Risk Management  only FOREX
For the newbies.
Many traders do not know what risk management is. Even experienced traders often got it wrong! And I seldom see it explained anywhere. This is for the newbies  and some experienzed.
You have often heard this: Never risk more then 1 % on a trade. Therefore some people think that they may not use more than 1 % of their money on a trade. That is wrong. The rule is: If your stop loss got hit, then you should not lose more than 1%.
You can use one of the Lotsize calculators on the Internet to calculate the number of lots that will fulfil that purpose on your trade.I don't use them so I cannot point in any direction.
Or you can make an Excel sheet. Here is how to do it. You have to find the number of lots that you must buy in order to lose the exact amount of money.
The formula is:
Lotsize = Account Balance / 100 X RiskPercent / Stoploss pips / Pipvalue.
Stoploss pips  that is of cause the number of pips from the price to your stoploss.
Account Balance / 100 X RiskPercent gives the amount that you will lose if the stoploss gets hit.
Pipvalue is the cost of 1 pip in 1 lot.
Find the pipvalue here: Pip Calculator  Myfxbook. Set the trade size to 1 and the pips to 1. You need to update the pipvalues once in a while.
I attach my Excel sheet. All pairs with the same second valuta do have the same pipvalue. So if you want to invest in EURUSD, you shall use the USD row in the Excel sheet.
If you want to be a robot coder, then the formula above is vital. Use it. It is easy.
Using this method you are also able to operate the risk/reward strategy. Because you now know how much you will lose at your stoploss. If you make the R/R 1:2 (Reward = 2 times the stoploss pips), then your profit will be the exact double of your loss.
So  what is the big issue here. Why should i care??? You must care because now you know exactly at each trade how much money you could lose. Now you know how many trades it will take to ruin your account! Now you know the profit on each winning trade. NOW  you can make plans for your trading life.
For the newbies.
Many traders do not know what risk management is. Even experienced traders often got it wrong! And I seldom see it explained anywhere. This is for the newbies  and some experienzed.
You have often heard this: Never risk more then 1 % on a trade. Therefore some people think that they may not use more than 1 % of their money on a trade. That is wrong. The rule is: If your stop loss got hit, then you should not lose more than 1%.
You can use one of the Lotsize calculators on the Internet to calculate the number of lots that will fulfil that purpose on your trade.I don't use them so I cannot point in any direction.
Or you can make an Excel sheet. Here is how to do it. You have to find the number of lots that you must buy in order to lose the exact amount of money.
The formula is:
Lotsize = Account Balance / 100 X RiskPercent / Stoploss pips / Pipvalue.
Stoploss pips  that is of cause the number of pips from the price to your stoploss.
Account Balance / 100 X RiskPercent gives the amount that you will lose if the stoploss gets hit.
Pipvalue is the cost of 1 pip in 1 lot.
Find the pipvalue here: Pip Calculator  Myfxbook. Set the trade size to 1 and the pips to 1. You need to update the pipvalues once in a while.
I attach my Excel sheet. All pairs with the same second valuta do have the same pipvalue. So if you want to invest in EURUSD, you shall use the USD row in the Excel sheet.
If you want to be a robot coder, then the formula above is vital. Use it. It is easy.
Using this method you are also able to operate the risk/reward strategy. Because you now know how much you will lose at your stoploss. If you make the R/R 1:2 (Reward = 2 times the stoploss pips), then your profit will be the exact double of your loss.
So  what is the big issue here. Why should i care??? You must care because now you know exactly at each trade how much money you could lose. Now you know how many trades it will take to ruin your account! Now you know the profit on each winning trade. NOW  you can make plans for your trading life.
Attached File(s)
Lotsize calcolator.xls
40 KB

161 downloads
Read post #1 !! Then read it again 10 more times before you ask.