Money Management Rules & Adjusting Lot Size According to Volatility | Forex Factory

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Money Management Rules & Adjusting Lot Size According to Volatility

  • #1
  • First Post: Jan 21, 2008 3:29pm Jan 21, 2008 3:29pm
Hi guys!

What are your money management rules?

I read somewhere that lot size is supposed to be adjusted according to the volatility of the pair one is trading. Does anyone know how I can do this for a particular currency pair?

Many thanks in advance!
  • #2
  • Jan 21, 2008 4:06pm Jan 21, 2008 4:06pm
Lots = AccountBalance * RiskPercentPerTrade (2% in my case) / StopPips / PipValue

Total risk of all Trades <= 10%

Only one rule for me. I keep it simple.
  • #3
  • Jan 21, 2008 5:05pm Jan 21, 2008 5:05pm
Quoting smjones
Lots = AccountBalance * RiskPercentPerTrade (2% in my case) / StopPips / PipValue

Total risk of all Trades <= 10%

Only one rule for me. I keep it simple.
pretty much what I do but I don't have any limit on how many positions I can have open

But i'm reading 'Millionaire Traders' by kathy and boris. And I'm attracted to some traders in there that uses scaling in the price. When they identify a trade, they would not put the whole position at one time , they just test the waters putting half percent for example. But they do have the ultimate stop and risk in mind before they scale in.
  • #4
  • Jan 21, 2008 5:32pm Jan 21, 2008 5:32pm
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting jessa
Hi guys!

What are your money management rules?

I read somewhere that lot size is supposed to be adjusted according to the volatility of the pair one is trading. Does anyone know how I can do this for a particular currency pair?

Many thanks in advance!
Generally you lot size is calculated by the amount you are going to risk... which includes your stop-loss. The percentage of equity model is simply calculated using the formula quoted by smjones.

Volatility helps you determine how far away you should place your stop. A tight stop will be hit by volatility whereas a loose stop could eat your profits.... it's a balance that suits your trading style, system and money management rules.

I use the ATR to determine volatility in conjuction with daily pivot points. ATR (Average True Range) tells you for a given period, the average pip range. E.g. So, if over the last 14 periods, the ATR was 50 then you might consider a stop-loss that takes this into account.

Checkout the ATR indicator in your charting package to see one way that volatility is calculated and graphed.

TrevA
  • #5
  • Jan 21, 2008 6:02pm Jan 21, 2008 6:02pm
Volatility of the pair will influence where your stop is placed. Then Scott's simple formula does the rest.
Put another way, if trading a volatile pair requires placing a wider stop, then Scott's formula will size your position accordingly. You determine stop placement and the rest is built into the formula.
  • #6
  • Jan 21, 2008 6:25pm Jan 21, 2008 6:25pm
Here are the spreadsheet i made, its pretty easy and simple to use, and there is a journal where you can put your trades on
Attached File(s)
File Type: xls MM_Journal.xls   96 KB | 1,051 downloads
No Brain, no Gain.
  • #7
  • Jan 21, 2008 7:38pm Jan 21, 2008 7:38pm
i use MT4 and there is number that called Margin Level, i keep it around 3000%

limitation: no hedge, adjust the risk within volatility with the value of ML
  • #8
  • Jan 22, 2008 6:17am Jan 22, 2008 6:17am
Look this spreadsheet that i get a few moments ago...



Best Regards,
Marcelo Marques
Attached File(s)
File Type: zip Money_Management.zip   3 KB | 1,141 downloads
  • #9
  • Jan 22, 2008 12:21pm Jan 22, 2008 12:21pm
Hi guys!

Thank you so much for sharing this wealth of information and for helping me to understand where I went wrong!!

Have a great week of trading!!
  • #10
  • Jan 22, 2008 12:35pm Jan 22, 2008 12:35pm
Use these scripts and you'd have to really try hard to blow an account. They will calculate lot size for a given % risk and SL. Proper calculation allows you to maximize profits.

http://www.forexfactory.com/showthre...t=26962&page=7
  • #11
  • Jul 16, 2011 1:24am Jul 16, 2011 1:24am
I suggst to yoo to read van tharp books.
  • #12
  • Jul 16, 2011 9:00am Jul 16, 2011 9:00am
Quoting jessa
Hi guys!

What are your money management rules?

I read somewhere that lot size is supposed to be adjusted according to the volatility of the pair one is trading. Does anyone know how I can do this for a particular currency pair?

Many thanks in advance!
theres tons of different types of stops.. volatility is just one of the many

you seem to be a new trader


I wish I could convince you to just look at the market and come up with your own method.. your going to fall into the same trap reading garbage online and crap book.. try to trade some moving average system and lose like everyone else who did the same thing...

isolate your mind while you still can dammit!!!
  • #13
  • Jul 16, 2011 9:13am Jul 16, 2011 9:13am
Quoting newyear498
theres tons of different types of stops.. volatility is just one of the many

you seem to be a new trader


I wish I could convince you to just look at the market and come up with your own method.. your going to fall into the same trap reading garbage online and crap book.. try to trade some moving average system and lose like everyone else who did the same thing...

isolate your mind while you still can dammit!!!
hope you're not too late , her post was 3yrs ago..
When the internal struggle ends, everything becomes easy - Mr. Douglas
  • #14
  • Last Post: Jul 16, 2011 9:47am Jul 16, 2011 9:47am
Quoting lananpips
hope you're not too late , her post was 3yrs ago..
rofl.. didn't even look
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