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mrbzatwork

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Post Number: 19
Registered: 02-2007

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Votes: 0


Monday, October 20, 2008 - 03:02 pm:

I have been using IC for quite a while now, and have met some very helpful people though the forums. Their generosity and willingness to help me has really made all of the difference.

I have been gradually improving my trading skills as the months have gone by and I've noticed that my money management skills have been what enabled me to be profitable in these crazy markets. So I decided to start a free website to teach others about a few of the basics. I thought I would post it here to get some feed back about the site (it's not done yet).

I hope it's not against the rules to ask for such a request, if so, my apologies Colin. I have personally been struggling with the markets for many years and have found that I am now seeing more winning months than losers, so I thought I might share what I thought was important with other traders.

so anyway, I have put the site online so others can see it, I would appreciate the good, bad and ugly so I can improve myself and help the struggling trader in any way possible.

http://www.tradingwithmoneymanagement.com

Thanks!

coyotte

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Post Number: 676
Registered: 12-2002

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Votes: 0


Monday, October 20, 2008 - 03:28 pm:

well done mrbzatwork !

have not as yet visited your site
BUT the motivation of sharing will return to you 10 fold in ways you least expect

Coyotte

This too shall change. (16th verse Tao Te Ching )

spider

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Post Number: 2606
Registered: 10-2002

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Thursday, October 23, 2008 - 11:10 am:

Good job Brian, the site looks very professional.

"Cast your bread upon the waters......................"

spider.

mrbzatwork

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Post Number: 20
Registered: 02-2007

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Tuesday, October 28, 2008 - 04:23 pm:

Thanks Guys! It's no surprise that two of the most influential individuals to me on this forum are the one's to comment on my post!

Thanks Again!

captain_chaza

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Post Number: 3515
Registered: 02-2003

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Votes: 0


Tuesday, October 28, 2008 - 05:53 pm:

My apologies that I didn't contribute to your site earlier

But Since I have been challenged
All I can say is
"You lost me with the 2% Rule"

That 2% rule has been proven to be a VERY VERY BAD TACK for anyone who has respected it in the last 6-9months

Do you not agree?

Please Notify me when your 2% rule works again!
Also
Please clarify on which weight of sail your pre-historic 2% rule of thumb has ever worked in the past and then on which members of the ASX you see to have worked in the last 6 months

By way of a personal observation of the reasonings why so many IC'ers have fallen overboard over the couple of few years I would say that it mainlly contributed to the blind 2% rule and its FALSE sense of safety at sea

Salute and Bon Voyage

(Message edited by Captain_Chaza on October 28, 2008)

"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.

"I believe the future is only the past again, entered through another gate."
Sir Arthur Wing Pinero 1893

"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897

captain_chaza

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Post Number: 3517
Registered: 02-2003

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Votes: 0


Tuesday, October 28, 2008 - 07:15 pm:

I would just like to add

IMHO "The 2% rule" has killed off more people than I have ever met in my life!

My apologies for not coming forward earlier!

Salute and Gods' speed

mrbzatwork

Member

Post Number: 21
Registered: 02-2007

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Votes: 0


Wednesday, October 29, 2008 - 03:24 am:

Captain,

Are we talking about the same 2% rule? I don't think we are. Your comment about "The 2% rule" has killed off more people than I have ever met in my life!" has left me scratching my head.

I Also find interesting your comment about "Please Notify me when your 2% rule works again!" The rule is alive and well, and is not something that goes out of favor.

Simply put the 2% rule is risk management. When followed you are not able to lose more than 2% of your account value on any one trade. It doesn't put any restrictions on how much you can make. It's main purpose is to keep you alive, and it does a mighty fine job at that.

The alternative would be to risk a huge portion of your account size, say 20 or 50%, and then what? Eventually you are going to be wrong. No one has a 100% winning system.

The only way I could see someone not doing well with the 2% rule is if they are risking 2% of their account and trying to make less than 2% as an objective, less than a 1:1. If they have a winning % of less than 50% than their system will also have a negative expectancy and therefore will lose money over time.

But that is exactly why I put the website together so traders can understand all of the dynamics involved.

So Captain, now you have me VERY INTERESTED in why the 2% rule is something that contributes to the demise of traders in such a harsh and unnecessary way.

I will be pleased to update the site if your response is sound. I will change the name to "Avoid the 2% rule." After all my mission is to provide the most comprehensive site regarding money management.

