Money Management Help

[roy12]

Can someone help me work out this money management:

1) First, determine what percentage of your account you are willing to lose in any one investment...

Account balance × risk percentage = amount at risk

So example,

£500 x 0.02 = £10

2) Second, Know how to determine trade size to prevent unnecessary exposure to risk (Trade size is the number of stocks or CFDs you buy or sell in any one trade)

Amount at risk ÷ distance between entry price and stop-loss price = size of your trade

This is where I am confused working this part out.

Any help would be great.

 

[NVP]

I would recommend no more than 2% of your bank per trade as you have said above (£10)

the amount at risk is distance between entry point and stop loss & Spread - so you need to price in the trade that only risks you £10 all in

and the risk on trading multiples will depend on your experience and correlation of the markets being traded ..if they are highly correlated I would not be trading the multiple

N

 

[barjon]

entry price 100 - stoploss price 90 = 10 points
you want your amount at risk to be £10, so £10/10 points = £1
therefore your position is £1 per point which is equivalent to buying 100 shares since each point is a 1p move

 

[roy12]

Ok, so if I am trading the FTSE100 at 5883.2 (£58.83)

So my stop loss should be 5873.2 (58.73)

As each point is worth £1 - this would then mean I have £10 of risk per trade, right?

If I trade more then one CFD:

If I was trading two CFD's then I would risk £20 (2 x £10) therefore my stop loss should be 20points away?

Am I doing this correctly?

 

[roy12]

If your risking £10 per trade, what would be a good win / loss ratio?

If I am risking £10 per trade, I should be trying to make £30 per trade.. would that be likely or unlikely for a new trader?

Trying to work how can to calculate a win/loss percentage / ratio...

 

[Shakone]

If I trade more then one CFD:

If I was trading two CFD's then I would risk £20 (2 x £10) therefore my stop loss should be 20points away?

Am I doing this correctly?

No, you are risking £20 total on two positions which equal a 10 point stop on each.

 

[Shakone]

If your risking £10 per trade, what would be a good win / loss ratio?

If I am risking £10 per trade, I should be trying to make £30 per trade.. would that be likely or unlikely for a new trader?

Trying to work how can to calculate a win/loss percentage / ratio...

This depends on your trading system. Don't risk any money until you have one

 

[neil324]

If you use MT4 there are commercial programs and even free scripts that you can use. These will enter the market by a single click, place SL and size of trade for you, by the amount of risk you set.

Leaving you to focus on PA.

 

[pobednik]

Good example

 

[Thriyve]

Your money management can also help you to determine which trades not to get into to. Just because your MM says to risk only $10 that doesn't mean that the trade requires only $10 as risk. The risk on the trade is always determined by the premise of the trade. If the premise of the trade requires $20 risk and you can only risk $10 that means you do not take the trade. Remember that the market does not care what your risk is. I find that alot of traders make the mistake of selecting a MM strategy that does not fit the trade. What this will do is create negative expected returns, and a strategy which may have been sound will look unsuccessful. There are many pieces to this puzzle Money Management is just one of the pieces

 

[Thriyve]

JBLRM8 Obviously you can't read or you are to ignorant to understand what I was saying. I have been trading successfully most likely before you even knew what trading was. Money management will help you to determine what trades YOU can get into based on YOUR risk. I am not saying it tells you a good trade from a bad trade i am saying that it helps YOU filter out trades based on YOUR risk. I never said anything about restricting loss allows you to use 40% of your core. That doesn't make any sense. Know the premise of the trade, if the trade requires you to risk 10% of your account value, guess what your MM rules says you can only risk 2% so you don't enter the trade. You also need to know that when entering in multiply trades risking 2% is not enough you need to understand about correlation because entering into 2 separate trades only risking 2% could be like entering in 4% in one trade.

I wish you the best of luck. Next time make sure you understand what someone is saying before you decide to comment. And for your information I have been a previous member of this site and other sites like this under other user names which I have since closed for quite sometime and made a choice to leave as i was tired of self proclaimed guru's like yourself speaking down to any contributor you either don't understand or feel that what they believe is against what you believe. Anyways you may continue to promote your website while I just pay it forward

 

[Thriyve]

I am not disagreeing with the 2% rule or your max account exposure. I am just trying to point out that some times people may use 2% risk when the trade it self requires more (i am not factoring in reward). So using MM the trader would know they can't afford to take that trade.

When I say entering in 2 separate trades risking 2% could be like 1 trade risking 4% I am talking about highly correlated trades. For example, ES and YM are highly correlated and entering into 1 long ES and 1 long YM risking 2% each is something i would not recommend because it is basically like 2 long ES. What i am talking about is Risk as a whole which includes money management and several other factors.

Here are the answers to the questions

What is your exit strategy?
I have several strategies that i use which each have a unique exit. But for example one of them is based on Fibs. Regardless of my entry my risk is to just below the last low. This is then adjusted to reserve profits as they become available at set intervals. I never risk more than 5% but the target is around 3%. The benefits are that it increases my win% however it skews my risk to reward. Expected returns are profitable tested in excess of 100 trades.

What is your win/loss ratios?
For the strategy listed above it has been between 65%-75%. My max down draw has been ~12%.

I think this answers the questions now if I am unclear please let me know. I also developed a spreadsheet back in 2008 which factors in risk, reward and expected returns and makes a quick model to show based on your current win% how much money you would make, or based on a $ amount what percentage you would need to achieve this.

 

[Thriyve]

Sector Risk does factor in correlation as stocks in a Sector tend to be highly correlated (it is possible to have stocks in different sectors that are also highly correlated). I however do not trade stocks any more, I trade Futures, Futures Options and Forex. My analysis is done using Ninjatrader which i feel is great, also Optionvue and/or thinkorswim. I have used those ATR etc as well but it does boil down to ones personality. Trading is interesting as there isn't just one method that works however there may be one method that works for the individual. Read Trading in the zone (i am not affiliated in any way just believe its a great book).

My trading methodology is simple for me however for a new trader it would be harder to follow.

 

[Infin Markets]

Always use only 10% of your deposit at first.. fo not trade with all you have at once!