haha quite interesting that we pretty much start at exactly the same times! Guess I’ll see you on here when the market decides to play the waiting game in the mornings!
Indeed, I’ll be here most days. It can be a frustrating but fruitful time of day. As long as you have the patience for it, something I am working on. I’ll sign off, now, before someone tells us to get a room.
Been quite on here lateely as I’ve been studying away.
Basically last few days has left me slightly down in my account. Nothing major though and I think things should be fine.
USD holiday so I will be monitoring markets but not following as closely as normal.
Morning Morning,
Well, after a couple of break evenish weeks, I’m looking to get back on that profit train. Currently in 2 trades, one which ran over the weekend. That’s actually the first time I’ve decided to hold a pair over the weekend.
What I actually wanted to say was in relation to a thread that just got closed. It seemed there was a divergence of opinion on whether to use/have a stop loss or not. I can’t fathom the reasoning behind this. The idea that if a trade is going against you, you just hold and hope just doesn’t wash with me. Let’s take gold. If you shorted it 2 years ago, you are still waiting for it to return to a break even level and lets face it, probably will never see it return to those levels.
The other thing was the mention of account and lot size adjustment instead of a stop loss. Account and lot size is leverage, a completely different thing to stop loss! Yes leverage is in my opinion the most important thing in account risk management but this does not negate the need for a stop loss. Eventually, no matter how low leverage is, there comes a point that an account will be wiped out. Therefore, a stop loss is an essential building block in risk management.
Anyway, rant over, just wanted to get this out of my system and not start a whole new thread!
I’m of course a newbie in Forex…but as I understand it until now:
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Moneymanagement; Leverage, accountsize and lotssize (Standard, Mini, Micro lots)
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Riskmanagement; Stop Loss, Trailingstop!
WildChancer correct me if I’m wrong please!
Well I would say money management and risk management are intertwined no? The leverage decision influences and is influenced by stop loss. Do you disagree?
Your right …they are alsco definately intertwined.
Why do you think leverage is influenced by the stop loss?
Can you try to explain this to me?
I know that stop loss can be used to influence you risk/reward ratio.
If in a Long position you put your S/L 25 pips below your entry and your T/P say 75 above your entry point you then have a 3:1 ratio because now you can lose tree times and win 1 time and still breakeven.
This is part of your risk management but is of course also entwined with your money management.
Thx for taking time to explain
Yes, I can explain what I mean. But I urge you, even if you think what I say rings true, do your own research too as you shouldn’t put you education in the hands of a faceless person over the internet! Also, I just want to say I am by no means an ‘expert’ in trading!
Leverage. Every person serious about trading needs to understand it. Your leverage essentially tells you how many losses you could take in a row. FYI it has been proven that anything over 4:1 leverage is detrimental over the longer period. There are studies that have been conducted but if you really want to investigate further, you can seek them out yourself. Personally, I look to use 1:1 leverage (no leverage) with max 2:1. The stop loss is essentially what quantifies your leverage. If you think about it, if you are using 1:1 leverage based on a trade which has a 50 pip stop loss, if that same trade had a 25 pip stop loss, you could theoretically adjust your leverage position to yield the same amount of risk (2:1) to your account.
Does that make sense?
Your leverage essentially tells you how many losses you could take in a row.
Thx for the advise I certainly agree with you on that.
As for the explanation you gave of how leverage tells you how much losses you can afford well I ques I’m still to newbie to comprehand this info.
I thought you risk/reward ratio gave you this info:eek:
Thx anyway for given the info…I’ll contunue my forex study:cool:
Don’t take this as argumentative, I just want to clarify and simplify what has been discussed.
In your day-to-day risk management calculations, your account leverage (which can be stated as your margin requirement just as well) WILL NOT come into play.
Before you start the calculation you need to come up with 2 numbers.
- Percentage of your account that you are willing to risk on this trade, in $ terms
- The distance in pips you want your stop loss to be (based on technical support/resistance hopefully)
The “unknown” in this equation is your lot size.
