Trade, money and risk management

[forex1]

For attention TC, but all feedback and debate welcome.

1. Trade management when trading multiple lots

If you trade only 1 lot it is easy to minimize your risk but difficult to let your profits run. It is very tempting to take profits too soon or move your stop loss too close too soon – and in the end you get the risk/reward ratio all wrong. So I’m trying to find a method to trade 2 lots in a way that I find myself in a risk-free trade as soon as possible. (I accept of course that at the time of entering the trade one’s risk is bigger unless you half the pips you were willing to risk on 1 lot, but that would probably put you initial stop loss too close).

Here’s what I have in mind – can you please comment on the feasibility of this approach in conjunction with your trade recommendations. The pip movements mentioned below are specifically with $/CHF in mind and the spread is included everywhere.

Enter the trade with 2 lots; stop loss 25 pips, so at this stage your max loss is 50 pips.

Take 15 pips profit on the 1st lot as soon as you can and move the stop loss on the 2nd lot 25 pips from the current price. At this stage you have effectively locked in 5 pips and the trade is risk-free because if the market now turns around and your 2nd lot gets kicked out, you make an overall profit of 5 pips (+15 on the 1st and –10 on the 2nd).

This leaves the trader in the relatively stress free situation of being able to maximize his profit on the 2nd lot knowing that he can’t lose anymore.

Does this approach make sense on your trade recommendations or can you suggest something else?

2. Money and risk management on $10,000 capital

The next question follows on from the previous issue of trade management - how does one double $10,000 in one month? Probably not by trading 1 lot? Let’s assume we have a winning system catching some good intra-day trends (with its fair share of losing trades). How many lots do you trade on a $10,000 account and how much do you risk per trade in order to minimize losses and maximize profits in the long run – and take $10,000 to $20,000 in the shortest space of time?

All members please feel free to share ideas, advice and experiences (good and bad!) regarding trade, money and risk management.

[currencia]

GautenTrader:: U R on the right track in your thinking.

However, I did see that you seem to set your original stop based upon psychology of 25 or 30 pips. If that is an accurate reflection, you need to rethink. Most traders claim to be trendline traders, as that is the number one rule they have been taught by almost everyone (mostly because they cant teach anything else). In trendline trading, your stop needs to be above the last high if trading south and below the last low if trading north. Very seldom does this allow for 25 pip stops unless you exclusively are trading off of tick to 30 min charts, which only gives you a very small picture of what is really going on.
On a two hour or daily chart, and as a trendline trade, the steeper the trendline the bigger the stop will be. It is often 60 and 90 pips. In order to have a 25 pip stop based upon trendline trading, the trendline would have to be almost flat or horizontal!
Of course, that means you shouldnt be trading anyway because reversal or sideways is at hand.

Nevertheless, your concept of enetring with multiple lots, taking profit soon on some of the lots, and letting the balance try to run with minimal stop loss on those remainders, is a good strategy to perfect.
Eventually, you should be able to get to the level of entering with 5 lots and start taking a lot off the table every 20 pips. Meanwhile, start choking up the stoploss on the remainders as soon as the market has moved 30 pips in your favor. A 20 pip trade in the pocket on the first lot will cover 5 pips worth of stoploss on each of the remaining 4 lots. The second lot will get you 40 pips more profit off the table, which now will cover 20 pips of stoploss on the remaining 3 lots. Since fx spot prices move in waves of 30 pips out, 20 pips back or 60 pips out , 40 pips back you can see by this method that you can adjust your stop to break even and locked in profit as you go without getting too close to poorly getting stopped out with psychological stops when the trade is in the right direction.

[globetrotter]

Currencia,

Thanks very much for that stop loss lesson!

If you have a chance, maybe you won't mind explaining the following a bit more?

Most traders claim to be trendline traders, as that is the number one rule they have been taught by almost everyone (mostly because they cant teach anything else)

What might the "anything else" be?


Thanks very much for you advice.

[currencia]

Linda:

95% of fx traders lose. About 95% claim to use trendlines and be trendline traders as their primary tool, or one of their primary tools. Might there be linkage?

The steeper to the north or to the south the trendline is, the stronger the trendline; Of course, then the trendline takes less time to develop when it is steeper, by definition. Ergo, a trader has less time to identify this trendline and trade it. Most traders cannot identify and confirm a trendline of a 45 degree angle until the second subwave of wave three. By this time, a trendline trader will then enter just about when wave 3 is peaking into its subwave 5 top and an abcde pennant or flag retracement is about to unfold in the traders face for losses.

Trendlines are easily spotted at the middle of the chart, or on the left side of the chart. Unfortunately, trades happen at the hard right edge of the chart, and eastbound of the hard right edge where most charts won't even let you draw a line. So, if ya cant spot a trendline on a 45 degree angle til its too late and ya certainly then wouldnt be able to spot a big pip moving steeper trendline of 22 1/2 degrees NNE in time to get aboard, then I guess one is relegated to trading the lousy shallow trendlines that aim 22 1/2 degrees towards the east? Hmmm. No wonder most traders loose!

Successful traders do what unsuccessful traders are unable or unwilling to do. It doesnt take a lot of talent to see a trendline without having to draw it. Save and fill your toolbelt space with more meaningful tools if yu want to be successful in this zero sum gain business of trading.

[globetrotter]

This is quite a conversation for me, as I am fairly new at this, but I think I follow you.

I haven't generally used trendlines very much at all, but it seems that most of the common indicators are a variation of that - that it, they indicator the trend from the left side of the chart, while what we need to find out is the trend on the right side.....


May I ask, how long have you been trading, and how long did it take you to become consistently successful? Perhaps you'd even like to share your favorite tools?

I am working with EMA's, MACD and a few others right now.

all the best,

[currencia]

Linda dela Globetrotter:

I use time and price with emphasis on time. things like elliott, gann, babson, andrews, and wycoff.

I pay little head to averages of averages of price, ie... the MACD and mva's that U mention, along with all the other silly oscillators that are laggards. To beat this game, one needs to be a leader, not a laggard and I suggest you find tools that allow you to be so. Once you accomplish that, the name of the game is stop loss and money management. If there ever was a holy grail, you will find it in stop loss management, not drawing tools or formulae of da price.

One must do what the others don't or won't do, or one will end up buying high and selling low. That's what laggards do.

[forex1]

Currencia, thanks for sharing your insight - I can learn a lot from you!

Regards

Gauteng

[globetrotter]

for sharing your views and experience - a great help - I certainly don't want to be a laggard...