RISK MANAGEMENT STRATEGIES

Hi there!

Any good trader will tell you that Risk Management is the most important thing. It is even possible having a bad trading strategy but still make profit constantly with a good RM. Agreed?

I use the most standard one: My S/L is certain percentage of my balance (I use 0,35% for one account and 1,5% for another), and I have always fixed T/P which is S/L*3. So profit/loss ratio is 3:1. NO EXCEPTIONS!!!

This Risk management strategy works for me, all I need to have is winning rate above 30%. But there are some weak spots:

First: I don’t move my S/L, I don’t even touch it. It is either win by T/P of Loss by S/L.
Second: I miss large movements after my T/P was hit.

Please share you RM strategies and suggestions how I can optimize mine.

sometimes the market is not positioned to give you a 1:3 risk/reward ratio. I am happy with having a 1:1 ratio.

@alexforex007 do you fix S/L and T/P?

haha funny, the most important subject not discussed much anyone much. Yet you see why 95% fail. Risk management is boring but a MUST if you want to survive. My 2 pence.

goodboyfx posted:
haha funny, the most important subject not discussed much anyone much. Yet you see why 95% fail. Risk management is boring but a MUST if you want to survive. My 2 pence.

Exactly!!!

avoblikov posted:
Please share you RM strategies and suggestions how I can optimize mine.

If you trade purely on Price Action and Support/Resistance levels, you can choose to only enter trades where there is enough 'room' for price to move above and beyond 3× the Risk you take.
You could also look in to working with Limit Orders to reduce the Risk and increase the Reward distances on your chart.

BOAR posted:

avoblikov posted:
Please share you RM strategies and suggestions how I can optimize mine.

If you trade purely on Price Action and Support/Resistance levels, you can choose to only enter trades where there is enough 'room' for price to move above and beyond 3× the Risk you take.
You could also look in to working with Limit Orders to reduce the Risk and increase the Reward distances on your chart.

Thanks @Niels for your comment. I work with Limit Orders already. However the problem in my RM strategy is not that T/P wont get hit, it's that after hitting, the price continues to go and I miss larger profit. I mean, I limit my profit...

One of the most succesful traders I know, makes his money almost exclusively on risk management.

But it's not about TP's and SL's. It's about the overall performance of a system and its settings.

Since volitility, momentum and range are always changing, unless you have a machine learning system that would require some serious computing power, there is really only one way to consistantly make money with risk management. Changing this SL or that TP or using this support or that resistance or this and that indicator, adjusting trade sizes etc. on a single method is like chasing a rainbow or unicorn.

What he does is uses API's, runs up to 100 systems at a time. What makes it work is he is very agressive in scaling down strategies that aren't working and equally agressive in scaling up ones that are working. On Oanda for example he goes right down to 1 unit trades on losing systems, but leaves the system running until it starts working again. There's always something that's working to move money to.

Of course the job then becomes analyses of the various systems as apposed to worry about what the market does or even individual settings. Heck, try 10 variations, run em all. Try find the hottest streak, run with it while it lasts, and get out soon as it fails. So the job is almost exclusively risk management. But not at trade level. At overall system peformance level.

That is unavoidable if you want to stick to your own rule of not adjusting SL and TP.. Perhaps look into ways of trailing your SL and as soon as the SL is in profit, just remove the TP..

How and when to move your stoploss could be examined by drawing Support and Resistance from multiple time frames on your chart and watch price closely every time it approaches one of the lines you drew to see if it bounces or breaks.

Interesting, thank you for sharing.

Moving previously fixed SL, once the trade is open, is a bit dangerous staff, better to avoid it.

100 % agreed on statement. ' It's about the overall performance of a system and its settings. '

OP's strategy is good if you can't watch the market all the time or have trouble controlling your emotions. Let's face it, most lose because of emotions.

I never use set SL. SL moves with the market action. Even my TP moves with the market. But I have the luxury of watching the market when I am in a position because this is what I do for living. 😁

I am not a big fan of 10 small loses and one big win. I like to win all the time with minimum DD possible. 😇

avoblikov posted:
I use the most standard one: My S/L is certain percentage of my balance (I use 0,35% for one account and 1,5% for another), and I have always fixed T/P which is S/L*3. So profit/loss ratio is 3:1. NO EXCEPTIONS!!!

Anton, did you ever consider statistics? With having profit/loss ratio 3:1 you would get, in a period of time, let's say, 10 small losses and 1-3 profitable trades, only because the market will hit first the closest point to it (in our case this is SL), isn't it?
That means at the best we will have a break even (b/e) situation in money, but w/l ratio will be ~30/70%, correct?
Ironically, exactly the same is true for opposite combination 1:3 you will be break even in money, but w/l ratio will be 70/30%. 😄
So, if your point is to increase trading probability try to use opposite ratio for TP vs SL (1:3). By this way you would get lots of small winnings and only a few big losses wiping out all your profit. But w/l ratio will be very nice (~70/30%)!

So, as you can see, the Risk Management is something different and is not so simple as 3:1 or 1.5:1 ...

Very interesting points of view and ideas from everyone.

I use a percentage of ATR to determine my SL, TSL, and TP, and combine this with TD_Line Projections. A profit projection that is better than 3:1 is traded, otherwise I stay out. Nice thing about using ATR is that it self-adjusts...bigger range in rallying markets expands SL-TSL, whilst smaller consolidation range contracts SL-TSL. Works for me!

I've recently committed to adding advanced harmonic patterns to my trade plan.

With 70%+ accuracy, I only take trades with 1:1 Risk to Reward. As soon as my first target is reached I move my SL to just above break even and let my trades run to TP2 as a risk free trade.

Each trade I take is 2% risk of my account balance.

I also manage my trades based on what price action is telling me.

It is all about position sizing vs volatility per instrument.

Alex,
it all depends on where the stop loss is located. If for example the stop loss is 20 pips (sell position) and only 5 pips under a major upper resistance level, I would definitely consider moving it above the resistance level. There might be a total higher risk of the account equity by doing this, but if it's not too high of a risk taking this stand it's wise to do it, because resistance levels are watched by everyone and protected and not that easy to penetrate. If the risk on the original position is 1% and by moving the stop loss to let say 1.3% risk, I would say that it is totally OK and the right thing to do. Most of the times the resistance will prevail and in the few cases it does not, in those cases one has to take the loss.