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Risking 1 - 3% of the account on a given trade is fine if you have a large account. However, if you want to grow a small stake this will not work. Sure, Niederhoffer and Buffet have been making 20-odd percent a year and are stars, but they didn't start with 10k.
For small accounts Fixed Ratio is the solution. It emphasizes capital preservation at the start, then, as the account grows, maximises the leverage (no, it doesn't have to be reckless or stupid), then, as the account grows to a meaningful size, becomes more and more conservative, eventually falling to the proverbial risk of 1 - 2% on every trade. It actually amazes me how few people know about this method. I mean know, as in studying Jones's book, not learning it on the phone in three minutes.
That's interesting. How does that work, in practice, for a "50K" combine account, for example, that is in reality at a $2.5K account given the $2.5K trailing drawdown? A "small stake" to be sure. Just so we are clear, here is the challenge, the trailing drawdown is there throughout the first phase, requiring a $3,000 profit, and continues in the performance account until you reach the drawdown amount of $2.5K then stops. Therefore, you have to make $3,000 and then $2,500 from a $2,500 account before you can start to make a profit. So you really have to turn a 220% profit on those "$50K" ($2.5K) accounts (with a $2,500 trailing drawdown limit all the way) before you can make any money with them. To do this you can follow some well-established systems like the one presented here: https://apexinvesting.net/wp-content/uploads/ssc/APEX 6-3 Rule 2.6/APEX 6-3 Rule 2.6.htm.
It's not Van Tharp, but it's more along the lines of what I was talking about. I have 3 performance accounts right now, on which I passed the evaluations and am part ways into the next $2,500 threshold. I am not familiar with the one you mention but would like to hear more about it. Other than stating that one should learn it comprehensively from Jones, can you explain it in a few words? Or give a simple breakdown of how it would work with a combine? How you structure your stops and targets? A quick nuts and bolts explanation? And how does it benefit someone with discipline problems (not a rhetorical question, just asking as I have no idea about this method, but that is what was mainly being addressed here and I do know that keeping your trades to max 6% of account loss per day with that amount divided into 6 losses max on the day is unlikely to cause much tilt)?
You can't outsource confidence in trading decisions
This is another interesting thing that I recently found out about. Lack of sleep mimics alcohol intoxication. We've all heard about how important sleep is for good performance, but I had never heard it articulated quite like this. It makes sense, because in my experience when things have gone sideways, for example, I have tended to go on a mission to recover losses, trading day and late into the night, consecutive days, with poor sleep, and it always ends badly. The idea that lack of sleep is akin to a high BAC makes perfect sense in light of how I traded at those times. Reflecting on it afterward, asking myself how I could have taken the risks I did, changed to a stupid size, was willing to sacrifice so much work up to that point blowing up funded accounts, etc. Thinking of it as being drunk makes a lot of sense. Here's the CDC page link: https://www.cdc.gov/niosh/emres/longhourstraining/impaired.html
You can't outsource confidence in trading decisions
In a nutshell, this method calls for the increase in the trading size after a profit in points. Let me illustrate it on the hypothetical futures contract (incidentally, this was very close to the ALSI contract 20 years ago.
Let's say the face value of the contract is $100,000, the margin required $10,000. One point is $10. First, you determine the starting account, which should be based on the historical drawdown. Let's say DD is 20$, then starting account size should be at least 30 - 40k. So if you start trading with 40k the leverage is 0.4.
Next, you decided on the Delta. Let's say it is $5000. The increase in size is calculated by the following equation: profit required for the next increase = current number of contracts x delta + account size at the last increase.
What it means is the following. You start trading 1 contract with 40k. When you make a profit of $5000 - your capital is now 45k - you increase to 2 contracts. Your leverage sharply increases: from 0.4 to .45/2 = 0.225. Next increase at 2 contracts times $5000 plus previous level = 45k + 10k = 55k. Leverage increases to 0.55/3 = 0.18. Four contracts at 55k + 15k = 70k, leverage of 0.70/4 = 0.17. Five contracts: 70k + 20kAnd so on. Accordingly, if you make a loss you decrease the size accordingly, and if you get back to your starting account size you are back at the relatively low level of risk. As you increase the number of contracts, the leverage starts dropping off, and so is the risk. At some stage, somewhere around 15 - 20 contracts, it becomes sensible to switch to fixed fractional, i.e. risking n% per trade.
So when you start the emphasis is on capital preservation. As you start making profits you use the "other people's money" to increase the leverage, and, as the account grows, sharply increases it to maximize profits. Stops and profit targets are not incorporated into this method, but you can probably tweak this method to include them. For example, instead of increasing the size you can increase the risk. So, let's say, initially you risk 1% of capital on a trade. After producing a profit of delta - points, pips, dollars - you increase it to 2%, then to 3% etc.
