<div class="bbWrapper">Money management and % wins aren't really connected. You can lose 90% of your trades and still be profitable if your wins are 10x larger than your losses, regardless of your position sizing.<br />
<br />
Position sizing determines how quickly you make OR LOSE money, for a particular set of trades or a particular system. Larger position sizes -- risking a bigger % of your account on each trade -- mean you win more when you win, and lose more when you lose. (With a caveat -- see below.)<br />
<br />
"Traditional wisdom" says you should only risk 1% per trade. That's generally a really safe and conservative level. You can risk more than that and (if you have a good profitable system) you'll make more profit. You'll also have deeper drawdowns but you should come out with more profit in the long run.<br />
<br />
UNLESS you bet too much. There is a "critical level" of risk for any trading system. Risking at that "critical level" means you end up with maximum possible profits in the long run. HOWEVER you will likely suffer 90-95% drawdowns along the way!! AND if you risk any more than that, you will start to make LESS profit. So you want to risk well below your "critical level" to keep your drawdowns under control and to minimize the risk of ruin.<br />
<br />
So the $64000 question is, what's the "critical level" ? It's different for every system. It also assumes you trade CONSISTENTLY. If you change your approach every week, then there's no way to know what your system's "critical level" is. But if you trade consistently and record a history of your wins and losses, you can calculate your "critical level" pretty easily.<br />
<br />
Take a list of all your trades. Calculate the average profit for all trades, wins AND losses, and call it AvgTrade. Then calculate the average profit for all WINNING trades, and call it AvgWin. Then your "critical level," also known as your Kelly percentage, is approximately AvgTrade / AvgWin. (This isn't a precisely exact calculation but it's close enough for our needs.) BTW notice the win % doesn't even enter into this calculation. It will affect your AvgTrade value.<br />
<br />
So say you trade one mini per trade, and your average trade makes $5, and your average win is $20. Then your Kelly value is 5 / 20 = 0.25. Your "critical level" is 0.25, or 25%. Risk 25% PER TRADE and you will maximize your profits over the long run -- but in the short run you'll probably jump off a bridge because of the 95% drawdowns!! In actual practice you should bet a small fraction of the Kelly value, maybe 10-20%. So 10% of the Kelly value is 10% * 0.25 = 2.5%. Risk 2.5% of your account on each trade and you should be pretty safe.<br />
<br />
If you're comfortable with spreadsheets, try entering all your wins/losses into a spreadsheet and see what happens if you risk different % of your Kelly value. That will help you develop a feel for the risk you're taking, and give you an idea how much drawdown to expect. But that will take a LOT of trades to give you a good sample. I'd record at least 50-100 before you pay too much attention to it.<br />
<br />
Until you know what your Kelly value is, you should probably stick with 1% risk per trade. Assuming you have a profitable system, that should keep your drawdowns under control.</div>
