I need to know what you all think about this money management model.
Here it is.
You have these components: pips, position size, time.
Time: 1 month–broken down to 4 weeks.
Pips: 200 goal per month—broken down to 50 a week.
Position size: 1 mini lot–equals 10k .
Now, for every 200 pips made you go up to the next level. Which means all your doing is upping the position size. This would work best given a time frame. 1 month. So, during the first month all your doing is trying for 200 pips. If this is successful then you move on to the next level.
Month 2. The only thing changing is your position size. 2 mini lots–20k . Once again the goal is to get 200 pips in the month. Or break it down to 50 a week (for a given strategy).
Month 3. Same thing, only changing your position size. 3 mini lots–30k . There’s a pattern there.
Here’s how the $ break down. This is profit. Month 1 = $200. Month 2 = $400. Month 3 = $600. Month 4= $800. Month 5= $1,000. After 1 yr equal $16,600. After 2 yrs equals $61,000. Only changing position size, after every 200 pips made.
This all seems very simple. How hard is it to get 200 pips every month? That is all it takes.
I’ve contemplated this so very much. It seems just too easy.
But, I think this is what it all boils down to. Once you get the 200, then what? Stop trading, say, for the rest of the month, if it’s like the first week of the mo.??? Talk about going slow. But, I have realized that there’s no guarantee that the next time you trade you will get even in the positive. Even if your up so much now. Sure, you can always use stop losses to protect the 200 level. It’s playing the patient game.
I need to know from you veterans out there…is it this simple?? If I lock in 200 pips every single month, these numbers will become a reality??
This is my future. And I do plan on going full time once I reach the 2 yr plan successfully (see above).
IMO, to succeed in the FX trading gig, you need to really pay attention and control the risk. It seems too many folks show up, quickly become mesmerized with the potential profit from trading FX, but never realistically manage the risk involved until it’s too late. :17:
Ok.
Start out with $1000.
The first level is trading with 10k position sizing. Now the risking part is debatable. My point is this. I will stay at that level of a position size until I have accumulated 200 pips. Then once at the next level, 20k size, trade until next level. BUT, if I then drop down to the last level, then go back to the 10k size. So, I’m always in a level.
Risk…ok…risk no more than 2% of the account per trade. Isn’t that the standard?
So, I’m basically trading for pips. Once I attain 200 pips, it’s on to the next level.
Maybe I’m missing something. But, it seems so plausible to get the 200 mark every month.
Personally I think you’re missing the point big time, but I’m just a guy on the internet.
So to find out on your own, set-up a demo with a broker that allows you to select the opening balance, I know Oanda does. Then trade the demo account for 4-6 months and see if your goals are doable or not. Simple enough right?
I think you need to properly work it out, there are many more values to factor in than the initial 3 you mentioned. I’m not going to go into detail, but right off the bat I see your first issue. After phase 1 you increase your account by 20%, but increase your risk by 50% for the next phase. Also, you say that if you fall below a level, you lower lot size. At end of month or immediately? This could happen on your first trade after moving into phase 2.
Don’t get me wrong, I’m not discouraging you… It’s just not that simple. Starting with consistently getting 200 pips. Furthermore, this is not so special. It’s just a compounding strategy, and compounding is key to growing your account in forex… Increase lot size as your account grows. It’s done all the time.
Work out a detailed plan that includes a trading strat, and try it out for a few months on a demo… Like dpip suggested.
Thanks guys. I really appreciate the feed back.
I am on a 1000. account demo.
And I like how you explain it as a compounding strategy.
I just think this is the only way (for me) to go about it. Just trying to get the pips, money to compound as it goes.
I did try it some time ago, got to the second level. Then dropped below, big time. Couldn’t come back. Then dropped that system. Been trying ever since to find a good strategy to go along with the money part. But, now, I have found my trading strategy. And now trying to put the whole trading plan together…with this part.
I hope I can see you guys down the road. Give me a few months. I will love to look back on this and report to you.
Thanks for listening.
See you soon.
Back a few years ago two baby pips members, Talon & RCarter, put together this spreadsheet showing the power of compounding a $1K account into $220,000K over 300 days.
I went back and looked through an old hard drive and found it. It’s saved with an old version of Excel so I hope you can open it.
The goal is to net 20 pips per day and increase the position size as the account balance grows. Take a look at the spreadsheet, I think you’ll find it helpful in building your trading plan.
At first 20 pips per day sounds easy and very doable, but it’s not. I’d suggest you start by aiming for something more realistic, maybe 60 pips per week, in other words, three successful 20 pip days per week.
Hey d-pip.
Thanks for that! I just opened up the plan. I modified it and printed it out. I’m going with the 10 pip a day plan. I can live with $109,710 after 300 days.
