah, I understand that */0 is undefined, but I have never understood why. In my opinion it makes perfect sense that in case you continue creating the denominator smaller and smaller, the ratio gets bigger and bigger. In my view, a really huge number which is not infinite is yielded by an denominator. So why doesn't pushing on the denominator to zero, push the ratio? I don't get it.

    Dial

  9. #9
    Quote Originally Posted by ;
    In my opinion it makes perfect sense that in the event that you keep creating the denominator smaller and smaller, then the ratio gets bigger and bigger.
    Yah which makes sense to me too, but there must be something about crossing out of the infintesimally little into the non-existant.

    Zero IS a number, but it's actually only a symbol that symbolizes nothing. And there is a difference between something and nothing.

    As far as I can tell, turning your RR ration into /0 is infinantly magnificent.

  10. #10
    Quote Originally Posted by ;
    it is not one who can determine how much you may win, it is the market, so overlook that the maths,
    It feels like RR ratio is an lagging indior of your own performance.

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