EDUCATION MATTERS

TRADING SKILL: RISK MANAGEMENT

 DISCLAIMER
Risiko Pelaburan
• Dagangan Online secara margin mempunyai risiko tinggi. Tahap leverage
tinggi boleh membantu atau menyebabkan kerugian.
• Sila pertimbangkan sama ada berdagang Online sesuai untuk anda
dengan mengambil kira pengalaman, objektif pelaburan dan kemampuan
kewangan.
• Ada kemungkinan anda boleh hilang sebahagian atau keseluruhan
pelaburan asal. Oleh itu, jangan gunakan modal daripada wang yang anda
tidak sanggup rugi. Anda seharusnya mengetahui risiko berkaitan
dagangan Online, dan mendapatkan pandangan daripada penasihat
kewangan bebas sekiranya anda mempunyai sebarang kemusykilan.
ZULKIFLI ABDUL RAZAK

FULL TIME INVESTOR

MORE THAN 20 YEARS

EXPERIENCE IN RETAIL
TRADING

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MARKET OUTLOOK

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5
BEING RIGHT DOES
NOT EQUATE TO
MAKING MONEY
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 UNDERSTANDING TRADING
• TRADING IS ABOUT SEEING THE MARKET
IN PROBABILITIES
• COMBINATION OF:
- A TRADING SYSTEM THAT HAS AN EDGE
- RISK MANAGEMENT
- PROPER PSYCHOLOGY
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 • DEFINE & MEASURE
PROBABILITIES

• EXACT CRITERIA &

SYSTEM EDGE MONITOR

• PRECISE &
RISK
MANAGEMENT CALCULATED
 PSYCHOLOGY

RECORD
KEEPING
TRADING POSITION
TECHNIQUE SIZING MODEL
 WHAT IS A TRADER?
• RISK MANAGER: PROTECT CAPITAL &
MANAGE TRADING RISKS
• EVERY BUSINESS HAS REVENUES &
COSTS: LOSSES MUST BE ACCEPTED AS
PART OF A COST
• POOR RISK MANAGEMENT &
INAPPROPRIATE POSITION SIZING ARE THE
MAIN CAUSE OF TRADING FAILURE

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OBJECTIVE •CLEAR,
CONCISE,
SETTING ACHIEVEABLE

•KNOWN
TRADING PARAMETERS,
CLEAR
SYSTEM POSITION
SIZING

RISK • MONITOR
MANAGEMENT & RESIZE
 WHY
ENTERING

TRADE WHERE TO
MANAGEMENT ENTER

TRADING
SYSTEM
RISK REWARD WHERE TO
CRITERIA EXIT

WHERE TO
TAKE PROFIT
 MACRO MONITOR
BETWEEN 6AM-8AM
• YOUTUBE: BLOOMBERG LIVE
• INSTITUTION ANALYSIS
• FOREXLIVE.COM
• ECONOMIC CALENDAR

TECHNICAL SCREENING
BETWEEN 6AM-8AM
• MARKET MAPPING (MARKET STRUCTURE)
• RISK REWARD ANALYSIS

TRADE MANAGEMENT
WAIT FOR NOTIFICATION
• USE ONLINE ALERTS
• APPS SUCH AS INVESTING.COM
R
O
L • OBJECTIVES
E
S
BELIEFS • SELF
DISCOVERY
A
S

A
N RISK • CAPITAL
TOLERANCE
• SELF REVIEW
I
N
V
• FINANCIAL
E
S PORTFOLIO PLANNING
TYPE
T • SELF
O ASSESMENT
R
R
O • MARKET
L COMPELLING ANALYSIS
E MARKET MODEL
• SECURITY
S UNDERSTANDING

A
S
• MARKET TYPE
MARKET TYPE
A IDENTIFICATION • SYSTEM
SUITABILITY

T
R
A • SIMPLE ENTRY
TRADING
D IMPLEMENTATION
• COMPLEX EXITS
E
R
 • MENTAL PREPARATION
SELF • CLEAR CONSCIENCE

• ELEMENTS AWARENESS
MARKET • MARKET MONITORING

• CLEAR RULES & OBJECTIVES

STRATEGY • MANAGEMENT FOCUS (TRADE,
SELF, SYSTEM)