Thanks for the post! One of the most appealing aspects about trading to me is that I'm constantly learning.

captain_chaza

Member

Post Number: 3520
Registered: 02-2003

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Votes: 0


Wednesday, October 29, 2008 - 08:00 pm:

The reason why I think the 2% Rule has failed in the past is that it assumes that a sail, is a sail, is a sail

A little bit like designing a Tall Ship of 20 equally sized
Sheets
OR By definition of a PORTFOLIO
A folder/folio of paper/sheets

We are now accustomed to the term Pink-sheets
In the old days we had the Term Blue-sheets and Green-sheets
Over time and since most Landlubbers are afraid of the sea the expression Blue-sheets was changed to Blue-Chips and Green-Sheets to Green-chips etc etc

What I am trying to say is that a sail is not a sail and is not always a sail
They are all very different in personality/volatility when presented to the seas and wind

To just pluck a 2% rule out of thin air is a folly in my mind when not all sails are the same

"Ship Design/Porfolio design and the weighting of each sail/sheet is Everything" IMHO

NOT a simple 2% Rule

Crikey! It's a bit like living with women
None are the same
Would you use a 2% rule on women

You can get away with murder with some and others will take you to task for not replacing the top on the toothpaste and others for not lowing the toilet seat in preparation for their readiness

Salute and Gods' speed

mrbzatwork

Member

Post Number: 22
Registered: 02-2007

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Votes: 0


Thursday, October 30, 2008 - 07:34 am:

I think a common misconception of the 2% rule is people think that it means if your position drops by 2% then you should exit.

That has nothing to do with it. Your position could drop by 100% and you could still be following the 2% rule. If this doesn't make any sense to you check out the site.

BZ

whiteowl

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Post Number: 28
Registered: 07-2005

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Votes: 0


Thursday, October 30, 2008 - 10:49 am:

I am a ‘wanabee’ Trader

I have read that 90% of wanabee Traders perish at sea within a year
Captain Chazza would accurately describe me as ‘shark bait’
So I have devoted $50,000 to training
I believe that to become an expert at anything you actually have to experience all the wrong ways
And from each dud trade you will learn and remember ‘Don’t do that again .. you idiot !’
Using the 2% rule I will lose $1,000 for each dud trade
This will give me 50 lessons in what NOT to do
After the 50 lessons I will be able to ‘swim’ or deservedly ‘sink’
I have ‘been swimming’ for the last 9 months, have got to 50 trades with 10% drawdown

The 2% Risk of Capital Rule is simple on an xls and works for me

Brian .. thanks for http://www.tradingwithmoneymanagement.com/
It will be read .. keep up the good work

Lots to learn
Cheers
Owl

dug

Member

Post Number: 3386
Registered: 07-2005

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Votes: 0


Thursday, October 30, 2008 - 11:39 am:

Mr Bzat,
Haven't read all your site so this may already be worked into your "thesis".
A forum member Ken years ago came up with an adaption of the 2% Rule.This was to keep a Maximum of 6% at "Risk"/Loss.

See if one has 10 equal $5000 parcels using your Total Capital and they all go down the tube at once one has lost 20% of one's capital.
If it's one of those really dreadful days,one may also get Gapped Down waaaaay beyond your 2% Stop level.

What does one do then mr bzat?Wait for a positive retrace to your 'designed" Stop? or do you think 'That'll never Happen that All your Holdings All at Once Fall'?

Charlie/Chuck the self proclaimed Most Influential IC Forum Member[mr bzat it was your description of your first posters that "insulted" our Great One]
Anyhow,he's bubbling/boiling/babbling in his Sea Shanty Talk about Weighing Blue Chips say with $20k invested against pennys with $5000 in them and in a $100k Total Portfolio putting only a fixed 2grand$ on each.At least I think that's what he's moaning about,it's very hard to interpret,hey?Anyhow Charlie doesn't USE or Advocate any Stop Losses or so he's said.Seems to me his "method" is chiefly in suffering Attention Deficit Disorder and not really sticking with anything too long.

That's another method of Stop Loss,mr bzat Time Stops.You identify say a Pattern,Buy In on a Short Term Expectation of a Up Run,IF it don't happen ASAP?well you think you may be Wrong and Sell Out regardless of NOT being 2% down the Ditch.

Anyway,maybe your site already covers these points so I'm sorry if I've wasted ya time.
cheerio.

Even 'til Jaded.

Dig for the sake of it.

captain_chaza

Member

Post Number: 3524
Registered: 02-2003

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Votes: 0


Thursday, October 30, 2008 - 05:58 pm:

Ahoy BZ

What I'm saying is that VOLATILITY dictates any % Rule
Why 2% and not a 3% Rule?
Why not even a 5% rule?

