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Money management calculations

  • #1
  • First Post: Edited 6:10pm Aug 16, 2012 5:59pm | Edited 6:10pm
Hey, I'm a bit new to FX trading (1 year and half) , and I'm really interested in knowing how do you approach MM. If you do it manually, what are the calculations that you employ. The only MM rule that I know(and the most obvious) is not to trade more than 2-3% of account, which is pretty simple: 2%-3% * account size and you are done! What about position size?stop losses/take profits?...etc. Otherwise, do you use a software to manage your trades? If yes, what are the advantages aside from automating your task?
This is an important point to discuss as money management is more important than anything else, because it helps to protect and grow account steadily

Thanks in advance.
  • #2
  • Aug 17, 2012 9:31pm Aug 17, 2012 9:31pm
I'll give you a few bits of info that might help on this:

1) Don't Use a Hard Percentage to Set Your Risk - risking a set percentage of your account will cause you to have a very hard time getting it to grow. The basic reason of this is because when (not if) you go on a losing streak, your newly lowered account balance will not yield as much when you hit a few winners in a row. The solution is to design a stairstep money management paradigm. Here's a great article that explains this a bit better, read point #2 carefully: http://www.learntotradethemarket.com...truths-article

2) Stop Loss should be set by your system in the most adventageous position - if your system tells you that you should put your stop loss below the closest swing low (when going long) or something, then THAT is where you put the stop loss. You then adjust the position size to fit the # of pips of risk that stop loss zone creates.

3) Adjust Position Size - let's say that you are looking to take a $10 risk on a trade when you have a $1,000 account and the best place for the stop loss is 45 pips away form the current market price. You go to the link below, click the "Amount" radio button, select the denomination of your account, the pair being traded, and enter the dollar amount ($10) the # of pips between market price and stop loss (45 pips) and your account leverage and hit enter. It spits out what position size you should use. In this case, it would be 0.02 lost or two micros. Always fit the risk to the stop loss, never fit the stop loss to the risk.

Here's the link: http://tools.winnersedgetrading.com/RiskCalculator/
  • #3
  • Aug 17, 2012 10:17pm Aug 17, 2012 10:17pm
Quoting Valid90
Hey, I'm a bit new to FX trading (1 year and half) , and I'm really interested in knowing how do you approach MM. If you do it manually, what are the calculations that you employ. The only MM rule that I know(and the most obvious) is not to trade more than 2-3% of account, which is pretty simple: 2%-3% * account size and you are done! What about position size?stop losses/take profits?...etc. Otherwise, do you use a software to manage your trades? If yes, what are the advantages aside from automating your task?
This is an important point to discuss...
Check out this video. You'll learn everything you want about MM and more.

http://fxevolve.com/blog/how-to-dete...rn-objectives/
  • #4
  • Aug 17, 2012 10:30pm Aug 17, 2012 10:30pm
Thank you so much for the excellent links!
  • #5
  • Aug 19, 2012 5:59pm Aug 19, 2012 5:59pm
Quoting FusionF
Check out this video. You'll learn everything you want about MM and more.

http://fxevolve.com/blog/how-to-dete...rn-objectives/
Now, that clip is going to help a lot of new traders figure out the MM. And FYI, a few brokers do display the pip value on the platform which should help make the process easier..
  • #6
  • Aug 19, 2012 6:11pm Aug 19, 2012 6:11pm
Quoting FXAssassin
I'll give you a few bits of info that might help on this:

1) Don't Use a Hard Percentage to Set Your Risk - risking a set percentage of your account will cause you to have a very hard time getting it to grow. The basic reason of this is because when (not if) you go on a losing streak, your newly lowered account balance will not yield as much when you hit a few winners in a row. The solution is to design a stairstep money management paradigm. Here's a great article that explains this a bit better, read point #2 carefully: http://www.learntotradethemarket.com...truths-article

2)...
awesome tips. Thanks for sharing.
More than a hobby. Never a game. US Client at 1:50.
  • #7
  • Aug 19, 2012 6:28pm Aug 19, 2012 6:28pm
Quoting Valid90
Hey, I'm a bit new to FX trading (1 year and half) , and I'm really interested in knowing how do you approach MM. If you do it manually, what are the calculations that you employ. The only MM rule that I know(and the most obvious) is not to trade more than 2-3% of account, which is pretty simple: 2%-3% * account size and you are done! What about position size?stop losses/take profits?...etc. Otherwise, do you use a software to manage your trades? If yes, what are the advantages aside from automating your task?
This is an important point to discuss...


Vaild, 2-3% risk is very general, and it is almost too general.

Money management plan is just a writing. It is important you develop a MM plan that fits your personality, and any MM plan would need your absolute displicent to follow through which is probably the HARDEST part for any new trader who is lacking in experience and displicent.

Good luck!
More than a hobby. Never a game. US Client at 1:50.
  • #8
  • Last Post: Aug 20, 2012 5:42pm Aug 20, 2012 5:42pm
Quoting Chi
Vaild, 2-3% risk is very general, and it is almost too general.

Money management plan is just a writing. It is important you develop a MM plan that fits your personality, and any MM plan would need your absolute displicent to follow through which is probably the HARDEST part for any new trader who is lacking in experience and displicent.

Good luck!
Thanks for the advice Chi, I totally agree with you, the most important challenge is to follow MM plan with discipline
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