MoneyTec 2.0 - Online Forex Traders & Brokers Social Networking Community » Trading Talk » Money & Risk Management

[UberNewbFX]

I have a system that is pretty reliable technically. One of the aspects to the system is to set a Hard Stop Loss = to the value of the PSAR for the bar which the trade was entered. Ideally I would be entering the trade at the open price of the bar that the SL was determined. And depending on the pair, I would set a Take Profit of 50 - 100 pips.

Now that I have a decent system, backtested nicely, positive Win/Loss Ratio, I am concentrating on developing a MM plan to impliment. Here is where I am at right now:

I want my risk per trade to be somewhere between 3% and 5% of my entire account balance. So I have to determine pip value to determine my lot size. If my account Balance was $10,000 and I was trading at 5% risk and my Stop Loss was set a 25 pips, my lot size should be set so that a 25 pip move =$500.

I will use a US based pair for this example to simpliy things, as I am in the US.
Say I go Long USDJPY and I enter at 116.50 and my SL is at 116.25 my lot size should be 2 (2 contracts) for this trade. My logic is that PiP value in this pair in a 2 Lot position is $20/pip and my SL is 25 pips, so 25pips x $20 is $500. If my Limit was set to 100pip profit my potential profit would be $20 x 100 = $2000.

Does this seem a solid MM technique to use with my strategy?
Keep in mind, in Back testing my SL was hit maybee 1 out of 4 or 5 trades.

Thanks in advance for any guidance

[Logan]

25 pip move =$500.

If you have 10k$ in your account, that means that you are leveraging around 20 times what you have into your account.

Personnally, I dont take that kind of risks with my money. I normally never leverage more than 10 times my account.

[cornellj]

A simple plan I use is leverage 1-100 on the account. 2% Of your margin on risk per trade. 600pips profit per month. This combination will earn you 12% of your capital on a monthly basis. Compounded monthly this grows your account to more than double the starting amount per year with minimum drawdowns. If you can manage no drawdowns for the year the factor of growth becomes 3.9 times the account margin.

In other words risk 2% of your margin per trade. The effect is if a trade goes 30pips against you, you have lost 0.6% of your margin. There is enough pips per month to reach a target of 600pips.

I use the 1-100 leverage and 1-2% of margin to keep the pipmovements against or for me easily coputable. 100pips against or for you is exactly 1-2% of your margin profit or loss. This figure is high as far as leverage goes but if you compensate with a lower percentage of margin per trade it works perfectly.

In your example of US$10 000 margin you will trade US$100-200 per trade and a pip profit of 100pips will add 1-2% to your account.

[janco]

Lots to trade=
RISK Capital, say 3% of 10000
((Entry Price – S/L) + Spread) x PIP value in US$



Rgs,

Janco

[badthriller]

With your money management plan, you would not be able to trade like the fund managers in the long run. i came across a money management strategy called 'the code' by jordan knight, it is actually more like a strategy for strategies. it turned all my previously losing strategies into winning ones, and it is the only method that sustained me for 2 years without blowing any accounts even with bad trades. i can say now i trade like the fund managers and i manage funds as well. it us a must read

http://forex.thefxcode.com

[Geofforex]

Remember - despite backtesting - you will always find market conditions that work against you for a period of time that will create a drawdown.

[wdemilly]

Also, keep up your discipline. If you have a losing streak, you may feel the urge (as many traders do) to increase lot size in order to "catch up." Resist this urge. You will catch up soon enough. There's always the possibility that during a losing streak, the problem is much larger than your technique. In other words the market may be going crazy and be shattering any recognizable patterns.

So after a series of losing trades it might be wise to either (a) stop trading altogether until the market returns to some stability, or (b) lower your trade size until you start winning.

As an experiment once, I created a huge Excel spreadsheet of my actual trades, and added to them by copying and pasting, with some periods in reverse order to simulate live trading. Then I created variables to change lot sizes according to recent profits/losses. I discovered that if I maintained a strict, inflexible system of x percent of net asset value per trade, the account would get wiped out. If I reduced trade amounts after an x% drawdown, the account could take a huge hit and go on to recover and make money. I can't say this would hold true in all circumstances, but for me it was an eye-opener!

[uvwx036]

The sands in your way beg for your song and your movement, dancing 　　 water. Will you carry the burden of their lameness?

The sands in your way beg for your song and your movement, dancing 　　 water. Will you carry the burden of their lameness?

[Horden]

You will always find certain conditions that work against you... It even might come to a period that will create a drawdown. So how far are you?