Scalping - lot size question

[cocolizo67]

Hi guys
I have a question about money management. I have 2 types of trades: daily charts and scalping on the 5min chart. On the daily chart I risk 2-3% per trade, I have a formula on excel so I just put my entry level, my stop loss, my account size, the risk per trade (2 or 3%), and the formula calculates the lot size. The price moves slow so I have plenty of time to put all the data an place my orders.

The problem comes on my other types of trades: when I am scalping the 5 min charts. I have to place quick orders, and it takes too much time to put all the data on the formula and calculate the exact lot size for each and every trade every single time. Price moves very quickly and sometimes I can enter the trade too late. So I was thinking to use and average stop loss to calculate the lot size. For example on the EURUSD my average stop loss is 10 pips . So if I have an account of US$ 1,500 and I use the average stop loss of 10 pips to calculate the lot size, risking only 2%, that would be 0.25 lots on each trade. So instead of calculating the risk on every single trade, I can enter the trade quickly using 0.25 lots on every trade. If my account grows to US$ 1,600 then 2% risk would be 0.27 lots. If my account grows to US$ 1,700 then I can trade 0.28 lots. On the other side, if my account goes down from 1,500 to 1.400 the lot size would be 0.23, and so on. So the lot size management, using the average stop loss of 10 pips to calculate it would be:

From 1,500 to 1,600: trade 0.25 lots
From 1,600 to 1,700: trade 0.27 lots
From 1,700 to 1,800: trade 0.29 lots
From 1,800 to 1,900: trade 0.30 lots

Of course the same applies if my account goes down:

From 1,500 to 1,400: trade 0.25 lots
From 1,400 to 1,300: trade 0.23
From 1300 to 1,200: trade 0.22 lots.

The average 10 pips Stop loss used to calculate the lot size, has nothing to do with the level where I place my stop loss on each trade. The stop loss on each trade will always be placed depending resistance and support levels at the moment of placing the trade. The average 10 pips stop loss is only used to calculate the lot size.

Does anybody trade like this? I would appreciate your comments. Thanks

[Clint]

…I have to place quick orders, and it takes too much time to put all the data on the formula and calculate the exact lot size for each and every trade every single time. Price moves very quickly and sometimes I can enter the trade too late. So I was thinking to use and average stop loss to calculate the lot size…

Does anybody trade like this? I would appreciate your comments. Thanks

True scalpers have no time to fool around with position-size calculations. Their position sizes are generally large (compared to position sizes used by traders holding for longer time periods). And true scalpers generally vary their position sizes, depending on the action they see on their charts. This is done purely by instinct (which comes with experience).

By the way, the traders I’m calling “true scalpers” generally don’t have time to place stop-loss orders, and generally don’t let scalps run to 10 pips negative.

Regarding the use of average position sizes on all trades, I do this often — and I’m not scalping.

Here is something I wrote on that topic a few months ago —

Check for accounts in GBP and calculating lot size

• Those of us who aren’t hung up on a hard-and-fast risk factor (like the 1% example, above), but instead are content with anything in a reasonable range (say, a 1% to 2% range) — [B]we might simply use the same stop-loss[/B] (risk measured in pips) [B]and the same position size[/B] (say, one mini-lot, or one standard lot) [B]for all trades, regardless of the currency pair involved.[/B] For those of us who are really lazy, this method allows us to slap a position on, when we see a promising set-up, without calculating anything.

Here are some examples: Let’s say that I’m content with risk in the 1%-2% range, and let’s say that I have 10,000 USD in my account. Finally, over some period of time, let’s say that I place trades in the following pairs — USD/JPY, GBP/USD, EUR/JPY, GBP/AUD, USD/CAD, EUR/CHF, and NZD/JPY — and let’s say that every trade is automatically 15 micro-lots (15,000 units of base currency), with a 100-pip stop-loss. How much risk would I be taking in each of these trades?

If you do the math by hand, you will calculate the following risk factors:

USD/JPY trade — slightly less than 1.5% risk (based on current price of USD/JPY = 101.989)

GBP/USD trade — exactly 1.5% risk (GBP/USD price does not matter)

EUR/JPY trade — slightly less than 1.5% risk (the same for all yen-pairs)

GBP/AUD trade — slightly less than 1.4% risk (based on current price of AUD/USD = 0.92719)

USD/CAD trade — slightly less than 1.4% risk (based on current price of USD/CAD = 1.09709)

EUR/CHF trade — about 1.66% risk (based on current price of USD/CHF = 0.90517)

NZD/JPY trade — slightly less than 1.5% risk (the same for all yen-pairs)

So, if I know that my account balance is roughly $10,000 (say, $10,000 ± 10%), and I use the same trade metrics on every trade (15,000 units of base currency, and 100-pip SL), then for any pair that I choose to trade, I know that my risk factor will be in the 1% to 2% range. And being supremely lazy, I can forget about calculating the picky details.

Why does this work? It works because [B]non-yen currency pairs[/B] almost always stay in a price range of about 0.8000 to 1.8000. And [B]yen-pairs[/B] almost always stay in a price range of about 80.00 to 180.00. As long as that’s the case — and, as long as my account balance stays in a fairly tight range — the lazy man’s method of position-sizing works fine.

What would happen if my account balance changed significantly? I would simply adjust my typical (lazy-man’s) position size in proportion to the change in my account balance. If my balance grew by 25%, I would consider increasing my typical position size by 25%. And, if my balance dropped by x%, I would consider reducing my typical position size by x%. In most cases, I would be able to figure these percentage changes in my head, without the need for tedious calculations.

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[cocolizo67]

Thanks a lot Clint. That solves all my questions.

To sum up: I will be trading a fix lot that puts no more risk than 2%, and will adjust the lot size everytime my account grows or drops 25%.

[tiffanylopez]

True scalpers have no time to fool around with position-size calculations. Their position sizes are generally large (compared to position sizes used by traders holding for longer time periods). And true scalpers generally vary their position sizes, depending on the action they see on their charts. This is done purely by instinct (which comes with experience).

By the way, the traders I’m calling “true scalpers” generally don’t have time to place stop-loss orders, and generally don’t let scalps run to 10 pips negative.

Hi Clint. Do you still have this same opinion today in regards to scalping and stop losses?

[Clint]

Hi Clint. Do you still have this same opinion today in regards to scalping and stop losses?

Hi Tiffany,

Short answer — yes.

Long answer — I have had only limited experience doing what I call “true scalping”. So, my opinion is mostly based on what I have seen other traders do.

True scalping is a very rapid-fire, high-pressure way to pursue profits from small pip-movements. Some traders appear to thrive on this sort of intense activity, but I wonder how long a true scalper can keep it up before burning out.

I’ve never taken a survey, but I would bet that most successful true scalpers are 20-somethings, with considerable experience as video gamers.

As a trading style, true scalping doesn’t suit my temperament (or my age). But, I was never a video gamer, so maybe that explains it.

Welcome to this forum, by the way

[LauChoKun]

My rule is very simple; just taking 2% risk reward ratio; but during the scalping usually I take 1% to 1.5% risk ratio!

[tiffanylopez]

Thank you @Clint!