If one designed a craft with 20 volatile lightweights ($5000 each) with a 2% rule
I would suggest that you would have been blown out of the water with a 2% rule in recent times

However
If you used a 5% Rule you would need NO Stops as you would only be automatically stopped-out ONLY in the case of foreclosure and her Dollar;s Worthlessness

Salute and Gods' speed

Crikey!
I can remember when a 4% weekly candlesticks heralded a Reversal pattern in All the Major Indecies
Crikey!
I now have REAL doubts that even an 8% weekly candlestick would have any REAL effect

(Message edited by Captain_Chaza on October 30, 2008)

sittingduck

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Post Number: 56
Registered: 11-2004

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Votes: 0


Thursday, October 30, 2008 - 08:23 pm:

Captain, the 2% rule (or 1% or 1.5% whatever works for you) isn't for setting a stop, it's for setting position size based on risk. The stop is set based on the chart (support/resistance, count backs, choose your poison). So 2% or 5% won't keep you in a volatile trade any longer or shorter 'cause it's irrelevant to your stop.

Once you set your stop, the 2% rule then tells you how much you can afford to buy.

If you combine the 2% rule with a stop using an ATR signal then you should be able to manage risk comfortably in any volatility (as the ATR self adjusts for the volatility).

captain_chaza

Member

Post Number: 3527
Registered: 02-2003

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Votes: 0


Thursday, October 30, 2008 - 09:32 pm:

Ahoy Sitting Duck

The ATR has much to be commended but what worked ages ago with simple 2.5 ATR has even changed
Crikey! Even the ATR show extreme volatility ATM

It seems to me that until the Seas and Weather Conditions settle down to a relatively stable state of volatility it maybe best to tread VERY carefully without setting any fixed plans of action into concrete

A bit like Sailing on the Run and feeling how she goes

Salute and Gods' speed

sittingduck

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Post Number: 57
Registered: 11-2004

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Votes: 0


Friday, October 31, 2008 - 08:22 am:

Agreed with the volatility being seen in the ATR Captain. It's those wide gaps between price and my ATR stop (I tweak the modifier rather than follow the crowd)that prevent me getting in to a lot of volatile shares. But the prevention is also shown in my 2% rule use as the wide stop means I would only be buying say $1K parcels, which is below my minimal size.

I am currently using short term trend lines and support and resistance to set my stops and my positions are much shorter term, but the 2% rule still applies for position sizing (though in reality I am using closer to 1.5% as I haven't adjusted my Capital size up to match the reality for quite a while).

I would suggest that if you were using 2% in 2006-2007, then 1% is probably a better 2008 setting. Though, this doesn't seem to be what you suggested in post 3524 above.

Choppy seas abound, lets not get lost in the froth hey. Happy Sailing.

whiteowl

Member

Post Number: 29
Registered: 07-2005

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Votes: 0


Friday, October 31, 2008 - 09:49 am:

Paritech have an ATR based Position Sizing Software called 'JBL Risk Manager'
It was written by the illustrious Dr Van Tharp of
'Trade your way to financial freedom' McGraw Hill 2006
A 14 day demo copy can be had at http://www.paritech.com.au/AU/products/software/jbl.asp

captain_chaza

Member

Post Number: 3530
Registered: 02-2003

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Votes: 0


Friday, October 31, 2008 - 07:41 pm:

I have used and can recommend the JBL Risk Manager if you can stand up to the coal face of Paritech Data

The "J" in the JBL stands for Joseph

Just a small tip!
He hates being called Joe

Please Give him my kind regards

He has been to my place many a time but may only know me as Charles (not my real name "Captain Chaza")

Salute and Gods' speed

Only $12 (USD) per month

easymoney

Member

Post Number: 156
Registered: 03-2005

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Votes: 0


Monday, November 03, 2008 - 08:01 pm:

Sorry to bore those who know this stuff backwards, but...

There are a few six percent rules, but the one I like is a monthly rule. If you lose 6% of your trading capital in a month, then you stop trading until the start of the next calendar month. Each month the 6% becomes a percentage of a smaller amount. Followed rigorously it means that the worst you can do in a 12 month period is to lose half your trading capital.

The two percent rule as stated above is a position sizing rule. In days like these it means that your position size is about half what it would have been a year ago, and when the volatility goes back to what it was your position size can increase again. The ATR is a common way to calculate position size using the 2% rule. You place your stop so that you can only lose 2%.

In combination these two rules provide parameters which will provide prudent money management for those who want to be around this time next year even if the worst case scenario hits.

There's lots more in Alex Elder's books.

(Message edited by easymoney on November 03, 2008)

The lunatic is in my hall.
The lunatics are in my hall.
The paper holds their folded faces to the floor,
and every day the paper boy brings more.

Pink Floyd - Brain damage