There are several things that I want to point out with this comparison, and
then I will further explore each of these areas.
- The SAME exact entry and exit was used on both examples. Every trade was exactly the same in both scenarios.
- The positions sizing strategy (money management strategy) increased the profit by a factor of more than 18 times trading a constant single contract.
- The number of contracts being traded at the end of the money management example is at 38.
- A $5,000 drawdown in the NON money management example represents 12.5% of the profits (net profits would be at approximately $35,000).
- A $5,000 drawdown per contract in the money management example represents 25% of the profits (net profits would still be at approximately $560,000)
- If the number of contracts would NEVER decrease in the money management example, the per contract drawdown would have to reach almost $19,000 before the total net profits dropped to only $35,000.
- As shown in the money management example, contracts decrease during drawdown. Because of this, it would take a $35,000 drawdown per contract to drop the money management net profits down to only $35,000. If that were to occur in the NON money management example, the net profit would only be at $5,000.
- The rate at which contracts can decrease can be faster than the rate at which they increased. Accordingly, in the money management example, if the drawdown persisted in this situation, the number of contracts would drop to 1 at approximately $350,000 in net profits (would require a per contract drawdown of $17,000 to do this). If the contracts being traded dropped to 1 with $350,000 in net profits, the system would then have to continue to see an additional single contract drawdown of $315,000 to drop the performance down to only $35,000 in net profits.
- The same scenario given above applied to the NON money management example would produce a net LOSS of $292,000!
- In the above example, money management would have a net profit of $35,000 in a system that ultimately had a performance with a net loss of $292,000!
Before I get into the explanation of each of these areas, I want to point something very important out to you.
Money Management strategies are NOT all alike!
The scenario given above presented a situation where the system lost $292,000 trading
one S&P E-mini contract, but by applying my Fixed Ratio money management strategy,
a massive losing situation ended up with $35,000 in profits instead of $292,000 in losses!
If you use the WRONG money management strategy, you can actually turn a winning situation
into a loser! Let me explain:
Take a coin and flip it in the air 100 times. You have a total of $100 to bet on the
100 flips. When the coin lands heads up, you win $2 for every $1 you bet. When the
coin lands tails up, you lose $1 for every $1 you bet. Assuming that the coin will
land heads up 50% of the time and tails up 50% of the time, the question is how much
of your $100 should you risk on each flip of the coin?
If you only risked $1 on every flip of the coin, your $100 would increase to $150
after 100 flips of the coin (assuming it landed heads up 50 times and tails up 50 times).
Knowing that money management can have such a dramatic affect on the overall results,
you know that it is better to apply money management to this scenario. The question
is what money management strategy? I am going to narrow your choices down, you
choose which one you think is the absolute best for this scenario. Remember, you
already KNOW you are going to make money with this coin flip, so making the money
management decision should be easier.
These are the choices:
10% of the equity on each trade.
25% of the equity on each trade.
40% of the equity on each trade.
51% of the equity on each trade.
(This is a fixed fractional money management method. On the first flip, you will
risk 10% or $10 on the next trade. If it lands heads up, you win $20 and the
equity increases to $120. On the next flip, you will bet 10% of the new $120.
If the first flip is a loser, you will lose $10 and the equity will drop to $90.
On the next flip, you will bet $9 of the new $90 equity level, etc.)
Ready for the outcome?
If you chose 10%, your $100 turns into $4,700.
If you chose 25%, your $100 turns into $36,100!
If you chose 40%, your $100 turns into $4,700!
If you chose 51%, your $100 drops to only $31!
You read that right; the wrong money management can turn a mathematically
fixed winning situation into a loser!
If actual trading is not a mathematically fixed winning situation, how much
MORE important is choosing the proper money management strategy?!?!
Now, having driven home the point that you can’t just pull any money
management strategy out of hat and you’ll be ok, I want to go through the first
example above.
- The SAME exact entry and exit was used on both examples. Every trade
was exactly the same in both scenarios.
In the first example, I used the same system for both illustrations. The same
exact trades, same exact everything. The only thing that was changed was how
many contracts each trade was allotted. They even started out with the same
number of contracts at the beginning, one.
It doesn’t matter what the system is or what market is being traded or what
time frame for that matter. Proper money management uses only the increase
and decrease of the account to change trade size. For example, the illustrations
would not have been any different if I would have said they came from a
long-term trend following system in the British Pound as long as the size
and sequence of winners and losers were the same.