I’ve been reading…and I’m understanding that there’s a difference between having a goal to reach, as your primary objective, as apposed to riding a trading strategy, to bring you to the end. Making money. It’s interesting…What brings you to the end? Is is the plan, or the goal setting approach? Meaning…what’s the MOST important part of the whole business? The trading strategy or the goal? I don’t know if you can understand what I’m trying to say, but the wheels are turning in my head. I think now, for me, I would like to have this 10 pip a day goal my PRIMARY focus. And I’m not forgetting what it takes to get to that either.
Well, I sure do appreciate the plan big brother. This is the rest of my life, and one way or another is gonna happen.
Thank you!!
You can only take what the market gives you. If you want 10 pips a day but your strategy can only capture 3 pips a day, you will really be scratching your head not knowing where the problem is stemming from. How do you know how much pips on average your system can capture, you have to run a backtest over time to determine that. How many pips per week, month or quarter has this strategy produced over the period and how realistic will it be to expect it to continue delivering this pip count in the future in this changing atmosphere?
Basically how much a system makes in the market should have very little to do with your imagination but how much it can lose should have everything to do with you.
Hey liftoff!
Thanks for responding.
I do see where your coming from. I don’t want to argue. (I’m sure your so much smarter than me)
But, your premise is originating all from the strategy. That being the most fundamental focus.
I’m just trying to differentiate looking at this business this way…grabbing from the market, instead of what the market will give. How many pips are possible to take from the market in a day? Ok, for me, it will be 2 non stop hours in the morning time.
I understand where your coming from. I’ll tell you. It’s my strategy that will bring in the pips. Is it feasible? Has it been proven? Under what market conditions? For how long?
I would like to think of it this way. I am the one trying to take out of the market 10 pips a day. As opposed to my strategy doing it. I would hope after learning how the market is moving, learning the order flows, experiencing behaviors, amongst all the important S/R levels, price action movement, and who’s strong and weak, (sentiment analysis).
Look, I do have a plan and am not just winging it. I could spell it out, but there’s no need right now. I am making the point of grabbing 10 pips a day, consistently. Is as simple as that. It spreads out from there. I rather think on that instead of focusing on the strategy part of it, which by the way is to make as much money as possible. I only want 10. I’m not looking for the best strategy to rake in the most pips possible.
I hope you can understand this. There is a difference. It’s how I prioritize my trading plan. I want to focus on the consistency rather than the strategy. Cause I think that’s what’s gonna get me there, in the long run.
Doesn’t this sound unbelievable…only 10 a day will make me comfortable. Now…all I have to do is come up with a proven system to accomplish that. I am on demo, been for a year now, and wanted to go live this month, but nope. Nothing proven yet. Once I can prove to myself successful, then it’s on.
LOL, I’d say one of the major reasons 95% of traders fail is they simply don’t follow advice. There’s a reason I suggested 20 pips three times per week, not 20 pips per day or 10! Where did you come up with 10 pips? Anyway….
This morning after re-reading your posts I realized you sound like an 8 year old that just started playing little league baseball running around telling everyone “I’m going to be a Major League Baseball Star”.
It might be a different story and taken seriously if the morning AFTER pitching the winning game in his state’s high school baseball championship the kid was running around saying “I’m going to be a Major League Baseball Star”.
You need to slow down, start with the basics, read & study all you can about trading and learn the markets. If you wake-up someday and realize you’ve finally knit together 6 months of consistent month over month profits, then you can start thinking about making it the “rest of your life”.
Until then, enjoy & have fun with it and see if it possibly COULD turn into something worth while.
Personally, I will focusing on the process and finding out the strategy that suits you first rather than thinking way ahead of how much money you "want " to make…
Also, I won’t be focusing on " pips" I would rather focusing on a percentage wise. Maybe start of to see if you can bring in 5% a month consistently, then 10%… Then 15%…etc. It doesn’t matter how many pips it takes you to get into this kind of return and how much capital you have in the beginning… Figuring out how much you are capable of making that kind of return takes time…sometimes, a lot of time…
Focus on the process… The end result is the by product of what you have learned and mastered a long the way…
Triple stars! This is just amazing, something I used this idea myself to build my account myself but having it on pen and paper is good.
First off someone here mentioned ‘missing the point’, I don’t believe any point is missed, risk management is separate issue. Suppose I saw a trade with x entry point to gain me 40 pips but a potential to reverse 50 pips if it goes South, then it is not a trade worth entering as my probability is 50/50 all things being equal. So the point will be to pick a trade that if gains brings 100 pips but if reverses looses only 33 pips. That way risk is managed so this best works on the daily or higher charts in which case you should really be aiming for an overall 100 pips that week with a stop loss of 30 pips average however if overall daily movement is 100 pips average then you are better off having real TP levels and covering profits and move your stop loss as you go. So in effect one entry a week with a view of making at least 100 pips despite aiming for say 300 pips to start with at a TP point. That’s manageable right? So where is the missing point?
