Forex from scratch --a helping hand from pipshower...

[sushant079]

Not necessarily true regarding poor money management.

Let's take an example of a stock which is priced at Rs. 1000 (easier to illustrate instead of lots).

Suppose your total equity is Rs. 20,000 and you are prepared to risk 2% of your equity.

Assuming you want to enter a long position

2% = Rs. 400

Assume Stop Loss Amount = Rs. 996/-
So your risk per stock = 1000 - 996 = Rs 4/-


No of stocks that can be bought for a risk of Rs. 400 = 400/4 = 100.

Without leverage, you are missing on the opportunity to earn big money as you are never going to be able to buy 100 shares with your equity even if you are prepared to lose 2% of your equity.

very true point...that without leverage their is no big earning....
but i think i have a way to control leverage n money management both...

here let me tell u how..


consider leverage available is 1:50

account size $100
so i can trade up to $5000

suppose now i enter a trade,
first trade:say EUR/USD sell @1.4220
and technicals say that stop should be 40 pips away @1.4260
and according to 2% rule,i can lose only $2 on a trade
so my position size will be 2/0.0040=500 (as there are no lots system by my broker i can trade any amount)

and if trade goes in my direction i will exit half units at point where that trade is at no risk or at little profit, leaving half units open....

so now as my first trade does not worry me anymore i can initiate another..as i have not used all leverage...(and i intend to consider bigger time frames like 4Hr or Daily,as they have less noise and also their output is bigger like ~200pips or even more(provides good risk/reward ratio))

so i initiate second trade in another pair,with same 2% rule,and again if trade goes in my direction i will exit half at break even or at little profit,and leaving another half open....
this way as my overall account is at no risk(even those two trades are still open)
i can initiate another one as long as my leverage allows me to,this way we can have open positions in all major pairs..

of course this method needs very keen entries with stops as low as possible,this can be done using lower time frames to enter(like 1Hr or 15min)

what you think? please express your views.....:clap:

 

[vicky_ag]

very true point...that without leverage their is no big earning....
but i think i have a way to control leverage n money management both...

here let me tell u how..


consider leverage available is 1:50

account size $100
so i can trade up to $5000

suppose now i enter a trade,
first trade:say EUR/USD sell @1.4220
and technicals say that stop should be 40 pips away @1.4260
and according to 2% rule,i can lose only $2 on a trade
so my position size will be 2/0.0040=500 (as there are no lots system by my broker i can trade any amount)

and if trade goes in my direction i will exit half units at point where that trade is at no risk or at little profit, leaving half units open....

so now as my first trade does not worry me anymore i can initiate another..as i have not used all leverage...(and i intend to consider bigger time frames like 4Hr or Daily,as they have less noise and also their output is bigger like ~200pips or even more(provides good risk/reward ratio))

so i initiate second trade in another pair,with same 2% rule,and again if trade goes in my direction i will exit half at break even or at little profit,and leaving another half open....
this way as my overall account is at no risk(even those two trades are still open)
i can initiate another one as long as my leverage allows me to,this way we can have open positions in all major pairs..

of course this method needs very keen entries with stops as low as possible,this can be done using lower time frames to enter(like 1Hr or 15min)

what you think? please express your views.....:clap:

Sushant, I am sure I am nitpicking here but SL of 40 with TP of 200? 5:1? If thats the case why should I even bother to close half the trade at little profit? Even with a win % of 25-30% , I will come out on top.

Coming to the point of closing half the trade at little profit, I used to believe it in too but then I realized -
1. The reliability of the system cant be gauged. A system needs to give me entry, sl, and tp. When I close half at little profit and let other run, it just fogs the reliability of the system cause I am making money with it even if it gets the trades wrong. This makes me believe the system to be working.
2. What if many of my trades hit SL after I take the first half at little profit.? Example : 40 pips SL, half at 20 pips and then it reverses. If it happens to many of my trades then RR is 1:2 which will get me killed sooner or later, it will sooner than later.

I believe more in moving stops when the trade moves in my direction so, that even if I dont win at least I dont lose.

This my personal opinion, Pip might disagree.

 

[sushant079]

Sushant, I am sure I am nitpicking here but SL of 40 with TP of 200? 5:1? If thats the case why should I even bother to close half the trade at little profit? Even with a win % of 25-30% , I will come out on top.

yeah right all successful traders have ratio of 30-40% of winning,they often lose but they lose little,and when they win they win big so that they compensate all loses n make even bigger profits and RR ratio 5:1 is possible if we use lower time frames to enter trade which allows us to have closer stops(it does allow me in my strategy)

Coming to the point of closing half the trade at little profit, I used to believe it in too but then I realized -
1. The reliability of the system cant be gauged. A system needs to give me entry, sl, and tp. When I close half at little profit and let other run, it just fogs the reliability of the system cause I am making money with it even if it gets the trades wrong. This makes me believe the system to be working.

right!
when we use half unit exit strategy, we cant gauge reliability of system but it makes sure we wont lose to test our systems....and we can conclude that our system is not working when we are having lesser or no profit...it is at least better than loosing

2. What if many of my trades hit SL after I take the first half at little profit.? Example : 40 pips SL, half at 20 pips and then it reverses. If it happens to many of my trades then RR is 1:2 which will get me killed sooner or later, it will sooner than later.

well the issue of hitting stops is concern of trading strategy not of money management(i want to elaborate management of different trades together in my post and not any specific strategy),and i said i would exit half at 40 or more so even if stop hits at its initial position,i wont lose anything

I believe more in moving stops when the trade moves in my direction so, that even if I dont win at least I dont lose.

