Several weeks after I've promised to write about my current trading plan, here it is. It's not a waste of time to write about this kind of things. It also helps me to remaind my own rules.
For those that don't know what money management is, in a few words, it's what prevents you from going broke in a couple of bad shots. It is what allows you to survive as long as possible to keep fighting to achieve your goals. It is your survival kit. I'll define my scheme here and hope to follow it religiously which sometimes isn't easy as you might know.
So, my money management is quite simple and obeys to very basic rules.
The amount I'm allowed to lose on a market is predifined by a percentage of my bank established at the beginning of each month. If my previous month ends on a profit then a new maximum allowed loss is calculated based on that %, if my previous month ends on a loss then I keep the same maximum allowed loss from that previous month. I'm currently "allowed" to lose 2% of my bank on a market. I may change this to 1% as my bank reaches higher values but for now I'll keep at this value. It's important to say that I don't wait for my trades to hit this 2% loss to get out, I leave as soon as possible if things aren't looking good but if for some reason a bad trade hits this 2%, an alarm raises and I'm forced to leave no matter what.
Maybe I should also define a maximum value I'm allowed to put in the market just in case something goes wrong with Betfair. Imagine that Betfair crashes and I have 75% of my bank in the market for a trade, not a good scenario, is it ? Obviously, I'm not expecting Betfair to crash but I've heard some saying that it already happened and some have lost some large amounts because of that. Has it happened to you ? What mechanisms do you have in place to minimize the consequences of such situations ? I'd love to hear what do you think about this.
Initially I thought about establishing a maximum bank size of 2000€. I was thinking about withdrawing everything above that value on a monthly basis ( can't wait for my first withdrawal eheh ) but I've changed my mind simply because such a low bank isn't very compatible with my current low risk strategy, it would generate low profits. My main goal is 1000€ per month and using my current strategy I need a bank size of much more than 2000€. I'll need a bank of around 6000€ to make me 1000€ per month.
Here are a few screenshots from my spreadsheet that I use to calculate me everything that I need to know.
What these tables tells me is quite simple. The rows are the % of my maximum allowed loss per market. I'm currently on the 2% plan, so I forget the other rows except the 2%. The columns are the number of ticks I think I may lose on the market in case things go wrong. Combining both the row and the column gives me my tick size. A tick size is the amount you win/lose with just one tick. During the most of my trades I think I may lose a maximum of 4 ticks, so according to to the first table, my tick size must be 0.005% of the starting bank of the current month. The table below tells me how much € is that, 6,96€. I usually round down this value to multiples of 0,50€, so in this case I trade with tick sizes of 6,50€.
This table is used to keep a record of my profits and to establish a comparison to a simple forecasting given an expected % profit per month. At the moment I'm expecting to make 15% per month, I think it's quite an achieveable value.
This image is a kind of main page that sums it all up. Cells surrounded by a black box are values that must be edited by the user, the others are outputs. I think all fields are self-explanatory. Just note that the starting bank in the picture doesn't match the starting bank of this blog because the spreadsheet is for 2008 and I started this blog in 2007.
Feel free to throw some question at me. I'd be happy to answer. I'd also be happy to read about your trading plan.
Think I'm leaving now, it's too late, bed is calling for me. Cya !