Let’s try it out:
Account: $10,000
Pre-determined Risk: 1% or $100
Stop Distance: 10pips
$100/10pips = $10/pip
Now since each pair has a unique pip value (based on the quote currency relative to your account currency) you will have to adjust the lot size so that your pip value matches $10/pip.
On a EUR/USD trade for example, this would be a lot size of 100,000 units, assuming your account is funded in USD.
I agree with most of what you said apart from the first part which is absolutely incorrect. The leverage you are using is NOT the same as margin requirement. What you are reffering to is the leverage the broker is applying to your account (margin requirement). The leverage that you use is defined as Contract size / Account size. Therefore the leverage you are using is what you describe in your second part (finding the lot size that fits in with your money/risk management and stop loss).
I fail to see how the value of Contract size/ Account size would affect my pre-determind risk value of 1%.
Losing 1% on a 50,000unit trade would be the same 1% loss on a 10,000unit trade. The risk is equivalent.
1=1
Why seek to complicate that?
I think we are getting wires crossed here. Leverage does not affect your pre determined risk value as a % per say, but it is defined in what lot size you use in proportion to your account. If you risk 1% of your account, then you risk 1% of your account.
In your example whilst the risk % is the same, there has to be a differing variable in order for them to match at 1% risk (assuming account size is the same). In the above example, it would be stop loss.
Just to throw in 2 cents:
The most important number is the overall max. relative drawdown. A system is like a machine. As long as the machine is working within it’s tolerance, everything is fine. So, does it really count if you make 10 losing trades of 10 bucks maximum over a period of time or 1 losing trade of 100 bucks over the same time? One trade is unimportant, as long as you can keep your system within the tolerance. Let’s say you have a system with drawdown of 25%, then it would be unimportant what leverage, lotsize, etc. etc. you have as long as you don’t go with a higher drawdown of 25%.
What I like to say: While any one trade is indeed a little important to your outcome of your consistency, the risk of any one trade is not very important. The risk of a couple of trades in time is much more important, regarding to consistency.
It is of great value if you know the max. relative drawdown of your system. Because then you have control over your maximum risk, not only at the detail of one trade, but regarding the outcome of your consistency in time.
Okay, let me try and sum up our perspectives as I see it, and maybe we can go from there.
>>>I will define my stop loss, and then calculate in order to determine the resultant lot size
>>>You will define your lot size, and then calculate in order to determine the resultant stop loss
Is it safe to say that much so far?
Specifically I find these statements to be false (from a few posts prior). My account is frequently leveraged 10:1 and since my stop losses are tight, I don’t believe there is anything detrimental about this. My risk is very conservative, and more importantly, consistent.
Agreed max drawdown is the headline figure at the end of the day but surely in order to maintain your max drawdown, leverage comes into it (i.e. you adjust lot size in proportion to your account to achieve a certain level of exposure)
That 4:1 stat is not my opinion, it is from studies. I didn’t just pluck the figure out of the sky for the sake of random argument. Also, I never said nobody can gain profits from using higher leverage, I said personally I use 2:1 max (but normally lower). Out of interest can I ask how long you have been trading using 10:1 leverage on all your trades?
Just as a side note- to be honest I’m a little bored of discussing leverage as I’m just repeating the same things. We can all agree to disagree and hopefully we can all still be profitable!
Haven’t posted in this thread for quite a while but figured I would get back down to it.
I’ve basically been trying to optimise my trading so been busy busy.
I’ve had 3 trades today so far, all profitable. One should have been for a lot more than I eventually took but I didn’t manage to adjust my SL in time and I eventually ended up holding it for a minor profit.
As this month comes to an end, barring a very good day today and tomorrow, it is likely I will finish Nov slightly down for the month. That is down to some bad trading on my part though. Lost a bit when I didn’t heed the warnings of reduced liquidity over USA thanksgiving period. Really I should have stayed out of the markets.
Anyway, maybe I will storm the last couple of days and I would be pleased to finish the month break even.