Let say I have a strategy with RRR 1:2 and win rate 50%
Let say I won mostly on small position size
But I lose mostly on bigger position size
Would my balance be negative in the long run?
What parameter in play here (beyond the RRR and win rate) is it SL pips? position size?
(and SL pips size and position size itself combined become the amount of risk we are willing to take)
Final question is should we trade on the same amount of risk on each trade so that the strategy is measurable?
Keep it simple. Aim NOT TO LOSE MONEY, but if you do, then lose small not big. Do not give your money back to the market by thinking a losing trade will turn in your favour. Just cut it quick before it hits the S/L. Use the saving to fund a better trade. There’s always one awaiting.
I work with fixed pip value, I could work with fixed risk pr trade but the reality is that it does not make so much difference, having a real edge make the difference, a positive pip balance at the end of the year.
I trade each strategy with positions of the same size. It keeps the accounting easy and risk management visible.
Different strategies might have positions of another size.
I like to think 1% of my account balance, but it also depends on how tight my SL is. Don’t lock yourself into anything, do only what you feel comfortable in doing.
Risking the same amount on each trade is not always feasible, depending on where your SL is. If it’s close to your open price then your position size can be very large, and you might not feel comfortable with that. So cut it in half, or quarter.
Here’s an example of a setup I’m looking at for next week:
Always look at your potential exit (TP & SL) before determining your position size, or risk.
As you can see, the SL is pretty tight on this setup, increasing my position size to 25,000 when risking 1% of my account, but it has the potential for a nice return if it works out, 1:4.5. But even if it only hits my first TP target it’s still 1:1.4.
However, due to the tight SL, I might decide to reduce my risk and cut this one in half, then scale in the other half later on.
Book is good for learning. Trader can gain knowledge from expert trader experience. Some books are also inspiring which I think we needed most.
please don’t think i’m being negative, but this is unrealistic
the percentage of retail traders who ever achieve steady profitability is pretty small, and among those the proportion who could ever achieve a 50% win-rate with a 1:2 risk-to-reward ratio may be non-existent, so your expectations may be a little unrealistic, there
i have several friends, colleagues and former colleagues, with huge experience between us, making our livings from trading for many decades, and we dream of achieving such figures
the point is that you should risk the same on each trade that has the same expectancy (if you’re dealing with more than one type of entry)
you need to know, clearly and definitely, what the expectancy is before entering a trade
this is what learning, practice, studying, calculation and demo accounts are for
without knowing that, you’ll always be guessing and it will always be chaos
of course you’ll never know whether the individual trade you enter, at the moment you enter it, will be a winner or a loser but you don’t need to know that, to make a living
you just need to know the expectancy
without knowing how to work that out accurately and reliably, you’re not really ready to start, because you don’t have a way to calculate position-sizing, targets, stop-losses, etc etc etc
Great info. If the trade went your way, where would you start to scale in? Would it be just hitting your first TP?
That would probably be the perfect spot to scale in (or since my trade opened at the bell, take half the position off). Then you could either move the SL to BE on the 1st position or, more likely (for me), close it and take your profits. After all, that is an area where it could turn around on you.
CAD is strong today, which will be good for this trade, if GBP weakens a bit. I was almost taken out right at open Sunday, so close I’m surprised I wasn’t. This is why you should never set orders over the wknd.
Dont bother… the brokers will stalk you and destroy your trading account.
Since you sound like a mechanical trader, I suggest using the same pip value per trade. This way, things will eventually go your way with your edge. Once you reach a certain level, then you can increase your pip value so it can match your new balance and respect your strategy.
What I personally don’t like with always using a percentage of you account, is that after a series of lost, which is totally possible, it would take even more trade to get back to a positive balance because your pip value goes down every trade.
Your position on this question @Tony20 must be the opposite of what most traders are doing. Maybe you would want to say more about how this works for you?
I’m assuming right away you mean a different pip value for each pair? But how have you identified the optimum pip value, say for GBP/USD or another pair you focus on?
I personally like using the same percentage of account balance as my risk for every trade I take. This way allows me to set my stop loss based on the volatility of the market without compromising my account balance should the trade go south. A trade with a 30 pip stop loss carries the same amount of risk as the one with 60 pip stop loss.
What I do not like about a fixed number of pips and a fixed lot size is the fact that sometimes your fixed 20 pips would fall right in the middle of a candlestick, which wouldn’t make technical sense. Increasing the SL size would mean increasing your risk.
Using a fixed percentage makes sense and helps in compounding as well as scaling down as your account balance changes.
Full disclosure:: I also have an account on which I use a scalping strategy with a fixed pip SL. However, if the SL does not make any technical sense, then I simply take a pass
It works well for me. But of course in trading there is no one rule. Whatever works for you is fine and there are so many strategies possible that one thing might not fit with someone else’s way of trading.
You assumed right, I do have a different pip value per instrument and I keep all instrument separate. Since different players affect the market in different ways, I don’t believe that you can simply take your 50% win ratio strategy and continue it on a different pair. Ex you lose on EUR/USD so you should win the next one on GBP/USD. No I believe the % should continue on the same pair.
I don’t have the pretention to say that I have found the optimum pip value. I go according to my strategy and the margin required to trade. Let’s say I have 5k account with a 65% win rate and according to my journal and backtest, I have never lost more than 5 trades in a row. After that, I look at my average pip loss per losing trade. Than I look at how much it cost to enter a trade and what happens if I lose double the amount straight: here 10 trades in a row. Will I be able to keep the same pip value?
here an ex with numbers (invented figures)
USD/CAD
50000units = margin 2500$ = 10$/pips
avg pips loss 20pips = 200$/loss
with 10 straight losses, I could still keep up the pip value because I would have loss 2000$ and my balance is now 3000$. I’m still within my trading margin 2500$ for 10$/pip and I have a margin of error since I go for 10 straight losses knowing it should not happen according to my win rate, journal and backtest.
If you would want to go with 30$/pip, it might not work because you have no room for error. 20pips x 30$ x 5 losses = 3000$. Your balances goes down to 2000$ and you can’t afford that pip value anymore. (I know the margin would go up too and you might not be able to take such a big position, I’m just trying to give a simple example to understand my thought process)
Dunno if it’s clear but that’s what I look at to see what pip value I can afford per instruments. Ever since I’ve been doing it this way, I have no complaints and its easier to manage. For the compounding effect, I adjust my pip value after reaching a certain amount in my account balance. All you have to do is make sure that your strategy has a positive pip gain.
Again, it has to work with your strategy. The comment above says he might have large differences between SL. I don’t have much differences in SL within the same pair so it’s easier to apply for me since it all balances in the end.
Ouch, sounds like you have some experience with that.
Hey, that’s really great insight into how you trade. Sometimes just knowing what somebody else does doesn’t make it seem like I’m doing something on a whim but that there’s real purpose.