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 TRADE
MANAGEMENT

SELF RISK POSITION

MANAGEMENT SIZING MODEL
MANAGEMENT

SYSTEM
MANAGEMENT

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HUMAN IS AN EMOTIONAL
BEING

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TRADING EMOTION

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RATIONAL INSTINCTIVE
DECISION RESPONSE

PRE-DEFINED EMOTIONAL
ACTION UNSTRUCTURED
STRUCTURE ACTION

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GAINING CONTROL

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 CLEAR PERFORMANCE
OBJECTIVE TRACKING

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SET A CLEAR
OBJECTIVE

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 RETIREMENT INVESTMENT MAJOR EXTRA
PLAN PORTFOLIO PURCHASES INCOME
• LONG TERM • MAIN VS HEDGE • CLEAR OBJECTIVE • SHORT TERM

• TARGET DATE • CLEAR DEFINITION • TARGET DATE • MARKET MONEY

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FIXED ACTIVE

INCOME

EXPENSES SAVINGS INVESTMENT

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 • TIME FRAME
INVESTMENT
OBJECTIVES • RISK CAPITAL
• EXPERIENCE

• GAIN TARGET
SYSTEM
OBJECTIVES • DRAWDOWN LIMIT
• RISK OF RUIN

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AGGRESSIVE • VOLATILE, SENSITIVE TO MARKET
PORTFOLIO CHANGES
DEFENSIVE • NON-VOLATILE, ISOLATED FROM BROAD
PORTFOLIO MARKET MOVEMENTS
INCOME
• FOCUSES ON DIVIDENDS / FIXED RETURNS
PORTFOLIO
SPECULATIVE
• FOCUSES ON SPECULATIVE ANALYSIS
PORTFOLIO
HYBRID
• INTER SECURITY DIVERSIFICATION
PORTFOLIO
 PORTFOLIO MANAGEMENT

• EACH SYSTEM SHOULD WORK TOGETHER TO

ACHIEVE OVERALL GOAL

• EACH SYSTEM SHOULD HAVE OWN

OBJECTIVE & POSITION SIZING MODEL

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SET A STRATEGY TO
ACHIEVE THE OBJECTIVE

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 TRADING SYSTEM
• OBJECTIVES SETTING
MANAGEMENT • RISK MANAGEMENT
• POSITION SIZING MODEL

• COMPELLING MARKET MODEL

TRADING • MARKET TYPE ANALYSIS
• ENTRY & EXIT TECHNIQUES

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 GAINS

# DRAWDOWN
POSITION

SYSTEM
OBJECTIVES
RISK
REWARD % LIMIT

WIN RATE OPPORTUNITY

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INVESTING PORTFOLIO EXAMPLE

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 FIXED
DEPOSITS

FIXED ASSET
BONDS
PORTFOLIO

DIVIDEND
BEARING
FINANCIAL
OBJECTIVE
STOCK

VARIABLE ASSET SPOT

PORTFOLIO CURRENCY

COMMODITY

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 PERFORMANCE TRACKING:
SELF, SYSTEM & EXPECTANCY

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 PERCENTAGE DOLLAR SYSTEM QUALITY
VALUE

R-MULTIPLES EXPECTANCY

TIME TIME

POSITION SIZING MODEL

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 • MAXIMUM
SYSTEM DRAWDOWN
OBJECTIVES • TARGETED
RETURN

• TIERED VS NON-
TIERED
R-MULTIPLES • CAPITAL
PROTECTION
• RISK ADJUSTMENT
 TRADING SYSTEM EXPECTATION
• R-MULTIPLES (WORK OF DR. VAN THARP)

- 1 UNIT OF RISK = 1R

https://www.dropbox.com/s/247x3ia7yb5yok3/van%20tharp%20a
rticle%20on%20being%20right.pdf?dl=0

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TRADING SYSTEM EXPECTATION
• EXAMPLE 1:
LONG EURUSD
SL 50 PIPS
TP 150 PIPS

IF HIT SL: -1R

IF HIT TP: 3R

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 TRADING SYSTEM EXPECTATION
• EXAMPLE 2:

LONG EURUSD
SL 50 PIPS
TP 150 PIPS

CLOSED WITH 80 PIPS PROFIT

80/50 = 1.6R

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 TRADING SYSTEM EXPECTATION
• EXAMPLE 3:

LONG EURUSD
SL USD10
TP USD30

CLOSED WITH USD20 PROFIT

20/10 = 2R

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ENTRY RESULT TOTAL

1 1R 1R

2 -0.5R 0.5R

3 2R 2.5R

4 -0.8R 1.7R

5 3R 4.7R

6 -1R 3.7R

7 0.3R 4.0R

8 3.2R 7.2R

EXPECTANCY 7.2 / 8 0.9R

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TRADING SYSTEM GRADING
GRADE EXPECTANCY

EXCELLENT ABOVE 1.5

VERY GOOD BETWEEN 0.6 TO 1.5

GOOD BETWEEN 0.2 TO 0.5

BREAK-EVEN BETWEEN -0.1 TO 0.1

POOR BELOW -0.1

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WHAT IS THE “CORRECT”
POSITION SIZE?

