Hi everyone. I’m Atilla Yurtseven.
When we look at charts and; draw trends, find pivots, draw fibonacci, add fractals, different type of moving averages, bollinger bands, add some oscillators like RSI, CCI and etc. we simply look at the history. We only see what happened in the past but we don’t know, how price moved at that time. Even if we analyse 1 minute time-frame. We simply don’t know.
Think about moving average. If the price is far away from MA, we think that price will go back to the mean. This is not quite true. Price does not follow MA, MA follows the price.
I have coded and backtested a lot of known strategies like fractal breakouts, ma crossover, rsi confirmations, flag breakout and etc. Your best chance is lower than 50%. Let me tell you why:
When you enter a trade, what do you do at first? Set your profit and stoploss targets. Well, most traders do! However, we are told that you must set your target to at least 1:2 RRR right? And you trail the stop using ATR, STD or using your favorite trailing method. I have tested this too. None of them seems to be worked.
Assuming you have 1:1 RRR (risk to reward ratio). Your target is 20 pips and stop is 20 pips. If we are in a random world here, there’s 50% chance of winning right? Wrong! Theoretically you are right but which one will hit first? There’s still 50% change to hit stop-loss first. In this case; you have 50% chance of the 50% to hit the profit target first.
But wait; this is not quite true either. Because there’s a trend. If you buy at the top of the trend, it’s most likely you are going to hit to the stop-loss (if it’s too tight). If we step in after a retracement, there’s still higher probability for our TP. But did you know that, even if we have a support (strong or weak, tested or not tested), there’s 50% chance to break or bounce?
So, you are wondering why I’m telling this to you. Most of you, including me, paid thousands of dollars for trainings, signal providers (i didn’t), so called holy grail trading strategies. None of them worked! Right? They actually do. I mean it. They do! If they don’t work for you, you can not say it doesn’t work.
“What the hell are you talking about?”
Let me explain. Most successful traders chose one strategy. They stick with it and trade it. They manage their risk. They accept loses as their expenses. They know their best chance is 50%. They can chose their win-rate (yes they can). They can even profit from simple moving average crossover strategy. Do you know why? Because they are used to it. They have traded this single strategy thousands of times. If they lose, they know it’s part of the game.
We don’t know the future. We don’t know what’s going to happen when we take a trade. We don’t know if the trade will go against us or not. But…. There’s a huge “BUT”. We know one thing… We know how much we can lose in the worst case (more than 99%). If we know how much we can lose in a single trade, why don’t we use this in our favor? And it’s just that simple. Let’s have a look what can we do:
Manage Your Risk
You found a trade with 20 pips sl and 30 pips tp on a EURCAD chart. Let’s analyse this trade.
Your account balance is $10.000,00
First and most important question: How much can you risk per trade? What’s your risk appetite? We all know that more risk means more profit or more loss. Let’s say you want to risk 2% of your account. This trade is 1:1.5 which means; If you lose, you are going to lose 2% of your balance and if you win, you will add 3% to your account. So in this particular case, we will risk 2% of our account which is $200
Second question: How much 1 pip costs for EURCAD?
Today; 1 pips EURCAD is $7.55 - Can’t write link but you can find it on babypips
BONUS - 1 pips EURCAD calculation: Find how much is 1 CAD in USD. USDCAD = 1.3234 so 1 cad is 1 / 1.3234. Which is 0.755. This is the Point (tick) price. Multiply it by 10: 0.755 * 10 = $7.55
Third and last question: How much lot do i have to open?
Let’s find out our lot size using primary school math. Here’s the formula (no fancy, sexy symbols here):
LOT = Risk / (stoploss_pips * pips_value)
Risk = $200
stoploss_pips = 20
pips_value = $7.55
LOT = 200 / (20 * 7.55)
LOT = 200 / 151
LOT = 1.32
It’s that simple. You don’t even need 1:100 leverage to enter this trade. Nobody told you to go ahead and put all-in. Using this simple risk management, you are also compounding your account. If your stop hits, you will lose ~$200 (and you knew this), if your TP hits, you will make ~$300 (and you knew this). That’s it!