- The positions sizing strategy (money management strategy) increased
the profit by a factor of more than 18 times trading a constant single contract.
This is the obvious benefit of proper money management.
THE GROWTH POTENTIAL OF ANY STRATEGY
OR TRADING SYSTEM EXPLODES!
- The number of contracts being traded at the end of the money management
example is at 38.
The major drawback to many money management strategies is the HUGE
INCREASED RISK associated with achieving massive growth potential. My
Fixed Ratio money management strategy explodes the profit potential of
every trading strategy or trading system without disproportionately
increasing the overall risk.
For example, the average loss in the strategy used in the example was $350.
This is almost 1% of the overall profits at $40,000 in profits. Even
though the profit increased by a factor of 18 with the Fixed Ratio money
management strategy, the overall risk increased by a factor of less than 2!
Also, more conservative applications actually DECREASE the per trade risk to
total profits at fairly early stages!
INCREASED PROFIT POTENTIAL, DECREASED RISK RATIOS!
That is the ultimate goal of a proper money management strategy! That is
exactly what my Fixed Ratio money management strategy can do!
- A $5,000 drawdown in the NON money management example represents
12.5% of the profits (net profits would be at approximately $35,000).
The question is, what happens when the method, system or strategy goes into
a significant and even unexpected drawdown? In 14 years of testing, the
strategy used for the illustrations above had never gone into a $5,000 drawdown
per one S&P E-mini contract. But that doesn’t mean it can’t. If it did
at the end of this particular 2-year period, if it then went into a $5,000
drawdown, the net profit based on a single contract drops to $35,000, which
represents a 12.5% drop in profits.
- A $5,000 drawdown per contract in the money management example represents
25% of the profits (net profits would still be at approximately $560,000)
In the money management example, if the same system went into a $5,000 drawdown
per contract at the end of this particular 2-year run, AND the trade size never
decreased, the total profits would drop to $560,000.
So let me ask you a question.
Would you rather have $35,000 in profits after a severe drawdown,
or $560,000 in profits?
- If the number of contracts would NEVER decrease in the money management
example, the per contract drawdown would have to reach almost $19,000 before
the total net profits dropped to only $35,000.
In the money management example, what if the system just fell apart. Instead
of suffering a $5,000 per contract drawdown, the system went into an unimaginable
$19,000 per contract drawdown. What then? Again, if the trade size never
decreased from 38 contracts (not realistic, but for the purpose of this example,
we’ll say they didn’t drop), the net profit would drop from over $750,000
to just $35,000.
However, this is still more than the non money management example in the
same scenario. If the non money management example incurred a $19,000 drawdown,
profits would decrease to $21,000.
- As shown in the money management example, contracts decrease during
drawdown. Because of this, it would take a $35,000 drawdown per contract to
drop the money management net profits down to only $35,000. If that were to
occur in the NON money management example, the net profit would only be at $5,000.
Proper money management strategies ALWAYS drop contracts during certain size
drawdowns. Traders CANNOT assume that the system will always work. Traders must
ALWAYS Prepare for the trading strategy
or system to stop working and exceed all expected drawdowns.
Accordingly, if contracts dropped at the same exact profit levels at which they
were increased, the single contract drawdown would have to increase to $35,000
before the total profits dropped from $750,000 to only $35,000. This is because
as the losses are mounting, the trade size is decreasing. This in turn slows
down the rate of loss during drawdown.
The non money management example would only have a net profit of $5,000 during
the same scenario.
- The rate at which contracts can decrease can be faster than the rate at
which they increased. Accordingly, in the money management example, if the
drawdown persisted in this situation, and the number of contracts dropped twice
as fast during drawdown than the rate at which they increased, the number of
contracts would drop to 1 at approximately $350,000 in net profits (would
require a per contract drawdown of $17,000 to do this).
This is called protecting profits. When you drop contracts faster than you increased, you are emphasizing protecting profits during drawdown. This is extremely powerful. This gives you the ability to withstand enormous size drawdowns and still have HUGE PROFITS in this type of scenario.
In fact, if the contracts being traded dropped to 1 with $350,000 in net profits, the system would then have to continue to see an additional single contract drawdown of $315,000 to drop the performance down to only $35,000 in net profits.
Think about this, we are talking about a system that generated only $40,000 in net profits based on a single contract, and by applying my POWERFUL Fixed Ratio money management strategy, we are talking about still having profits of $35,000 after a single contract drawdown of $315,000.
The first goal in all of trading is to survive. Proper money management can give you the staying power that would have otherwise been absolutely impossible!
