Hi, I been learning through this amazing School of Pipsology and I must say it HELP a lot in my understanding of forex world and the market. Not to say I’m 100% get all the lesson here, but I do learn so much.
Now I had came across this Position Sizing on Senior Year and I had problem with it. Hope anyone can help me with this.
So it’s start here,
Account Denomination is not in the Currency Pair traded, but the same as the Conversion Pair’s Base Currency.
Ned decides to go snowboarding in Switzerland, and in between a couple of double black diamond runs, he opens up his trading account on his super spy phone with a local forex broker. He sees a great setup on USD/JPY, and he has decided that he will get out of the trade if it goes beyond a major resistance level–about 100 pips against him. Ned will only risk the usual 1% of his CHF 5,000 account or CHF 50.
First, we need to find the value of CHF 50 in Japanese yen, and since the account is the same denomination as the conversion pair’s base currency, all we have to do is multiply the amount risked by CHF/JPY exchange rate (85.00):
CHF 50 * (JPY 85.00/ CHF 1) = JPY 4,250
Now, we just finish the rest the same way as the other examples. Divide by the stop loss in pips:
JPY 4,250/100 pips = JPY 42.50 per pip
And finally, multiply by a known unit-to-pip value ratio:
““JPY 42.50 per pip * [(100 units of USD/JPY)/(JPY 1 per pip)] = approximately 4,250 units of USD/JPY”” - I did not understand this last one about why and how “100unit of USD/JPY & and JPY 1/Pip” ?? I did understand the previous example but somehow I don’t get it on this one. Any help is appreciate.
Thanks.