money management methods in trading

Let me illustrate with a trade I just closed today, a long trade in crude oil. Although I actually took the trade in last month's contract and rolled it over before expiry, let me illustrate on the front month contract, the maths are simpler and easier to explain.

On the 25th of February I got a long setup on CL. I won't go into the details of the setup, but I have confirmed through extensive backtesting that in the specific conditions then, a candle of that specific shape (defined objectively) is a market edge if it breaks the high of that candle, with a stop below the low. I'm not relying on an opinion, or future forecasting, just a simple mechanical edge.

So I placed an order to go long stoplimit 35.25 limit 35.27 with a stop loss at 33.03

My RISK per contract is $10 per tick x 224 ticks (the difference between my entry and my stop loss). So I lose $2240 USD per contract if my trade doesn't work out. I then multiply my account balance by an appropriate percentage (between .5% and 1.5% for most systems, only the very best systems will be tradeable at 2%, and risk of ruin spirals exponentially above 2.5%) to arrive at my position size of 4 contracts.

Therefore if everything goes to shit, I will lose $2240 x 4 = $8960 USD.

My trade management is as follows. I move the stop to breakeven at 1.2 times my risk, so at 35.25 (entry) plus (224 (risk) x 1.2) = 37.94. At 2 times my risk I bank half the trade as profits, which is at 39.73. Once I have banked partial profits. with my remaining position I trail a stop at 25% of the total profit UNTIL I reach 4 times my risk, at which point I tighten the stop to 1 times my risk from the maximum favorable excursion. (In this instance I never got there). At any point if price paints a SPIKE LOW (defined as any bar with a higher low before and after it) I raise my stop to that point.

You can see I banked 2 contracts for a gain of $8960. My remaining 2 contracts were exited at the final trailing stop of 40.40 (with 1 tick of slippage). My profit on them was $10300. So the total gain was $19260 for a risk of $8960. My trade result was therefore 19260/8960 = 2.15R

I always think about trade results in R (multiples of risk). It makes things way easier to not think about money, and fixed fractional position sizing is way more efficient mathematically for compounding gains.

Thanks for viewing!