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Originally Posted by fizzleboink
But that's just it moneyline, it should apply to forex trading as well.
WR could be the average number of pips you earn per 100 trades
s could be the standard deviation for the pips you earn per 100 trades
That formula (should) then tell you what your required balance should be to not go broke 99.7% of the time.
I haven't actually gone more in depth into this, it is just something I have been mulling over the past couple weeks. See I come from a successful stint at poker and am now learning about Forex trading (much more long term potential here). Much of the same money management concepts still apply, because it's just statistics (not to mention the psychological aspects but that's another story).
Coming up with an accurate WR and s could prove tricky though. In poker we would use it with real data, much of what we have in Forex trading is unreliable backtesting data. But I guess it could be a start?
Basically the formula boils down to the fact that the more reliable your trading system, the higher risk you can take without going bankrupt.
As for the carat (^), it's means "raised to the power of". So it's standard deviation raised to the power of 2, or standard deviation squared, or standard deviation multiplied by standard deviation.
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Hi fizzleboink,
OK, I see. I'd always used another symbol for squared, kinda looks like the letter V.
So, you're a card player? Me too! Matter of fact my game is Blackjack and I play a pretty mean hand. The first time I went to a Vegas casino they told me I couldn't play there anymore! Darn them, I was just having a good time!
As you mention, I've used money management to play in Vegas. Of course, there are a few other tricks of the trade, like:
a) Don't just pick the first table you see, go from one casino to the other 'till you find the right "table conditions." (sound familiar?)
b) Does the house cheat? You betcha! That's how come finding the right table is so important. If you can't find that, don't play that day!
Once I'm in the game though, I stand a very good chance of making bank. I never play with friends - other than for spare change - because they don't have my level of skill.
The same goes for many of our more experienced traders, they've seen lots of plays and there's very little that would surprise them. There are some here that would gladly give us data if we needed it.
BTW, though your chance probability bears to be mentioned, I have never encountered an experienced Forex trader that had a string of 50 losses. Maybe a bad month, or a not-so-good-one. I do know there are a bunch of traders that pay their bills from their earnings, month after month.
moneyline