Lot size calculator for good money management

Hi All

In my estimation, 80% of the threads on systems seem to discuss finding the best entry rather than discussing money management. To me this seems a little misdirected because even sub-optimal entries can be very profitable with the right money management. More effort placed in managing money, calculating an optimal stop-loss and limiting losses will result in greater long term profits for you.

When you hear phrases like "only risk 2%" what does this mean to you? Does it mean use 2% of your equity to buy currency? Does it mean only allow 2% of your equity to be at risk of loss? Does the amount risked include profits from open trades and how do you know what stop-loss to use? If you have a stop loss of 30 pips, what should your lot size be? If you only want to risk 2% but need a 100 pip stop loss, what should your lot size be?

If you would like answers to these questions then perhaps the percentage of equity model might be for you.

Why use the percentage of equity mode?
Using this model, you only risk a percentage of your equity on each position which means your risk is proportional to your equity and provided you stick to stop-loss you choose, are protected from financial ruin and only have the potential to loose the risked amount.

For example, using the spreadsheet attached, if you were risking 5% of $500 equity with a 40 pip stop loss your lot size would be .06 of a lot. If your equity was $100,000 with the same risk and stop loss your lot size would be 12.

So, by making sure that you allocate a percentage of equity to a trade and then determine the lot size from your stop-loss pip size, you ensure that you trade with your eyes open and eliminate guesswork.

I use this sheet to calculate lot sizes for a trade from risk % and stop-loss pips. It can be used for any currency pair but you would need to adjust the spread and pip value for your currency.

If the risk level is too high then adjust it accordingly. A wider stop loss reduces your profit and adjusts the lot size accordingly.

If you like to place a stop loss behind a fibo level or a support/resistance level then enter your stop loss pips into the spreadsheet and the spreadsheet will give you the corresponding lot size for your risk.

It assumes 1 standard lot is $100,000 so if you use a different lot size the adjust it accordingly.

How does it work?

It simply takes your equity, risk %, pip value, spread and stop loss to calculate the lot size. It also gives you 1/5 lot sizes so that you can place multiple orders for scaling in or out.

Example
You have $5000 in equity and wish to risk 5%. The pip value is $10 on a standard lot and your spread is 3 pips (EUR/USD). Your stop loss is 35 pips.

What should the lot size for your order be? Answer: 0.66 (approx).

The spreadsheet can also be used as a compounding ready reckoner to show how small gains (30 pips) can compound very quickly to significant returns.

I'm open to suggestions and ways to improve the spreadsheet so if you have any ideas or ways to make it better then please let me know.

The spreadsheet has a password to protect the formulas from being inadvertently changed so if you wish to change the formulas then unlock the sheet with 'password'.

Other calculators:
http://www.forexfactory.com/showpost...5&postcount=22
http://www.forexfactory.com/showpost...7&postcount=13

Regards,
TrevA

Looks nice, thanks

Best one I've found , thanks man

I let my indi do the job for me

double mr = (MarketInfo(Symbol(), MODE_MARGINREQUIRED)/10);
double m40 = MathFloor((AccountBalance() / mr) * 0.40);
double ls = m40 * 0.1;

You can change the -0.40 if you do not like the 40% trading.

Great effort, thanks

This is so cool. I too was thinking about putting the calculations into an Indicator as well.

While my platform (metatrader) allows scripts to be run, it doesn't give you a macro language like excel or word. It would be so cool to just press a button and have the trade executed with all the predefined parameters...

Whatever mechanism is used, it's good to see money management being used in its various forms.

TrevA

I don't get this whole money management cuffuffle... they say its important laddi daddi da... but the way I see it is... if you risk 2% of your trade as everyone says you should be... and lets admit that finding 2% of your current bank account isnt hard... then whats so hard about money management?

Cryten referred me to this! I will have a look. Thanks for sharing!

This is good.Thanks for sharing.

Atomic Sheep

Money management isn't hard but most people are preoccupied with timing trade entries rather than managing their money. To me, the goal of money management is to keep me in the game as long a possible.

Whether you risk 2% or 50%, how do you know where to place your stop-loss given the pip value (GBP/JPY is different to EUR/USD) for the pair? Each pair has a different spread and different volatility so this complicates things. Also, do you put your pip behind the nearest support/resistance level or just at an arbitrary distance from your entry?

To me this is the cuffuffle of money management and what makes it so interesting.

TrevA

Ah ok I see now.

My favorite position size calculator can be found here. Go to Trading Tools, then Risk Management.

Do you mean this one: http://www.mataf.net/en/forex/tradin...sition-sizing/

TrevA

Thanks TrevA & Mr Roboto. That's what I am learning to respect in my trading.

Yup, that's the one.

Thats a pretty nifty tool there I like it. Also TrevA I agree that no where near enough attention is given to money management which is the real key in my opinion to successful trading.


-FXTrader1979

No problem, pipal. If you're money management is anything like mine, you're going to find yourself using that calculator everytime you make a trade.

I am currently reading a very good book about MM and found your excel sheet very helpful.
However, I don't understand how to use it to be accurate, let me ask you questions so I can be sure to not mistake how to use your sheet:

1- For example: Level 1 equity is 500 USD and "target" is to get 30 pips, however I collect more pips and get to 45 pips.
- Level 2 equity was supposed to be 530 USD, but my current equity real level is now 545 USD, what do I do? I correct level 2 equity to the 545 USD or just keep on the planned "map" and trade as targeted next level, the extra pips helping to jump into next level faster ?
Hope it make sense so you can understand my question.
I have couple more questions but prefer to go step by step.

Thanks a lot

could anyone help me?

Marketiva like Oanda uses 'units' not lots. Leverage is 100:1, so with the $5 practice account i can use max 500 units.

for example buying gbpjpy at 211.83 with stop at 206.90 what numbers of units should i enter the trade to risk 10%?

how use the calculators to do that calc?

thanks in advance.

This is a good question... I just correct the next level... usually on a daily basis. The levels are just a guide.

in your case, you would set the level 2 equity to 545 because the percentage of equity determines your lot size.

TrevA