Hi.
I recently finished the babypips school and now I’m working on developing my own trading system.
Right now I concentrate on the position sizing and risk management part.
My approach is, to place a stop loss order on every trade I make just under (or above) the random “noise”. With that stop loss I define my initial risk (1R).
When I know what my initial risk is, I can then size my position to a certain percentage of my available equity (in my case 1%).
For example, lets assume, that i go long on EUR/USD and place my stop loss 20 pips below the entry level. My risk is now 20pip per lot (100.000$). 1 pip is worth a 10$, so I risk 200$ per lot on this trade. Assuming my account is 10.000$ and I want to limit my risk to 1% of my equity, my position should be 0.5 lots (5 mini lots).
This is a different approach than that from the babypip school, where the total price of your position is considert as the initial risk.
What do you think about my thoughts on this very important subject?