Compound Your Account
I hear you asking “What do you mean by compounding?”
Well, let’s consider this trade was a win. And now we have $10.300 in our account. And we have found one more entry with same stop (20 pips) and same target (30 pips). Let’s calculate the lot size:
New account balance: $10.300
LOT = Risk / (stoploss_pips * pips_value)
Risk = $206 (2% of $10.300)
stoploss_pips = 20
pips_value = $7.55
LOT = 206 / (20 * 7.55)
LOT = 206 / 151
LOT = 1.36
See? New lot size is increased automatically. If we lose, we will lose ~$206 and if we win, we will add ~$308 to our account. You have simply and automatically compounded your account.
One more time; We have found same trade but this time let’s see what happens if we lose:
New account balance: $10.608
LOT = Risk / (stoploss_pips * pips_value)
Risk = $212 (2% of $10.608)
stoploss_pips = 20
pips_value = $7.55
LOT = 212 / (20 * 7.55)
LOT = 212 / 151
LOT = 1.40
And after we lose this trade, we have $10.396 in our account and it’s still more than the previous account size.
Let’s lose one more time.
New account balance: $10.396
LOT = Risk / (stoploss_pips * pips_value)
Risk = $208 (2% of $10.396)
stoploss_pips = 20
pips_value = $7.55
LOT = 208 / (20 * 7.55)
LOT = 208 / 151
LOT = 1.37
New balance after losing $208 in this trade is $10.188
We won 2 times and we lost 2 times but we are still profitable…
Here’s my motto and you can not find it anywhere else:
If you don’t know your risk, you are playing a very expensive game
Practice Reading Charts & Understand the Price Action
Now what to do next? Most of us are great at running loses and cutting profits. We need to reverse it. What I recommend is to learn the price action. But you don’t need anyone to show this to you. Get used to it. Here what i can recommend:
- Stop trading both live and demo accounts for now
- Open 1 minute candle chart
- Watch it at least 3 hours a day for at least 22 business days (1 trading month)
- Don’t do anything else
- After a month, start trading in Demo account at least 10-20 trades (no need more in demo)
- If you are confident, switch to your live account
- Trade with the minimum lot size (0.01)
When you do something for 21 days, you used to it. You will understand how price moves. What can you expect. Just watch. Do nothing. If you come and ask me how i make money, all i can say is; I watch and wait for the right time!
Practice, practice, practice… Please do not trust any signal providers who promises you wealth and who promises you to make you rich quick. They can’t! Most of them are not even trading. Because, they are trying to make money by selling signals and courses. Patience is the key. Learn the correct thing. Learn the correct strategies. Know your risk. Be self confident. If you practice something wrong, you will get used to take losing trades.
And please remember; you hear and you forget, you see and you remember, you do and you understand.
Who am I? Why am I doing this?
I hear you are asking me why i have wasted my time to teach/tell what i know? Simple. I give it back. I have paid a lot to empty promises. I have free trading course in YouTube but wait; I’m not trying to get you to my training channel because it’s not even in English. I love sharing. I’m a computer programmer and i run my own company HandyCafe. I have written HandyCafe internet cafe software more than 15 years ago and it’s 100% free. I love sharing. Sharing helps me to practice and helps me to get used to it and makes me feel better.
Am I profitable? Here’s my verified myfxbook account. Ates - dumani - 3163306
(Can’t post link)
But again; this doesn’t mean that I’m profitable. There’s not enough trade & proof to tell this to you. Let’s wait for 3 more months and we can decide it together.
Disclaimer: These are not financial advice and for educational purposes only.
Plan your trade, trade your plan and trade safe,
Atilla Yurtseven
lol.
