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Money Management exercise

  • #1
  • First Post: Jul 3, 2006 9:03am Jul 3, 2006 9:03am
I'm trying to figure the optimum number of lots to enter with in this scenario: Let's say you're trading minis in a 10k account. And you're trading six pairs. Your method has about a 90% success rate. Targets are fixed at 20 and stop loss at 40. It's possible that all six pairs can have one position on at the same time.

What would be optimal here and not cause a margin call and positions closed. Entering each with .10, .20, .30 or ?

Whatever the number it would have to hold up if extrapolated to multiples of a 10k account. Thx.
  • #2
  • Jul 3, 2006 10:50am Jul 3, 2006 10:50am
Quoting BenQ
I'm trying to figure the optimum number of lots to enter with in this scenario: Let's say you're trading minis in a 10k account. And you're trading six pairs. Your method has about a 90% success rate. Targets are fixed at 20 and stop loss at 40. It's possible that all six pairs can have one position on at the same time.

What would be optimal here and not cause a margin call and positions closed. Entering each with .10, .20, .30 or ?

Whatever the number it would have to hold up if extrapolated to multiples of a 10k account. Thx.
basic example:

Maximum Consecutive Loses for Pair 1 * 40pips
Maximum Consecutive Loses for Pair 2 * 40pips
..
Maximum Consecutive Loses for Pair 6 * 40pips
--
calculate total
risk% * account size / calculated total = minilots you can risk per trade

example (lets assume that max consecutive losses for all pairs are 2):
2 * 40
2 * 40
2 * 40
2 * 40
2 * 40
2 * 40
--
total 480 pips
if you risk 25%, then 25% of 10k is 2,5k.
lot size = 2,5k / 480 is 5 minilots per pair.

it's not the ideal calculation but should be pretty safe because there is almost now chance all pairs will make consecutive losses simultaneously.
  • #3
  • Jul 3, 2006 11:18am Jul 3, 2006 11:18am
My calculations were a bit off, but still in the ballpark as yours. The reason I asked the question is because of an item I saw on Interbank's site: "... if an account value is $10,000 and the trader places a trade for 1 lot, he is in effect leveraging himself 10-1, which is a very significant level of leverage. Most professional money managers are not allowed to leverage even this high."

Now, here they're talking about reg 100k lots, but that's still 10 mini lots.

In your example, you'd enter .5 mini lots per pair. That's 3 lots total if all six pairs were trading. What am I missing here if they're saying 1 lot is too much?

And I have to confess all my accounts are reg accounts. I don't do any mini trading, but want to start and I'm having a bit of trouble figuring lot sizes, etc. Thx for your help.
  • #4
  • Jul 3, 2006 11:29am Jul 3, 2006 11:29am
Quoting piccolo
basic example:

Maximum Consecutive Loses for Pair 1 * 40pips
Maximum Consecutive Loses for Pair 2 * 40pips
..
Maximum Consecutive Loses for Pair 6 * 40pips
--
calculate total
risk% * account size / calculated total = minilots you can risk per trade

example (lets assume that max consecutive losses for all pairs are 2):
2 * 40
2 * 40
2 * 40
2 * 40
2 * 40
2 * 40
--
total 480 pips
if you risk 25%, then 25% of 10k is 2,5k.
lot size = 2,5k / 480 is 5 minilots per pair.

it's not the ideal calculation but should be pretty safe because there is almost now chance all pairs will make consecutive losses simultaneously.
If you open 5 minicontracts per pair with a 40pip stop loss, worst case of scenario you end up losing:

40pips (max stop) * 6 (# of traded pairs) * 2 (assuming max consecutive losses on each pair is 2)
= 480pips * 5 contracts = $2,400 (+ or - depending on pairs)

That would be roughly a 24% drawdown.

Am I right?

If our friend wanted to maximize # of contracts at any given time, he could afford 20 minilots per pair. Am I correct?
  • #5
  • Jul 3, 2006 12:03pm Jul 3, 2006 12:03pm
On Metatrader, 5 mini lots would be .5, correct?

Quoting ItalianSharp
If you open 5 minicontracts per pair with a 40pip stop loss, worst case of scenario you end up losing:


40pips (max stop) * 6 (# of traded pairs) * 2 (assuming max consecutive losses on each pair is 2)
= 480pips * 5 contracts = $2,400 (+ or - depending on pairs)

That would be roughly a 24% drawdown.

Am I right?

If our friend wanted to maximize # of contracts at any given time, he could afford 20 minilots per pair. Am I correct?
  • #6
  • Last Post: Jul 3, 2006 1:07pm Jul 3, 2006 1:07pm
Quoting ItalianSharp
If you open 5 minicontracts per pair with a 40pip stop loss, worst case of scenario you end up losing:

40pips (max stop) * 6 (# of traded pairs) * 2 (assuming max consecutive losses on each pair is 2)
= 480pips * 5 contracts = $2,400 (+ or - depending on pairs)

That would be roughly a 24% drawdown.

Am I right?

If our friend wanted to maximize # of contracts at any given time, he could afford 20 minilots per pair. Am I correct?
you forgot about margin requirements for open trades. 20 minilots is 2 lots and at 100:1 its 2000k in margin, so you only had 8k free for one trade.
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