Hello everyone, my name is Gabriel and I have a question about this model of money management.
I’ve been studying trading for almost a year now and I feel like I’m prepared to go on demo account and see how I’ll be doing.
I’ll be operating with 5 strategies ( obviously backtested) on 7 forex crosses (which are the main ones i’ll be focusing on as my Trading Plan states), operating on a Daily and 4H TimeFrame, risking maximum 1% on my capital (£50,000 Demo Capital) on each trade and using a Fixed Ratio Model.
My question might sound silly but I’m looking for every sort of advice you guys, who are way more expert than me, could give me : How do I calculate my stop losses considering that my position size is fixed (0.02 microlots to start off with a Delta of £3’000, afterwards Level 2 is 0.04 microlots) therefore I don’ think I can use the Fixed Fractional Formula to calculate my position size can’t I ?
If you know your risk expressed in fixed position size, you can calculate that risk in points for the instruments you will trade. Then, when you will define that your risk is, for example, 0.015, you can keep it in mind and check each time openting the position. If the distance for the level where the stop loss should be placed according to your trading system is larger than 0.015 in that particular situation, you should not enter that trade. Of course, the approach with the risk defined only in money gives you more flexibility - for instance, to use redused position size if the risk is higher.
By the way, you have mentioned the strategies were backtested. What tool has been used for that purpose? As far as I know, the most common is Forex Tester. I`ve also heard about someone backtesting using self-made Python algo, but such approach seems to be more complicated.
Basically what I’ve done mostly is manual backtesting using the TradingView Software plus I’m enrolled to this online trading course where the coach is a professional trader; the 5 strategies i’m gonna be using in my trading plan are taught by him and a solid backtest is provided by him as well. Can i make an example just to get this right: today i was thinking about opening a position on the cross USD/CAD (Entry : 1.33664 Stop Loss : 1.32209 Take Profit : 1.36050) this means that the pips between my stop loss and entry point are 145.50 pips.
Now calculating my position size (considering 1% risk per trade with 50’000 Capital) 500/145.50*5.67(value each pip) = 500/825.13 = 0.60 Minilots which obviously doesn’t match with my 0.02 microlots standard position size plus the formula is used to calculate the position size with a Fixed Fracxtional money management model so it might be inappropriate to use in this case?
My question is : Should I maybe change my standard lots (to a higher number as the capital is substantial) or am I using the wrong formula ?
Hello Gabrielle, by now, 2 years later you either blew up the account and may be looking for answers. If you didn’t, congratulations. But for the sake of those around March 23, 2019 here are some suggestions based on my experience with top traders at the top prop houses and hedge funds on Wall Street:
Don’t trade like 99.% of traders as these people are known as “stupid” money and will most likely (higher probabllity) blow up their accounts time after time and don’t know why.
Pro Traders who win are likely to have:
Plan
Discipline
Risk Management
STICK TO THEIR RULES AND EDGE
They find one formula and stick to it over and over and over and DON"T Deviate. How?
Here is a sample plan with the elements to greatly increase your odds of success. Stick with it for a six months to 5 years, until you master it. Keep records on your demo.
Stick with one currency pair, the Eur/Usd and MASTER it. Know it’s moods. It has a low pip spread and high liquidity. You save money.
Use ONE Pattern: Bullish Pennant (high probability/your edge)
Think Like a Casino, and don’t be a Gambler.
Always have a hard stop
Keep Your Risk to Reward Ratio at 1 to 1. That is 50%, but you win, by trading your edge over and over and over and over. Your edge may well and should give you 70-90%
Now you are the Casino. You take small frequent losses and when you get a WINNER you go Wyckoff, Martinegale (controlled), hedge to break even when you can, always close a trade at breakeven, don’t EVEN take the chance it will run against. If it shows up green, add to the trade 1-2 times, then exit the moment in profit. BEWARE to calculate Spread.
Put i in the time on Demo, Demo, Demo. Read and watch videos on trader psychology. Study how to “fix” a bad trade.