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 THE MATHEMATICS
• SYSTEM OBJECTIVES
- DRAWDOWN LIMIT
- GAIN OBJECTIVES

• NUMBER OF TRADES
- R-MULTIPLES TARGET

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PORTFOLIO EXAMPLE 1

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 CORE CAPITAL PROTECTION
REDUCTION
R-MULTIPLE GAIN POSITION SIZE %RETURN
THRESHOLD

UP TO 20R 0.25% -7.5% TO 5% 0%

21R TO 60R 0.5% >5% TO 25% 15%

61R TO 100R 1% >25% TO 65% 45%

100R OR GREATER 2% >65% N/A

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EXAMPLE

INVESTMENT PORTFOLIO TARGET:

USD10,000 INVESTMENT
MONTHLY:
OBJECTIVE
MINIMUM GAIN: 5% @USD500
RISK OF RUIN: -7.5% @USD750
MONTHLY CONTRIBUTION: USD50

VARIABLE
FIXED INCOME
INCOME
PORTFOLIO
PORTFOLIO
 INVESTMENT
MONTHLY COMMITMENT: USD50 OBJECTIVE
NOTIONAL PORTFOLIO: USD10,000 (USD10,000)
DEPOSIT USD50 INTO FIXED
INCOME PORTFOLIO (MONTHLY)

DEPOSIT USD900 INTO VARIABLE FIXED INCOME VARIABLE INCOME

INCOME PORTFOLIO PORTFOLIO PORTFOLIO
(USD50) (USD900)

RISKED EQUITY: STOP OUT LEVEL:

USD750 20% = USD150
 GET YOUR TRADING SYSTEM
PARAMETERS
• BACKTEST OR TRADE A SYSTEM ON DEMO ACCOUNT
- START WITH A CAPITAL OF USD10,000
- FOLLOW THE POSITION SIZING MODEL (FIXED DOLLAR
AMOUNT OF USD25 PER TRADE FOR TIER 1)
- RECORD THE SYSTEM EXPECTANCY FOR AT LEAST 30
TRADING SESSION

NOTE: TRADING SESSION (INTRADAY = PER DAY AS 1R &

SWING = PER ENTRY AS 1R)

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 LOT SIZE & RISK CALCULATION

• DETERMINE % RISK & MARGIN RISK

POSITION SIZE CALCULATOR:

https://www.babypips.com/tools/position-size-
calculator

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POSITION SIZE CALCULATOR

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 GET YOUR TRADING SYSTEM
PARAMETERS

• GET THE FOLLOWING PARAMETERS:

1. EXPECTANCY
2. FREQUENCY OF TRADE
3. WINNING PERCENTAGE

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 EXPECTANCY: 0.5R
FREQUENCY: 20 TRADES
SYSTEM PARAMETERS
/ MONTHLY
WINNING: 60%
TRADING SYSTEM
TIER 1: USD25 / TRADE
TIER 2: USD 50 / TRADE
POSITION SIZING MODEL
TIER 3: USD100 / TRADE
TIER 4: USD200 / TRADE

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 SYSTEM PERFORMANCE

• MONTHLY GAIN CALCULATION

(USD25 PER TRADE X 0.5R EXPECTANCY) X 20 TRADES = USD250

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 “COMPOUNDING”
• PORTFOLIO BALANCING (SET A TIME FRAME)
- MONTHLY INVESTMENT OF USD50 INTO FIXED
INCOME PORTFOLIO
- TRANSFER 20% OF MONTHLY PROFIT FROM
VARIABLE INCOME PORTFOLIO INTO FIXED
INCOME PORTFOLIO
- CONTINUE UNTIL THE OVERALL PORTFOLIO
REACHES USD10,000