- The same scenario given above applied to the NON money management example would produce a net LOSS of $292,000!
If, after a $40,000 net profit was achieved with this system, it then went into an unbelievable drawdown of $315,000 as mentioned above, the net loss for that period of time for this particular system would be $292,000!
IF THIS ALONE DOES NOT CONVINCE YOU THAT YOU MUST ADDRESS MONEY MANAGEMENT IN YOUR TRADING, YOU SHOULD NOT BE TRADING!
- In the above example, money management would have a net profit of $35,000 in a system that ultimately had a performance with a net loss of $292,000!
SEE ABOVE.
Properly addressing money management is absolutely critical if you are going to trade. In fact, every single trader who makes a trade makes a money management decision, consciously or not.
90% of traders focus on where to get into the market and where to get out. It is estimated that 90% of all traders end up losing money. I believe these two stats are inextricably related because money management is barely an afterthought with so many traders.
YOU CAN BEGIN TO BENEFIT FROM THE
POWER OF THE FIXED RATIO
MONEY MANAGEMENT STRATEGY TODAY
I have probably done at least 10 times more research in practical money management strategies for the individual trader than anyone else in the industry.
Some of the most highly regarded and well-known professional traders in the industry refer traders to my work in money management when the subject comes up.
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Ryan Jones is on the cutting edge of the most important element in the art of speculation—be it stocks or commodities—money management.
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Larry Williams, trader and author
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Ryan Jones has made a complex subject easier to understand and follow. I am especially excited for all individual traders.
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Glen Ring, editor, View on Futures newsletter
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Ryan Jones has always been one of the most innovative minds in the industry. He has taken the science of money management to a new level. I whole-heartedly endorse his efforts and recommend it as required reading for anyone thinking about or already participating in trading.
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Ted Tesser, CPA and author
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More importantly, individual traders just like yourself who have gone through
my money management courses testify that there is nothing else in the entire
trading industry like!
Money management can be a complex subject to master. This is why I have created a
comprehensive and power packed 10-hour audio course designed to give you everything
you need to master the one thing that can truly give you the ability to achieve wealth
in trading. The material is presented in a straightforward, easy to understand
manner where even complete beginners have and will come away with a better understanding
than most traders who have 20 years of experience!
Mission Million Money Management will take you step by step through this critical
and complex subject, and break it down in a way that will give any trader the
foundation needed to begin to benefit from the power of the Fixed Ratio money
management strategy.
Mission Million Money Management covers all the essentials you need to know in order
to begin applying my POWERFUL money management strategy to your trading:
- Foundation of a proper money management strategy.
- The Pitfalls of asymmetrical leverage (a must to properly understand money management)
- Common and deadly flaws associated with most money management strategies
- The Answer to the flaws – Fixed Ratio MM Strategy
- Determining whether to be aggressive or conservative
- Rate of Decrease and protecting profits
- Diversification and Money Management – An Unbelievable combination
I have read publication after publication after publication that says money management
is the most important element to long-term success in trading. Yet, those same publications
give little if any insight as to why or how. And, if they do, they are almost always wrong
in telling traders what type of money management is “best”.
For example, trader A and B both have the same size account, same goals, same risk tolerance levels and are trading the exact same strategy and get the exact same fills. Trader A uses a common money management strategy and increases his account to $100,000 in 5 years never risking more than 15% of his account. Trader B uses a different money management that also never risks more than 15% of his account, but total profits at the end of 5 years is $250,000. Which money management strategy is the “best”? The one trader B used of course!
That is the way money management is... mathematical. Given the same circumstances, there is a mathematical calculation that is best for any given scenario.
What you will learn from this vital course is how to determine what is best based on certain circumstances.
The information in this course is worth thousands and thousands of dollars. There is no
question in my mind that if a trader follows the principles and specific money management
strategies contained in this course, they will be thousands upon thousands of dollars
ahead where they would be by not following the strategies contained in this course.
Despite the enormous value, I am only charging $995 for this one-of-a-kind money management
course. Why? Because I want you to know the importance of this vital information and
I don’t want price to stand in the way.
However, I would advise you to order now as I retain the right to increase the price at
any time for any reason.
My Mission Million Money Management Course is only $995 and could increase in price at any time!
Click to Order Now
Sincerely,
Ryan Jones
Creator of Fixed Ratio money management strategy
p.s. If you are still not convinced that this is a MUST HAVE Course for every
single trader, read what my students have said about my work and contribution
to the trading industry below:
