Excellent post by XRAY bro ...these points are missing most of traders which stopping them to grow even with their positive methods.....
My little knowledge on compounding :
Compounding is more lucrative term for traders particularly intra day,there are many misconceptions on compounding,back testing,one of member who started a trade dairy could not answer basic question of mechanical system,back testing terms and started compounding which reached dead end
i’m bring my little knowledge on this ,please go through with of peace of mind
Few points on compounding on intra day through index fut:
Points you need keep in mind:
1. You need a winning mechanical system ..what is that ?? a system with edge that is a system with expectancy ratio with higher R:R ,this first criteria ,with less no of trades with luck factor at low point ,which is objective not subjective ,which I have explained long back in this thread
2.Trades should not cross more then 2 per day on average it should be around 1 per day if you take into account NTD
3.Whole capital calculation is based on DD in point terms…say your Nifty system Max DD is 300 points so capital calculation 2 to 3 times the margin..per lot ,so risk of ruin probability is negated
Ex:300 *75=22500+broker Margin
For scaling I’m going with FRMM ,as per RYAN JONES ,this is not only MM ,each person can constuct his own money management
4. we have to add qty when our profit cross DD points ,above example 300 points..similarly we have to reduce when DD has hit in point terms
i had received many PM from newbies ,some old members , could not answered every PM so bring this faq
FAQ
- 1. Can scaling be done to stock fut ..no its not possible as mechanical system for stocks or stock fut.will not work in that way
- 2. Any mechanical system can be used for scaling : No we need to know the DD and its should give less no of trades as I pointed above
- 3. Why cannot we trade more per day : More trades per day squeezes energy ,almost its a broker rich program ,ultimately account will blown
- 4. Can we move to 100 lots or 200 lots: yes possible
- 5. Why a system with all MM and risk management /compounding is not sold or shared : if all is there who will sell a money machine to make others rich,jokes a part risk of slippage with mass usage brings ultimately effects ISL and TSL
- 6. Why cannot this same principles be used for investment compounding: Risk of Black swan for open position is far big.
- 7. Watching a trade log of a pro help in cracking his system ?? : Unless you know the exact rules you cannot making any thing.only eye sockets will come out
- 8.How to making a mechanical system: You need to know back testing in proper way ( its not just adjusting EMA or CHANGING INDICATOR ), for this you need to read books which I have quoted in the thread
- 9.Can we manage both intra and investment and swing with scaling: For this you need to be trader and trading for living is main step, if you are part time,just stay back go on with investments ,handling needs live market presence
- 10.Investment can be done with mechanical system : yes can be done with mechanical system ,which is popularly known as quanta fundamental way
- 11. Discretionary system cannot be used for compounding,many terms of back testing cannot be obtained it will turn in subjective.