This my personal opinion, Pip might disagree.

right i believe in moving stops too and i do manage my remaining half by moving stops to lock on profits.

 

[ltp]

very true point...that without leverage their is no big earning....
but i think i have a way to control leverage n money management both...

here let me tell u how..


consider leverage available is 1:50

account size $100
so i can trade up to $5000

suppose now i enter a trade,
first trade:say EUR/USD sell @1.4220
and technicals say that stop should be 40 pips away @1.4260
and according to 2% rule,i can lose only $2 on a trade
so my position size will be 2/0.0040=500 (as there are no lots system by my broker i can trade any amount)

I'm not sure how to comment here. You're comparing your risk amount in dollers (i.e. 2%) with your pip value, which, in my mind, is like comparing apples with oranges.

How much is your 40 pips worth in terms of dollars?

 

[vicky_ag]

I'm not sure how to comment here. You're comparing your risk amount in dollers (i.e. 2%) with your pip value, which, in my mind, is like comparing apples with oranges.

How much is your 40 pips worth in terms of dollars?

The calculation is made so that 40 pips = 2% of risk = $2 .

 

[sushant079]

I'm not sure how to comment here. You're comparing your risk amount in dollers (i.e. 2%) with your pip value, which, in my mind, is like comparing apples with oranges.

yes i am comparing risk amount in dollars because my account currency is USD,and i dont want to lose more than 2% on a $100 which is $2

How much is your 40 pips worth in terms of dollars?

actually i didnt get your question either,i think this will explain....
my position size is flexible, in order to not exceed value of 40pips more than $2, that is "value of 40 pips <= $2"
if u still think i am somewhere wrong then please elaborate,i really appreciate your help!!

 

[ltp]

No probs. I got bit confused because I am used to calculating in terms of lots and mini lots, so I didn't get the $2 in absolute value.

yes i am comparing risk amount in dollars because my account currency is USD,and i dont want to lose more than 2% on a $100 which is $2



actually i didnt get your question either,i think this will explain....
my position size is flexible, in order to not exceed value of 40pips more than $2, that is "value of 40 pips <= $2"
if u still think i am somewhere wrong then please elaborate,i really appreciate your help!!

 

[vicky_ag]

yeah right all successful traders have ratio of 30-40% of winning,they often lose but they lose little,and when they win they win big so that they compensate all loses n make even bigger profits and RR ratio 5:1 is possible if we use lower time frames to enter trade which allows us to have closer stops(it does allow me in my strategy)

Now that is a misnomer. Not all "successful traders " are like that. What you have mentioned is a matter of personal choice. Some like smaller wins at consistent rate and some like bigger wins sparingly (inclusive of smaller losses).

right!
when we use half unit exit strategy, we cant gauge reliability of system but it makes sure we wont lose to test our systems....and we can conclude that our system is not working when we are having lesser or no profit...it is at least better than loosing

How do u decide if the profits are low? And winning just for the sake of it is not worth it.

Having a world cup with kenya, bangladesh, zimbawe and India with India winning everytime is not worth watching, is it?

well the issue of hitting stops is concern of trading strategy not of money management(i want to elaborate management of different trades together in my post and not any specific strategy),and i said i would exit half at 40 or more so even if stop hits at its initial position,i wont lose anything

Closing some part of the trade at an interval is inclusive in money management. The risk u take to make profit is not even realized when u out to close some part of ur trades at smaller profits.


These are IMWO (in my worthless opinion).

 

[vicky_ag]

Pip,

I thought we were going to have a topic on "Order Flow", none to see till now. Gave up on the idea ?

 

[sushant079]

Now that is a misnomer. Not all "successful traders " are like that. What you have mentioned is a matter of personal choice. Some like smaller wins at consistent rate and some like bigger wins sparingly (inclusive of smaller losses).

well apna apna thinking,i think that big money is made by sitting tight that is by earning trends...not small chips...

How do u decide if the profits are low? And winning just for the sake of it is not worth it.

Having a world cup with kenya, bangladesh, zimbawe and India with India winning everytime is not worth watching, is it?

:argue:what? you want your winning worth so that you can wave off n tell to others..n get awards for it? huh?
dude here our hard earned money is at stake..nobody wants to lose..and don't compare entertainment and business

Closing some part of the trade at an interval is inclusive in money management.

well go back and see what have you written,
you said,"What if many of my trades hit SL after I take the first half at little profit.?"

i replied to this statement that if your stops are getting hit many times then you should check your system,that is the meaning of it...

The risk u take to make profit is not even realized when u out to close some part of ur trades at smaller profits.

are you out of your mind????...it is all about risk which i am telling from beginning...so why would i not realize the risk i am taking when starting trade or taking profits...check your senses before annoying someone like this....!