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 2ND MONTH
MONTHLY COMMITMENT: USD50
NOTIONAL PORTFOLIO: USD10,000 INVESTMENT
DEPOSIT USD50 INTO FIXED
INCOME PORTFOLIO (MONTHLY)
OBJECTIVE
TRANSFER 20% OF PROFIT FROM
(USD10,000)
VARIABLE INTO FIXED

REPEAT UNTIL PORTFOLIO REACHES

OBJECTIVE
FIXED INCOME VARIABLE INCOME
PORTFOLIO PORTFOLIO
USD50 + USD50 + USD50 = USD150 (USD900 + USD250) - USD50 = USD1,100
PORTFOLIO EXAMPLE 2

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EXAMPLE

INVESTMENT PORTFOLIO TARGET:

USD100,000 INVESTMENT
MONTHLY:
OBJECTIVE
GAIN: 5% @USD5,000
DRAWDOWN: 2.5% @USD2,500
RISK OF RUIN: 30% @USD30,000

VARIABLE
FIXED INCOME
INCOME
PORTFOLIO
PORTFOLIO
MONTHLY COMMITMENT: USD200
NOTIONAL ANNUAL PORTFOLIO:
USD2,400 INVESTMENT
TRADING SYSTEM
OBJECTIVE
GAIN TARGET: 5% @USD120
DRAWDOWN LIMIT: 2.5% @USD60
RISK OF RUIN: 30% @USD720

FIRST MONTH:
FIXED INCOME VARIABLE INCOME
DEPOSIT USD60 INTO VARIABLE
INCOME PORTFOLIO
PORTFOLIO PORTFOLIO
DEPOSIT USD140 INTO FIXED (USD140) (USD60)
INCOME PORTFOLIO
 NOTIONAL
MONTHLY COMMITMENT: USD200 PORTFOLIO
NOTIONAL ANNUAL PORTFOLIO:
USD2,520 (USD2,520)
TRADING SYSTEM
GAIN TARGET: 5% @USD126
DRAWDOWN LIMIT: 2.5% @USD63 FIXED INCOME VARIABLE INCOME
SECOND MONTH:
PORTFOLIO PORTFOLIO
(USD340) (USD63)
RETAIN USD63 IN TRADING
ACCOUNT & MOVE USD117 INTO
HOLDING ACCOUNT

DEPOSIT USD200 INTO FIXED

HOLDING
INCOME PORTFOLIO ACCOUNT
(USD117)
 NOTIONAL
MONTHLY COMMITMENT: USD200 PORTFOLIO
NOTIONAL ANNUAL PORTFOLIO:
USD2,640 (USD2,646)
TRADING SYSTEM
GAIN TARGET: 5% @USD132.30
DRAWDOWN LIMIT: 2.5% FIXED INCOME VARIABLE INCOME
@USD66.15
PORTFOLIO PORTFOLIO
THIRD MONTH:
(USD540) (USD66.15)
RETAIN USD66.15 IN TRADING
ACCOUNT & MOVE USD 59.85 INTO
HOLDING ACCOUNT (USD59.85 +
USD117 = USD176.85) HOLDING
ACCOUNT
DEPOSIT USD200 INTO FIXED
INCOME PORTFOLIO (USD176.85)
 FIXED INCOME VARIABLE INCOME
INVESTMENT
PERIOD (ASSUMING 5% (ASSUMING 5%
PORTFOLIO
ANNUAL RETURN) MONTHLY GAIN)
YEAR 1 USD2,457 USD955.03 USD3,412.03

YEAR 2 USD5,099 USD3,670.51 USD9,711.03

YEAR 3 USD7,873.95 USD7,728.58 USD15,602.53

YEAR 4 USD8,267.65 USD12,417.37 USD20,685.02

YEAR 5 USD9,941.03 USD16,462.30 USD26,403.33

YEAR 6 USD12,958.08 USD21,013.26 USD33,971.34

YEAR 7 USD16,125.98 USD27,036.31 USD43,162.29

YEAR 8 USD19,452.28 USD34,350.98 USD53,803.26

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 NOTIONAL
MONTHLY COMMITMENT: USD200 PORTFOLIO
NOTIONAL ANNUAL PORTFOLIO:
USD2,340 (USD2,340)
TRADING SYSTEM
GAIN TARGET: 5% @USD117
DRAWDOWN LIMIT: 2.5% FIXED INCOME VARIABLE INCOME
@USD58.50 PORTFOLIO PORTFOLIO
RISK OF RUIN: 30% @USD720
(USD281.50) (USD58.50)
SECOND MONTH:

