Hello Everyone, and Thank You for viewing my post!...
So here's what I've come up with, recently...
in the case of... Position Size = Equity * Risk % / ATR:
There are two questions I want this trading system to answer
1) How much does the Time Frame want to give (vs... I want to risk)?
2) How do I convert this into a position size?
I decided to start with -
100 units of EUR/USD = (Cost me) $107.00
I then calculated the pip value, based on these 100 units -
((.0001 / 1.07) * 100) = .0093(4)
I take the calculated pip value, and find how many pips I am holding in my 100 units -
100 / .0093 = 10,752.(68)
Calculating % Risk per each hypothetical trade -
at 1% risk of 10,752.(68) = 107.52 pips or $0.99(99)
at 2% risk of 10,752.(68) = 215.05 pips or $1.99(99)
at 5% risk of 10,752.(68) = 537.63 pips or $4.99(99)
Now then, as a reference, I have in mind generic ATRs, based upon generic averages of the 5min, 1hr and
daily charts, which hypothetically are moving an average of 10 pips, 46 pips, and 148 pips... respectively
(from, Ann Couling's "Forex for Beginners," chapter on Your Trading Plan). The system I was trying to hone
before looked at the Intraday, 30 min and 1 hr, to take advantage of a position on a 3 or 4 hour time
frame.
The dilemma I kept running into, when mulling over explanations of money management systems, is where to
place a value for a stop loss/take profit, to complete the foundational parameters for a trading system.
So the reason I've approached the calculations the way that I have, is to:
Take the emphasis off of, what is really a generic psychological parameter for any trader to wrap their
heads around, which is looking at any time frame and deciding... "what I want to earn on a trade, or my
risk." Instead, I feel this is up to the pair/time-frame...
Enter: Average True Range...
In this way, I find by starting with -
1) Risking 1% of the account, I can (psychologically) loose 100 times, before I'm closed out
2) I am able to start with a grand total number of pips representing my total equity, in this case 10,752.(68)
3) for the purpose of descriptions, I have taken the generic pip averages per time frame above, but I can
more naturally transfer those numbers with the ATRs of Real-Time-Frame-Numbers... I have pips replacing
$$s...
In essence, I'm able to take away forcing what I want to get from the market, in terms of $$ amounts... And
replace it with an emphasis on pip values (in this case, a trade swing, I am comfortable with, between
107.52 pips toward 537.63). I feel like this translates much more easier when looking at Set Ups and
Time Frames... as a take profit.
So what I am proposing is, in the case of: Position Size = Equity * Risk % / ATR :
a) The correlation between risk management and time frames is positive... the slower the time frame, the
greater the distance any stop loss needs to be. So, ATR must be consulted, to fall within the above
mentioned swing parameters.
b) Position sizing is Set-Up dependent (price action, chartology, etc), to adjust for money management
rules
c) This system also favors, if necessary, cutting a position in half, and adding a trailing stop.
d) Working with Oanda Broker, which does not demand you specify lot amounts.
e) The account size is scalable, and still emphasizes (doubling, tripling, etc) the above mentioned swing
parameters....
So here's what I've come up with, recently...
in the case of... Position Size = Equity * Risk % / ATR:
There are two questions I want this trading system to answer
1) How much does the Time Frame want to give (vs... I want to risk)?
2) How do I convert this into a position size?
I decided to start with -
100 units of EUR/USD = (Cost me) $107.00
I then calculated the pip value, based on these 100 units -
((.0001 / 1.07) * 100) = .0093(4)
I take the calculated pip value, and find how many pips I am holding in my 100 units -
100 / .0093 = 10,752.(68)
Calculating % Risk per each hypothetical trade -
at 1% risk of 10,752.(68) = 107.52 pips or $0.99(99)
at 2% risk of 10,752.(68) = 215.05 pips or $1.99(99)
at 5% risk of 10,752.(68) = 537.63 pips or $4.99(99)
Now then, as a reference, I have in mind generic ATRs, based upon generic averages of the 5min, 1hr and
daily charts, which hypothetically are moving an average of 10 pips, 46 pips, and 148 pips... respectively
(from, Ann Couling's "Forex for Beginners," chapter on Your Trading Plan). The system I was trying to hone
before looked at the Intraday, 30 min and 1 hr, to take advantage of a position on a 3 or 4 hour time
frame.
The dilemma I kept running into, when mulling over explanations of money management systems, is where to
place a value for a stop loss/take profit, to complete the foundational parameters for a trading system.
So the reason I've approached the calculations the way that I have, is to:
Take the emphasis off of, what is really a generic psychological parameter for any trader to wrap their
heads around, which is looking at any time frame and deciding... "what I want to earn on a trade, or my
risk." Instead, I feel this is up to the pair/time-frame...
Enter: Average True Range...
In this way, I find by starting with -
1) Risking 1% of the account, I can (psychologically) loose 100 times, before I'm closed out
2) I am able to start with a grand total number of pips representing my total equity, in this case 10,752.(68)
3) for the purpose of descriptions, I have taken the generic pip averages per time frame above, but I can
more naturally transfer those numbers with the ATRs of Real-Time-Frame-Numbers... I have pips replacing
$$s...
In essence, I'm able to take away forcing what I want to get from the market, in terms of $$ amounts... And
replace it with an emphasis on pip values (in this case, a trade swing, I am comfortable with, between
107.52 pips toward 537.63). I feel like this translates much more easier when looking at Set Ups and
Time Frames... as a take profit.
So what I am proposing is, in the case of: Position Size = Equity * Risk % / ATR :
a) The correlation between risk management and time frames is positive... the slower the time frame, the
greater the distance any stop loss needs to be. So, ATR must be consulted, to fall within the above
mentioned swing parameters.
b) Position sizing is Set-Up dependent (price action, chartology, etc), to adjust for money management
rules
c) This system also favors, if necessary, cutting a position in half, and adding a trailing stop.
d) Working with Oanda Broker, which does not demand you specify lot amounts.
e) The account size is scalable, and still emphasizes (doubling, tripling, etc) the above mentioned swing
parameters....