2007年11月14日星期三

Money Management Entry - Contract size

My last post, it talk about turning 10,000 into 1.6million in two years, let's take it into reality analysis.

As told by Larry William, maybe the Holy Grail of trading is money management. As yet this equation may be the Holy Grail.


Say an $10,000 account, you are going to risk 20% of the total capital* - the risk factor

* Larry took 60% risk for his 10,000 to 1.1 million trading champion and his daughter 20%

And for every trade how much are you going to risk i.e. risk per trade, say a $1000


Total contract you can trade = (Total capital x risk factor)/risk per trade


Therefore you can trade 2 contracts at a time.


For time being, as you win you increase the total capital and you will increase the contract trade by the equation vice versa.


I use a more realistic example of make 5% profit per week ($500/week) with 48 trading week in a year and only trade one contract at a time.

The return is 340%. What happen if we use the above equation to trade. Since I want to make it simple, what I do is: ONLY increase contract trade for every 10,000 increase in capital.
From this we can see a 650% return in a year. Compare to the previous chart we see a 100% increase in return. A 1600% return in previous post seem to be unreal in trading or he who has to be very good.

n fact 650% mean that we are trading a 100% winning system, which is not quite possible. So we assume to trade a system of 55% winning rate, we still get the return of 357%


5% still hard for you, how about making 3% per week that is for $10000 invested or one contract you only need a $300 profit which can be achieve in a matter of minute. But what we require here is a week's time.

Here is what you got, a 289% profit, and if trading a 55% wining system, you still get 158% return impress? Compare to the average 10-30% per annum return in stock market

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