On a whole the spreadsheet is very realistic as losses don’t come into it. Even if you made entering this week 1 and finished overall loosing 100 pips on 1/3 risk/reward ratio and next week 2 you won covered 200 pips for arguments sake so winning you are still net 100 pips and say again you loose the following week 3 100 pips you would have all together broken even. Let’s say you win again the following week 300 pips you will be net 200 pips. You are very close to your target only 100 pips short or in effect a week behind. The point is to be consistent with your risk and reward plan. Don’t open too many trades too often or close trades to often if they are not at preferred TP levels. I have a system with Fibonacci to plot TP levels and I am always closing at TP level 1 50% TP level 2 75% and TP level 3 100%. Each time moving my stop to the TP point just closed locking in my profits (No Whipsaw issues for me). First TP level most important 2nd and 3rd are bonuses.
Overall it is a great spreadsheet and a great idea…
The thing with hypothetical computations is that they are just that, hypothetical. How do you know the market is ready to give you 300 or 200 pips a week. Same way we assumed a winning week followed by a losing week, we can assume a 20 week losing streak that wipes you out. We can make up any number. The strategy’s past performance is what should inform these estimates.
I think you missed the point. The idea is to have a plan, like a business plan when starting a business. Would you say because profits in business are not guaranteed, you won’t make projections and set targets? Without some kind of plan you can’t succeed in trading and most things.
So, the market may never give you what you want but a plan will discipline you and targets will mortivate you to stay positive. A lot of new traders enter trading with a view of instantly making a few hundred a week, like anything it is not that simple. You have to have a solid approach and discipline.
In running a business, before you raise funds to kick start the business you have estimates. To make estimates most people will draw from the numbers of similar businesses operating under similar circumstances. Most of the numbers are grounded in sound reasoning and comparisons. "We are projecting sales of $10,000 a month because the pizza place down the street is making $5,000 a month and we believe with our marketing campaign we can make twice their monthly sales."
Projections and forecasts should always be grounded in some sort of reasoning.
If it is a completely new business, then the forecasting cashflows becomes a headache because we are in unknown territory.
But take trading, where you can build a system and go back and test it on previous price points. It helps remove a lot of the guess work.
The system made this amount of pips per quarter between 2010 and 2013, so supposing the current nature of the market stays the same, I expect the system to continue to produce similar numbers. That way you at least have some objective and rational forecasts to help guide you.
Suppose you currently have a system that when backtested will make minus 300 pips a week on EURUSD in 2013. You fail to test it against the past and start trading with a “plan” of making 50 pips per week. When the system starts bringing in -300 pips per week, how do you proceed from there? What questions do you ask yourself to elicit responses that will help you move forward in such an instance.
In my opinion, expectations should be grounded in past performance, so that when deviations begin to occur we can ask ourselves the right question, mainly what has changed in the current environment that has brought about these huge deviations. With the example above he expects 50 pips a week, but the system is giving him minus 300 pips a week, under the test before you make expectations regime, everything is as expected. Under the “plan” regime there is something wrong.
It only makes sense that in your business you have goals. That being the foundation. THEN, it only makes sense to find that strategy that will consistently meet your goals. I’m mean, where only talking about 10 pips a day. And how many pips are POSSIBLE to achieve in a day. Quite many. I’m not talking probable, but simply possible. The total number of pips that are accumulated in a trading day is a lot. I would have to add up the number of pips from the big 8 currencies that I look at. It’s like around 1000 a day. Total movement of the 28 pairs.
Look…it’s the way me and emerald are looking at this business. And apparently everyone else only see’s nothing else but the golden strategy. Yes!!! It’s important!! But, that is the vehicle to bring you to…what…THE GOAL.
So, to boil it all down, what’s the most important aspect…make money. With a good strategy. But, it only makes sense to have a goal to shoot for. And then find the way to achieve it. That being finding the right strategy. And sticking to it. Being consistent. Over time. Ending up becoming successful. Accomplishing your goal.
hey Mike, I think your thread got off topic. Of course we all need a winning trading system. The amount you make every day or month can go up or down and you can still use your fixed ratio money management.
with a $1000 account with a trade risk of 2% and you trade strategy uses a 20 pip S/L you would be trading 1 mini, 1pip = $1. When you get 200 pips your account is $1200 using a $200 delta to raise you position size you then go to 2 mini’s like your example above.
Your risk goes to 3.3% risk per trade.
Current capital + (200 pips X current lot) = Next capital
$1000 + ( 200 * 0.1) = $1200
Hence once I reached $200, I would progress on to 0.2 lots( 0.1 + 0.1 = 0.2)
$1200 + ( 200 * 0.2) = $1600. At 1600 you go to 3 mini lots your risk is 3.75% risk/trade
$1600 + ( 200 * 0.3) = $.2200 At $2200 up to 4 mini’s risk is 3.6% risk/trade
As you go up the risk goes down slowly. I suggest move down in position size when you lose 50% of your level. At level 2 your account is 1200 if you drop to 1100 go back to 1 mini lot.
Not sure where I am going with this will post more later.
