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  1. #1
    Rookie Member

    Talking About Money Management !!!

    I have heard a lot about money management about binary options, some of them are derivatives from gambling progressions. (Don't use any progression that increase the investment upon losing a trade)
    What ways do you guys found most effective? Please share.

    Personally I use 5% theory, but it's not the ordinary one.
    I set different target levels, let say $20, $40, $60
    Let say I start my account with 20 bucks, I will place $1 for each investment till I got $40
    Then I will switch to $2 for each investment till I got $60 (Then I will proceed to $3/investment) or falls back to $20 (Back to step 1)

    The advantage of this money management strategy is that your account wont burn as long as you got a investment strategy with >65% success, but you must have enough patience as it takes much time to grow your account.

    I calculate that if a strategy has 75% success, it takes around 300 investments to grow the account from $20 to $200, which means it takes another 300 investments to grow from $200 to $2000.

    Please comment on my money management

    Samson

  2. #2
    Master Member SeasaltMcFish's Avatar
    Your money management should be made of a few components:

    - How many trades do you make on average in one month
    - How much are you willing to risk/can you afford to lose
    - How big is your bankroll and reserve bankroll
    - How profitable is your strategy on average in a year

    I did a lot of money management testings and every time again, it showed that a steady MM ( a certain % of your bankroll) is best and most profitable. It's the risk you want to take that makes a key difference.

    A progression may work if you trade only a few trades a month, but in the end, it works against you. You risk a too small amount in the beginning of a progression and a too big amount later on, meaning it's not an optimal spending of your trade money. The more trades you make, the more the winnings will flatten out to an average, so if you risk only 1% on your first step, you will get only the profit of this 1% for your trades and in the later steps of a progression you will risk much more to win that profit of a 1% trade.

    With a fixed %, you have an optimal risk/reward setup. How much % you are prepared to risk, is depending on the winning percentage and the payout of your trades, so it may differ between 2-5%. The higher the probability of a win is, the higher the % can be, but I would not exceed 5%. The management you use comes close to a fixed %, but it's not the optimal fixed %. However, differences are small so it can be used, to make your buy-in rounded.

    Another thing is the size of your bankroll. If your account holds all your money, I would use a more conservative money management (max. 2%). If you have a reserve bankroll, you can use 2% of your combined rolls.

    Of course it's most important how profitable your strategy is. With a 60% ITM, you're money management should be much more conservative than with a 75% ITM. With 60% I wouldn't go above 1% investment per trade, but with 75% (long term!) I wouldn't be scared to risk 5%. For these calculations, you will need a test of at least 1000 trades and better 2000+.

  3. #3
    Rookie Member
    If I start with a small amount of money, let say $100, is it worth to try rolling the snowball big by investing a higher percentage of the bankroll first, then gradually decreasing it?

    What would you recommend if I got a 70% winning strategy and 80% winning strategy respectively and start with $100 only?

    Thanks

  4. #4
    Master Member SeasaltMcFish's Avatar
    It depends on how much you have in reserve and on the minimum trade size of your broker.

    If you only have $100 total, I would recommend to trade in demo and save some more, so you can start with a bigger amount, as the trusted brokers start with a minimum trade size of $10-$25. Even a 80% ITM is not enough to trade with only 4 buy-ins. Variance can easily kill you. Just read some poker forums and you'll see people whining about losing with aces and kings again and again (for some time).

    82% win chance against pocket 2 doesn't mean you can't lose.

    With 10 buy-ins, I personally would give it a try to build it up to 25 buy-ins, although it's scared money and losing it is a real option.

    I know there's a broker that offers $1 trades, but the one I tested was not trustworthy enough to me.

    If you know you can and will serial deposit up to 50 buy-ins, you could take the whole amount as your trading capital and use a % of that money, although I would recommend to have at least 10 buy-ins in your account to work with.


    I myself only have about 25 buy-ins in my account, but also use a reserve roll to add money if needed.

  5. #5
    Active Member supertrader's Avatar
    Quote Originally Posted by SeasaltMcFish View Post
    It depends on how much you have in reserve and on the minimum trade size of your broker.

    If you only have $100 total, I would recommend to trade in demo and save some more, so you can start with a bigger amount, as the trusted brokers start with a minimum trade size of $10-$25. Even a 80% ITM is not enough to trade with only 4 buy-ins. Variance can easily kill you. Just read some poker forums and you'll see people whining about losing with aces and kings again and again (for some time).
    Listen to Seasalt,

    Making big risk per trade initially can do two things – first greatly increase your capital and second ruin your account to zero. The second is more probable, so if you are undercapitalized better to not trade till you can afford more money for trading and better money management, because more than 5% is really a serious risk.

  6. #6
    Active Member rongold's Avatar
    Trading with more than 2% risk per trade make your progress really very volatile and most of all very easy to disaster. Better to follow Seasalt advise and to not start with very small amount.

  7. #7
    Rookie Member ott123's Avatar
    Your strategy looks good. Professionals make something between 25% to 35% every month - or around 1% every trading day, that's after discounting their losses (stock traders all accept losses as part of the game.

  8. #8
    Junior Member estoyyoo2's Avatar
    Nice method! Money management is all about investments!

  9. #9
    Moderator Kolyo's Avatar
    I think the proposed strategy is good. It has progressive increase of the bet size together with the rise of the capital and keeping the risk percentage almost the same. Unfortunately with such a small bet sizez 1-2-3$ per trade you won’t be able to find good brokerage. The smallest amounts for trading in trusted brokers are at least 10 or 20$ per trade so better to resize the strategy for a 1000$ initial investment. SeaSaltMcfish is also right that even with such a good money management the volatility can screw you up if it is not taken into account.
    "The goal of a successful trader is to make the best trades. Money is secondary." - Alexander Elder

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