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Re: How much to buy w/2% risk of $1k and w/50pip SL?
Quote:
Originally Posted by kenazen
So I need to choose a size where 1 pip is equal to $0.80. I messed around and found the size to be 8000 units.
Ill have to sleep again before I can figure out how I get from 0.8 to 8,000, obviously mutliplying by 10,000, but I need to understand why.
I think you probably need to think about what you're actually doing when you buy and sell.
Currencies are traded in pairs. You're betting that one of those currencies will increase or decrease in value against the other.
Using your example, buying one Eur will cost you $1.1861, if you buy 8000 eur it will cost you $9,488.80, and you will now be the proud owner of 8000 Eur.
If price moves so that one eur is worth $1.1862 you can sell your 8000 Eur and receive $9489.60
The profit you will have made will be the difference between what it cost you to buy those 8000 eur ($9,488.80) and what you sold them for ($9,489.60), $0.80
If, on the other hand, you sold one Eur you would have $1.1861 for it. If you sold 8000 Eur you would have $9,488.80
If price moved to $1.1862 and you wanted to buy back those 8000 eur it would cost you $9,489.60, a loss of $0.80
In effect each eur that you buy or sell will make/lose you $0.0001, so if you times that by 8000 = $0.80, or 10,000 = $1, or 12,500 = $1.25 etc etc etc
So, working it back the other way, say you only want to risk $30, how many eur do you buy or sell? Well if buying or selling one Eur makes/loses you $0.0001 then divide your $30 by $.0001 and you get.......300,000! But wait, now you have to work out your stop, let's say 25pips. Divide your 300,000 by 25 and you get 12,000, that's your trade size. 12,000 will be worth $1.20 per pip ($.0001 x 12,000), and $1.20 x 25 is.....you guessed it.....$30!!!
That's the mechanics of it, as I say the easiest way is to divide your maximum risk ($30) by your stop (25) and that will give you the value per pip ($1.20), which means trade size of 12k (12k x $0.0001)
Re: How much to buy w/2% risk of $1k and w/50pip SL?
Here is my 2nd attempt at trying to determine how many units of a pair I should buy based on a 50-pip SL and 2% capital risk.
Several people have suggested using the online tools, but I would like to be able to use these valuations in automated
backtesting, so I need to understand how to compute them by hand (so I can write the backtesting program).
A few things I still don't understand:
1) Why don't I have to account for leverage?
2) Why is the formula for examples C and D the same (assuming it's correct).
=======================================
A) EUR/USD : USD in Quote
B) USD/JPY : USD in BASE
C) CHF/JPY (USD/JPY) : USD in Conversion Base
D) EUR/GBP (EUR/USD) : USD in Conversion Quote
Account Size: $5,000.00 (USD)
Stop Loss: 50 pips per Unit
RiskAmount = 2% of Account Size = $100
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A) EUR/USD : USD in Quote
FORMULA: ((RiskAmount * 1) / PipValue) / MaxPipLoss) = Units
Re: How much to buy w/2% risk of $1k and w/50pip SL?
Quote:
Originally Posted by kenazen
Hello,
I'm trying to figure out how to manage money.
If I have an account with $1,000.00, and I am willing to risk 2% on a trade, then I would need to set my stops so that I would not lose more than $20.00 on the trade ($1,000.00 * .02 = 20.00).
Let's say I believe the EUR/USD is going to drop, and it is qouted at 1.1859 (as it is right now). I also believe that I need to give it 50 pips of freedom for whipsaws.
The challenge is to figure out how MUCH of EUR/USD to short. I am using Aonda, so this value should be expressed in units.
I've been looking at this website, and trying to make sense of it:
"EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip"
For the EUR/USD right now:
(0.0001/1.1859) * (1.1859 * 100000) = $10
This forumla would seem to always produce a pip value of $10 for pairs using the USD as the "qoute" price. Is that correct?
Knowing that my stop should be at a $20 loss, and a pip is worth $10, then it would seem I could only set my stops at 2 points instead of 50. Then again, its 4am, lol.
Any suggestions?
Iīm sorry Kenazen, i donīt know if anyone has already mentioned, but if you are using there platform, why waste your brains? Just use their Pip/Profit calculator. Itīs easy and direct and you can use not only with Eur/Usd but with any pair they have.
Re: How much to buy w/2% risk of $1k and w/50pip SL?
Quote:
Originally Posted by Paulolion
Iīm sorry Kenazen, i donīt know if anyone has already mentioned, but if you are using there platform, why waste your brains? Just use their Pip/Profit calculator. Itīs easy and direct and you can use not only with Eur/Usd but with any pair they have.
"Several people have suggested using the online tools, but I would like to be able to use these valuations in automated backtesting, so I need to understand how to compute them by hand (so I can write the backtesting program)."
Re: How much to buy w/2% risk of $1k and w/50pip SL?
Attached is a OpenOffice spreadsheet used for determing how many units to purchase based on the need for a 50-pip-SL and a willingness to lose 2% of your equity.
For a USD Major pair with a USD qoute, you use a USDRATE of 1, like EUR/USD.
For a USD Major pair with a USD base, you use a USDRATE equal to the currency rate, for example 1.3151 for USD/CHF.
For a non-Major pair ("Minor"), you use a USDRATE that is either USD Conversion rate, for example on CHF/JPY @ 89.15, you would use USD/JPY @ 116.55. I'm not sure why this works in all cases, perhaps it doesn't. The forumla is supposed to be different when it's the qoute or base price that is being converted to USD, but it seems to work.
The PipValue always has the same number of decimals as the USDRATE. SO it is 0.0001 on most pairs, and 0.01 on JPY-based pairs.
If anyone has any suggestions, or would like to double-check my math, that would be helpful.
The goal of the calculations is for me to be able to take multiple bets where each one is risking 2% of my money with a 50-pip Stop Loss.
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