I started learning Forex a year ago. First I searched informations in the internet, then I found Babypips (Great site, thank you for making this). I read through the school. Then I startet my first account, wich now is dead
Some weeks ago I found the ICT thread. I was excited, because of all the good informations. Thanks ICT for your tutorial. I wached all the videos.
Now I try to make my own trading-plan/strategy. The first point in this āplanā is the risk-management. I wrote a little tool to calculate risk, but Iām not sure if Iām doing it right.
I use two formulas in the tool to calculate the lot-size or the number of Pips.
Lot-Formula: SL-as-Pip * (0.0001 / Price) * (Lot-Variable * Standart-Lot-Size) <= Risk as number
The Lot-Variable is calculated in a while-loop and represents the result.
Pip-Formula: Pip-Variable * (0.0001 / Price) * (Lot * Standart-Lot-Size) <= Risk as number
The Pip-Variable is calculated in a while-loot and represents the result.
Now my questions:
Are those formulas correct?
Will there be a big difference when I use Pipette instead of Pips, or will it be the same just with one more digit after the point?
Is it the same if I use pairs with just two digits after the point i. e. CAD/JPY?
Do I have to consider the leverage?
I put a portion of your quote (above) in red letters, to make a point.
First, if I understand your equations, [B]you are not calculating risk.[/B] Rather, you are [B]specifying[/B] risk, as a condition to be met by your equations.
Second, each of your equations appears to be an iterative process which calculates (and re-calculates) lot size and pip-value, until your specified risk is approached or reached.
You seem to be going at this the hard way.
Letās organize our thinking ā
Before you can take a position, there are several things that you must [B]choose.[/B] These things [B]cannot be calculated.[/B]
They are:
ā¢ which pair will you trade?
ā¢ which direction (long or short) will you trade?
ā¢ where will you enter?
ā¢ what is a [B]reasonable[/B] profit target (in pips) for this trade?
ā¢ where should your stop-loss [B]logically[/B] be placed? (that is, what risk, in pips, is implied for this trade?)
ā¢ does your profit target (in pips) justify your risk (in pips)? (in other words, is your R:R ratio acceptable?)
ā¢ and, finally, how much money are you willing to risk on this trade?
After you have determined all of those things, you can find (or calculate) a pip-value for this trade, and you can use that pip-value, plus the SL you have chosen, plus the amount you are willing to risk, to calculate the correct position size for this trade.
Correct position size means the position size which [U]equates[/U] your chosen SL to the amount you are willing to risk.
The easiest way to calculate position size is to use a Position Size Calculator, such as this one.
If you want to do the calculation by hand, here is the formula:
Number of Lots = (Account Balance, in dollars) x (Risk %) / (Stop Loss, in pips) x (Pip Value, in dollars)
Letās define some of the terms. Number of Lots, Account Balance, and Stop Loss are self-explanatory.
Risk % (expressed as a decimal) refers to the percentage of your account that you are willing to risk on this trade.
Pip Values depend on lot size (that is, standard lot, mini-lot, micro-lot, etc.), and on the currency pair traded.
If your account currency is the same as the cross-currency of the pair you are trading, then pip-values are easy to remember. If your account currency is USD, and you trade a pair such as XXX/USD, then pip-values are $10 per pip per standard lot, $1 per pip per mini-lot, $0.10 per pip per micro-lot, etc. If your account currency is CHF, and you trade a pair such as XXX/CHF, then pip values are Sf10 per pip per standard lot, Sf1 per pip per mini-lot, Sf0.10 per pip per micro-lot, etc.
If your account currency is not the same as the cross-currency of the pair you are trading, then refer to your trading platform for the correct pip-value, or use a Pip-Value Calculator, such as this one.
Yes to all of the above and yes for cross currencies you need to use the pip value calc - a few brokers do provide for an integrated option where the pip valuation is displayed as traders are executed so that helpsā¦
Thank you very much Clint for your explanations. Itās very use- and helpful!
I tryed out the Position Size Calculater and it seem to be exactly what I tryed to code by myself^^
Now I have a new problemā¦ the minimum position size which is possible with my broker is a mini lot, and if I risk 2% of my account, I need to do a SL with 5pipsā¦ Damnā¦^^
5 pips is too tight I think, unless your go for scalping. Best if you increase your investment and continue trading low trade sizes. Just make sure your broker is regulated Seniorboom
In your last post, you imply that you have an account balance of approximately $250.
(Note ā You havenāt mentioned where you are located, or what your account currency is. Iām assuming that you are in the U.S., and that you have a USD-denominated account.)
As you have discovered, a $250 balance is way too low for a mini account.
Or, to put it another way, thereās nothing wrong with a modest $250 balance ā but you need to move that balance to a [B]micro account, a unit account, or a cent account.[/B]
ā¢ With a micro account, you could trade 1-micro-lot positions (1,000 units of base currency), which represent actual leverage of 4:1 (for pairs with the USD as base currency). A micro account would allow you to limit your risk to 2% while trading with a 50-pip SL (+/-). Many U.S. brokers offer micro accounts. My preference would be FXCM, but make your own choice.
ā¢ With a unit account, you could trade any number of individual units of base currency. This would give you total control over actual leverage used, and would let you choose your risk percentage and your SL according to what makes sense for the trade you are contemplating, without being restricted by your account balance. The only U.S. broker offering a unit account (that I know of) is Oanda, and from what Iāve heard they are strong and reliable, and enjoy a good reputation among Babypips members who trade with them. There may be other U.S. brokers who offer unit accounts ā do your research.
ā¢ As for cent accounts, you may have to look offshore for those. And taking your forex trading offshore entails all sorts of challenges which you, as a newbie, might best avoid. Establishing a trustworthy relationship with an offshore broker (one not regulated by the U.S. CFTC) would require a lot of extra due diligence on your part, because there are extra risks involved in that sort of relationship. Proceed with caution.
Increasing your mini-account balance with an additional deposit is an option, but possibly not your best option.
Thereās probably a good reason why you have a very small balance: Either you canāt afford ā or donāt feel comfortable with ā a larger commitment of your personal funds, at this time. If thatās the case, do not deposit more money into your mini-account. Instead, move your funds to a different account which allows you to trade much smaller position sizes.
I strongly believe that:
(1) If you worry about the money you have on deposit with your forex broker ā then you have too much on deposit.
(2) If you worry about the amount of risk you are taking in your trading ā then you are taking too much risk.
(3) The best plan for a newbie is a tiny starting account balance, and tiny position sizes.
5 pips is way too low, you are under capitalizedā¦so either fund your account or move to a smaller account. I would suggest you opt for the later since it looks like your new to the market and start with a nano accountā¦
Iām from Switzerland and also my broker is from Swizterland, CHF-denominated account. This was one of my must-have points.
Thanks for your account tips, I look for a broker which offers a micro account, because that sounds good for my current situation. Risk-Management is at the moment the most important thing I have to improve, so this option seem to bi right.
