The illusive MM Thread

Hey,

I got into ForEx recently (Babypips college completed, bunch of ebooks, and scores of forum posts read). After about an hour on here reading different MM strategy posts and some of the other posts in the Beginner's thread, I kept seeing people make reference to a post by Dialist.

This post to be exact:
http://www.forexfactory.com/showthread.php?t=3690

However, as you can see, it no longer exists, yet it used to be stickied apparently. Does anyone know what happened to that thread? Was it moved? Deleted? Etc? Every MM thread I've read seems to praise it as the definitive work on MM for all newbies to absorb. So, if possible, can someone point me to the post if they know where it's at? If not, I guess I'd settle for my MM questions to be answered (be warned, these are probably really basic).

1) Currently on my demo account I set aside 2% of the total (assuming no other trades open) in the account for purchase of currency pairs. For instance, I started a demo with $1,000, so if I have no actions open, I would look to risk $20 per trade. Now, if I know what I'm willing to risk (based on the 2% of total rule), won't that figure alone tell me how many lot sizes I'll be buying? For example, a lot of what I've read consists of further calculations after you know what you're willing to risk in order to determine what your "true leverage" is and how many "lots" you need to buy. I guess I'm not following this extra step and a little delineation would be most helpful.

Just to be clear, if I have 20$ to spend, and that would normally buy my 10 lots (just throwing numbers out there), but through further calculations I should only be buying 6 lots, does that mean that I'm really not utilizing the full $20 that I had wanted to use in my original rule? Or that I'm lowering the leverage as offered from my broker?

Thanks for any help on this matter.

I think this is the thread you're looking for: http://www.forexfactory.com/showthread.php?t=6948

Posts 18-33 go through MM in detail.

That should answer all your questions.
If not, come back and we'll figure it out.

Hope that helps,
Tom

Back.

Na, I've read that thread, but apparently something didn't quite click when I did because before I knew it we were off the topic of MM and onto currency correlation. Even in that thread there's passing mention to Dailist's original thread however. So, back to square 1

I don't understand.
That's the thread where Diallist talks about MM. There are other things in there as well, but all you need to know for MM is in there.
Isn't that what you were looking for?
(What I think happened, is that a few threads were combined into that one.)

Well I guess I'm just not clicking somewhere.

Maybe someone could answer the question I have near the bottom of my first post with an example to help out.

Well, from what I've understood so far I think you have most of it down, but are missing a couple of points.
You have established the 2% risk which is the $20 (assuming the account balance is $1000).
Next you need to figure out what your stop loss is going to be (in pips).
You can't place a trade without having a stop loss. (well you could, but it's not recommended )
So your stop loss will be dependent on your system. It'll either have a fixed stop loss of say 50 pips for each trade, or some kind of other way to determine the stop (like support/resistance for example).

Lets say your stop is 50 pips. 50 pips on a mini account is worth $50.
But you can only risk $20. In order to determine your lot size you divide your $20 risk with the $50. 20/50 = 0.4.
So your trade will need to be 0.4 mini lots.

Now where it gets a little more complicated is that different currency pairs, have different pip values. Currencies ending in /USD have a pip value of $1 (for mini accounts) and $10 for standard.
But other currencies like the JPY pairs for example, have a pip value of about $0.90 for a mini account depending on the price.
So you would have to take your stop loss in pips and multiply it by the pip value to get the dollar amount. 50pips * $0.90 = $45.
Then you would divide that with your $ risk to get the correct lot size.

Probably not the best explanation but I hope it helps somewhat.

Tom

To explain the same thing in a short, simple and easy way:

If you can risk $20 and the stop loss is 50pips: $20/50 = $0,4 risk pr pip.
So the value pr pip you risk (or make if the trade go your way) in that trade is $0,4

Arctic4x

Ok, I think i'm getting the hang of it. I just tried some sample tests on Oanda, however, and I still have some haziness. Here's my real life example:

I started a new account with $10,000 in it. Same rules. So, effectively I would be willing to risk $200 per trade. Given the market conditions, the trade I want to execute has a stop loss of 75 pips and it's a NZD/USD pair.

200/75=2.66. I take this to mean I should be 2.6 lot sizes? Now I know this technically goes against me on a regular micro/mini account because of asymmetrical leverage I think (not quite sure), but on Oanda I actually can place partial lot orders so we should be good. Anyways, when I put in 2,666 units, it equals about $106.xx and when I had the 75 pip stop loss, it shows my potential to loss as $20. So I guess I'm just a little confused because the math doesn't equal $200. At most it looks like I'm going risking $126 instead of my intended $200 (and I could be even more confused but really it looks like I'm only risking $20 as once I hit my stop loss, the position will close, leaving me with $84 left (106-20)). Further clarification would be helpful in this area I think

Now you have me confused too.
I've never traded with Oanda so I'm probably not the best person to help, but if your risk is coming up as $20 instead of $200 then just increase your lot size by 10. Again, I dunno how Oanda works but maybe this account is a micro not mini.

it will be $ 2.66 per pip meaning 2.66 MINI lot or 0.266 lot.

At oanda if I am not wrong you don't enter lots but an amount, so it should be $ 26 600 (not 2660)

AHA! I think I've got it now. I was a bit confused earlier because I thought by 2% risk ($200) that that meant how much you were supposed to use total, like, how much margin used. When I changed the figures in Oanda to hit $2.66 per pip, I ended up with $200 stoploss at 75 pips, but had to use a bit over $1,000 to make the purchase, but I assume this is what is supposed to happen.

Thanks

Kaluza-k Ths was from some time back. Pieces of it were moved to the sticky. It may be what you were looking for in your original post

http://www.forexfactory.com/showthread.php?t=3183

Here is the formula used for calculating your trading size:

Trading size = capital * % of risk / (closing price – opening price)/ (closing price of quote currency/ home currency)

Where:

(closing price – opening price) ----------> stop loss of the pair you’re trading
(closing price of quote currency/home currency) ---------> the net value of what is so called “pip”

Kaluza,


You may be looking for this. The title has to do with potential returns but the basis of the tutorial is reasonable money management as a priority. It eventually explains at certain "true leverage" standpoints how few or many pips have to be netted per period to obtain a percentage goal.

I don't know if its the original famous post, but it is simple with no random distractions. It is definitely worth the read.

Diallist tutorial

I hope this helps.


phoenix