DEPOSIT USD58.50 INTO VARIBALE

INCOME PORTFOLIO
HOLDING
DEPOSIT USD141.50 INTO FIXED ACCOUNT
INCOME PORTFOLIO
(USD0)
PORTFOLIO EXAMPLE 3

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5&15 POSITION SIZING MODEL

CONCURRENT MARKET
GOAL OPPORTUNITIES TIME FRAME
TRADE MONEY

RISK NO MORE SWING (1-5

THAN 5% TO UP TO 6 20-40 PER DAYS)
YES
MAKE 15% A TRADES MONTH
MONTH INTRADAY

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 START OF • START BY 0.5% EQUITY RISK

THE MONTH
• IF LOSE 3% FROM STARTING VALUE, THEN RISK 0.25% UNTIL ACCOUNT BALANCE

DRAWDOWN RECOVERS TO -1.5%

• IF LOSE 5%, STOP TRADING

• IF UP 3% FROM STARTING VALUE, THEN RISK 0.75% UNLESS BALANCE FALLS

BACK BELOW STARTING BALANCE
PROFIT • IF UP 7% FROM STARTING VALUE, THEN RISK 1% UNLESS EQUITY FALLS BACK
BELOW 3%

• IF REACH 15%, YOU CAN EITHER:

TARGET • CUT POSITION IN HALF TO PROTECT GAINS

REACH • DOUBLE POSITION SIZE FOR THE MAXIMUM GAIN

• STOP TRADING

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 ADDITIONAL MODIFICATIONS

LOW CONVICTION • 50% NORMAL POSITION SIZE

TRADE

HIGH CONVICTION • RISK 2% OR MORE AFTER SECURING 10%

TRADE PROFIT

• CARRY OVER PREVIOUS MONTH PROFIT

MARKET MONEY TO START TRADING LARGER SIZE

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PORTFOLIO EXAMPLE 4

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 2&25 POSITION SIZING MODEL

• REDUCE TRADE SIZE IN DRAWDOWN

• INCREASE TRADE SIZE IN PROFIT

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70
DAY TRADING PORTFOLIO EXAMPLE 4

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COMBINING BULLET METHOD WITH
2&25 POSITION SIZING MODEL

• DIVIDING FIXED CASH RISK INTO “BULLETS”

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EQUITY: USD10,000 INTRADAY TRADE

GAIN OBJECTIVE: USD1000 (10%) PORTFOLIO 5 ENTRIES DAILY

RISK LIMIT: USD500 (5%) USD500/20 = USD25 DAILY

USD25/5 = USD5 PER TRADE

WITHDRAWAL

MARKET
INTRADAY XMP
MONEY

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 POSITION SIZING FOR DAYTRADING

• MAXIMUM NUMBER OF POSITION IN A DAY

• MAXIMUM NUMBER OF CONCURRENT

POSITION HELD AT A TIME

• MAXIMUM EQUITY LOSS IN A DAY

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 BULLET METHOD

1. DIVIDE RISKED CAPITAL INTO SEVERAL

BULLETS = NUMBER OF TRADES
2. WINNING TRADE, ADD OR TOP UP BULLET
3. IF YOU GET DOWN TO LAST BULLET, SPLIT
INTO HALF

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 SYSTEM MANAGEMENT

• SYSTEM GRADE
- EXPECTANCY FROM RISK PERSPECTIVE
- R-MULTIPLE

• SYSTEM REVIEW
- TRADE REVIEW
- PORTFOLIO REVIEW

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TRADING SYSTEM EXPECTATION
• ADVANTAGES OF HAVING A TRADING SYSTEM

- CONSISTENCY
- FITTING SYSTEM TO YOUR GOALS
- REVIEWING YOUR PERFORMANCE
- MAGIC IS IN THE PROCESS, NOT ENTRY

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TASK OF A TRADER IS TO
FOLLOW TRADING RULES

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 SELF MANAGEMENT
TRADE PLAN MISTAKE MONITOR

TRADE IDEA SELF REVIEW

TRADE MANAGEMENT EMOTION CONTROL

TRADE CONVICTION DEVELOPMENT PLAN

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80
INVEST IN A SYSTEM,
TRADE YOUR SYSTEM

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Q&A SESSION

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