Oh wow, COLD TURKEY! Brilliant advice! It is basically what I have been looking for but never thought of!!!!!!
Nice. I have been cheating around my max loss on Rithmic, only because you can just go into the application and change your max loss or even disable it anytime you want to. I have been promising myself to never do that, when I first setup the daily max loss - but then went ahead and did it. Multiple times.
Been searching forever for an add-on for Ninjatrader, that would give me a fix stop loss, but couldn´t find it. Cold turkey is a new way of approaching this problem, one I havent thought of.
BUT! ONE THING: I have experienced some times, that even when my Rithmic set Max Loss Daily was hit, that if I clicked often enought on "Buy Bid" (like 10 or 20 times) - eventually it would work again. Hope I am not giving anyone here any bad ideas - but has anyone encountered this as well?
Guardian Angel (link further up in this thread) has a max position loss that will take care of your stops. Here's what you need to do to get it all under wraps:
In Guardian Angel make the session time for each account Sunday to Friday, from 00:01 to 23:59, so you are effectively shut out of the account(s) 24/7. Now since your session is 24/7 you can't make any changes to your accounts all week but you can technically trade anytime. Therefore, you structure your actual session times with the Cold Turkey app, which locks you out of opening it except during the times you set. So you are locked out of changing it, and locked out by Cold Turkey at times you want to be sure not to trade. In addition, you set your daily max loss parameters in Rithmic and lock that out for the week with Cold Turkey. Lastly, don't forget to download all these apps to all your other computers and lock them out 24/7 on everything with Cold Turkey (one license for all computers). Then also use an app lock on your phone and lock out Rithmic there too (same with any other mobile devices around you). To be extra sure you can't mess with Guardian Angel, generate a complex password and take a photo of it and get a photo time lock app for your phone and lock that password up until the weekend (but if you set it the way I mentioned you are in a 24/7 session and can't access the settings for that account anyway). Now you're all set
You can't outsource confidence in trading decisions
Ok, I have been reading about GAT many times. But I have been hesistant to buy it for the following reason...
1) I think it is overpriced (sure, you could argue it saves it all up with one saved blowout, but stil 349 euros?)
2) Been reading bad reviews multiple times on difficulties with the program and people trying to get back their money
3) There is not trial version to test
4) Wasn´t sure that it would work with multiple Apex accounts (I did ask them via contact but did not get an answer yet..)
So now....reading through this great threat with lots of insights...it feels quite a number of you use it? And it works and does what it is supposed to do and you are happy with it? Because if it does...I might just think it`s worth it anyhow.
Only thing I wonder...if I set up daily max loss in rithmic and lock it with could turkey - why would I need GAT in addition? Unless I am interested in their other features (which are also pretty good - like locking trading after a certain number of losses) and happy only with a iron Daily Max Loss - I should be good without GAT, shouldn`t I?
Yeah, it may be overpriced now. I don't remember what I paid for it but I think it must've been about half of that when I originally got it. Unfortunately, it's probably the least expensive alternative as there just aren't any except one that doesn't have a lifetime license. I guess you just have to ask yourself how much money you lose without it
Hmm, I think by and large it does what it's supposed to. The only area where I had problems that I think were never resolved had to do with the max drawdown from profit setting, which I just don't use at this point. I stop after 2 losses. For that, it works. It goes off the NT8 P&L calculations and I think it makes it hard to code it right. I'm not sure.
In my journal today, I also mentioned why I have a max 10 MES lots set up whereas my max position loss doesn't make sense with anything over 5 lots. It's because a max 5 position lock works with ATMs in terms of deploying stops and targets, but if you work off the DOM as I sometimes do as well, you can start a 5 lot position but you can't then subsequently add a 5 lot target. You are maxed out on your entry, so all you can do is just hit the Close button and flatten. It's not a huge deal. With a 10 lot max and my size max position loss, once or twice you may put on a 10 lot trade and hit your max position loss right away, like poking your head out and getting swatted back down, lol.
It may have a couple of other idiosyncrasies, but small details. For the vast majority of things it works. I think most people just find ways to work around it, mainly due to their own bent for leaving loopholes open (me first and foremost, for a couple of years!). You really need to want to be totally focused on nailing them shut to get it right.
Yes, it will set up each account with its own set of adjustments. So if you have 20 Apex accounts, for example, you will have to enter all the things you want in a separate UI for each account, 20x.
You can't outsource confidence in trading decisions
