money management
here were gonna discuss
SL/TP’s
diversification
Risk/Reward Ratios
Market Breaks
exposure
SL/TP’s
stop loss and take profits are one way to skew the probability of success in our direction… imagine using no indicators but 6 or so pairs of currencies at once so we open these pairs have no relation to each other or at least minimal relation to each other. and we set a basic stop loss of 100 and a take profit of 250.
pair one SL=100 TP=250
pair two Sl=100 TP=250
pair three SL=100 TP= 250
pair four SL = 100 TP=250
pair five SL = 100 TP=250
pair six SL=100 TP=250
lets say we use the basic macd swingline tradestyle which is backtested to have a 47% accuracy a picking movement in one direction on a daily chart. and lets say that each pip is 1 buck
lets round this 47% down to 45% so this is our success rate at meeting goals well you think that 45% of the time we win a 55% we lose so were not profitable well lets look. that means 3 trades win so we take 750 pip profit and -300 pip loss setting us up 450 pips. now lets lower our success rate to 35% now only 2 trades win and 4 lose well 500 pip gain vrs -400 pip loss = 100 net pip gain you’ve made 100 bucks at 35% success rate. so our tp and Sl’s are important which brings us to what should i set my TP/SL with?
well we are crossing level ratio based… so we need to determine how far the price would have to move to cause a significant price change and break the trend we are watching.
well if price is 1.9950 with a clevel of .5% well a clevel of 0 would indicate another cross downward which would be in the opposite direction. so 0% would be bad for our trend and would change our decisions. so @ 1.995 with clvl of .5 well say x/1.9950 = .5 so 1.9950*.5% would be x or macd/signal difference so that in the opposite direction would cause a cross… so 99.7pips judging from this we would be in a high period indicator settings. so our normal SL would be 99.7 pips but what is their is high volatility like now… well this is were ATR comes in we use atr to get a base number lets say atr registers 118…now this show deccent volatility and we wouldnt want to get falsely stopped out by this volatility so naturally wed take the ATR but if there is another system bringing other traders into play they are probably using atr to set their stops as well which mean we dont want to HERD… so we use a odd multiple of ATR larger then herd stop so well take -.5 -.5% difference thus 1% leading us to 2*99.7 pips = about 200 pips +ATR VALUE 118=318/2 = 159 pip stop. and we are out of herd range by 41 pips and if we hit this or closed and 2/3 of this wed be in a new trend so its a definative value. its a stop with a purpose.
now setting a TP well if our goal is 3% lets get to 3% 
using 1.9950 as our price and we are in at .5% already easy enough if we figured out our .5%= 99.7pips and the distance from .5 to 3 is 5-.5 units of 99.7 pips thus we set our tp at 4.5*99.7 pips=448.65 pips so at 96% accuracy with this system our natural stop loss/ tp risk/reward is 448.65:159 = 2.82 to 1
now we can show our suc rate with those 6 pairs out at once.
pair 1 SL=159 TP = 448.65
pair2 same
pair3 same
pair4 same
pair5 same
pair6 same
at 96% well let one fail which says we are less successful than 96% but
5448.65 pips = 2,243.55 pips
1159 pips = -159 pips
2243.55-159=1925.55 pips total profit now this is on the daily probably and its a long term probably monthly goal.
NOW DIVERSIFICATION
WANT TO BE DIVERSIFIED in FX
many experts say 1 FX pair at a time while this is true its true because beginners want to scalp and shave pips and feel the need to overtrade and analyze to much. they cant manage multiple pairs and the dont understand the correlation between pairs just yet. while i wont get to outta control with this ill lay the idea if you want to learn more look up currency arbitrage or currency pairs trading youll learn alot. Now i trade on a longer frame so i can manage more currencies because of this i can increase my exposure to the FX market while still keeping pace with my exposure rules.( more to come)
managing multiple currencies at long term frames can increase your pipage exponentially by account size. now you need to pick you risk rate VRS account size for yourself i use 2%… if i have 100,000 for each pair i use 2% at 5:1 leverage ill take 2k leverage by 5 *2000=10k per pair with a 10% exposure at 5:1 so 50k exposure at anytime so i manage 5 pairs unrelated to each other
what does this mean for your account well 5 open pairs equal in size unrelated to each other have reset probabilities meaning they have their own set and dont rely on each other. so each have your rate of success if one closes and hit the TP target or SL target you can reopen another pair while adjust new 2% of account realized balance.
means more pips for u.
risk/reward
always have a better reward for points of risk its called a risk premium how much you make for risking your money. 1 risk to 1 reward makes NO sense dont do it SL 100 VRS 100 tp doesnt make sense dont do it.
thats all i got to say about that
Market Breaks
SAT SUN breaks in the market can cause changes in what the open will do it could change direction no matter its .5%-3% position watch the news over the weekends and act accordingly.
Exposure
Exposure we already sort of discussed this Exposure is how much of you unleveraged position you want to risk in the market
10% exposure on a 100k account is 10k then add your leverage 5:1 would be 50k in the market leveraged. this will determine how many pairs you can open and your individual risk lvl per pair 10% means 5 @ 2% risk per pair or you could do 2 pairs at 5% risk each tho i wouldnt recommend it. i recommend 2% more pairs is better diversification and better diversification is best.
done with money management ill wait for questions then ill start another post.
