Money and Risk Management

[gregf]

Something I'd like to throw out for some discussion.

I'm not the greatest math wiz with financial calcs - please feel free to tell me I'm wrong.

I'm getting convinced of a few things:
1) limit market exposure to when you have conditions in your favor for a profitable trade (long or short)
2) being out of the market is as important as being in the market - I like to trade and I feel anxious to have a trade on when I'm not in the market
3) making smaller gains on a consistent basis is a better strategy than buy and hold over longer time periods.
4) trading only part of your account - the gains won't be as great, but, the losses won't be catastrophic either

Math - I'll go back and look at my actual P&L using the method over the past 6 weeks to see what my averages look like, but, let's assume the following:

100,000 account
25,000 in starting position
4 trades per week, average total profit of 4% for all 4 trades
Trade 48 weeks per year
200 total trades
Assume that every 3 months, we'll reset our starting position to 25% of the account value.
Q1 - 25K, 4% per week, 12 weeks = 40K ending balance
Q2 - 115K balance, 29K, 4% per week, 12 weeks = 46K ending balance
Q3 - 132K balance, 33K, 4% per week, 12 weeks = 53K ending balance
Q4 - 152K balance, 38K, 4% per week, 12 weeks = 61K ending balance
Ending account balance $174,841


I'd appreciate others thoughts!

Thanks,
Greg