Forex Strategies Forum

[Edward Revy]

Hi Florian,

It is simple to calculate the lot size as well as the amount of lots you can trade safely.

When you start with less than $500, you'll be able to risk anywhere from $5-$10 on any occasion (which is 1-2% of account balance).
With such modest limits, you won't be able to trade with Standard lots at all, and won't be able to trade with mini lots safely either.

So, having $500 at the start, you'll be looking to trade with micro lots (0.01 standard lot) regardless the leverage you choose.
1 micro lot equals $0.10 USD with xx/USD pairs, and currently around $0.11 USD for xxx/JPY pairs and same pretty close value - about $0.095 USD for xxx/CHF pairs.

What I want to say is that you can always count on 1 pip being equal to roughly $10 cents every time.
This immediately should give you an idea that while trading with 1 micro lot you'll earn (or can lose) $1 dollar every 10 pips.
If you open 2 micro lots, you will earn (lose) $2 dollars every 10 pips.
Ok, can you, for example, take 3 micro lots and risk $3 dollars every 10 pips, which will bring you $100 profit/loss in just 35 pips? (Thinking of risks rather than wins is a proper strategy; $100 is 1/5 of your trading account.) Considering the numbers, you'll see that 3 micro lots isn't a safe bet with $500 account.

That's where you start, and that's how you progress, adding 1 micro lot at the time as your account slowly grows.

Happy trading!

[Ghaz]

hey Edward,

I am such an idiot!-I dont get it.
I understand your system and i can now calculate stop loss and with my new excel sheet i get the correct lot size, BUT i get another pip-value when i calculate it.
I learned to calculate the pip value i make the following (for jpy-pairs): 0.01/137.63(actually curse gbpjpy) * 1000 (for microaccount). I get 7,2 cents per pip as result.
Every site in the www. give me your result: 11 Cent. Also it is not 7.2 EUROcent^^-i checked it
Probably it is a digit error in my metatrader?-I hate this "one digit more" philosophy, because could it be, that i should give in 490 pips at my stop loss, when i only want to have 49?
I ignore the last digit, but is it also right when calculating everything?-i am so confused And i cant change this in the settings. For scalpers it is perfect to gain every 1/10 pip...but i dont need it!

please dont hate me

I attached this cool excel sheet. I like it.


Flo

[Edward Revy]

Hi there,

you're asking good questions.

When you have USDJPY, then your formula of finding out the pip value would be correct 0.01/137.63(actual rate for usdjpy) * 1000 (for micro account)

However, when you trade with cross-rate pairs, such as GBPJPY, you have to add one more step to the formula. That's because when you have an account in US Dollars and you want to buy Japanese Yen against the Pound (GBPJPY), you need first to buy the Pounds with your US Dollars (GBPUSD) and then, next step, using Pounds trade the Yen.

The formula you'd need would be:
GBPJPY pip value = GBPUSD current rate/GBPJPY current rate * 0.01 * 1000

------

With 5 digit platform, you have the last digit representing the 1/10 of a pip.
I must say that this 5th digit is a bit confusing for us traders, because we think in full pips, but have to trade counting the decimal pips as well.
For example, I want to place a 49 pips stop order:
- on 4 digit platform I'll put it exactly as 49 pips;
- on 5 digit platform I have to put it as 490.

Hope this helps. Happy trading!

[Edward Revy]

Here is a nice indicator to add to your MT4 charts, which will show the actual Pip value for each pair.

[Ghaz]

hey Edward!

I am so happy, that I understand now the system how it works
Thank you SO much!!!
I calculated everything first with my brain to check if the excel sheets works right. First of all i checked how much pips i can offer on my stop loss by risk capital/pip worth (great indicator ). For example 100 pips. Then the sheet told me, that i could risk a for example 1,06 lots.
1,06*100*pip value MUST be the capital i want to risk!

Is it ok to open a position just with this money management?-in most cases these stops (i only calculated by risk money) are at a fractal point for example.
Sometimes not. But risk IS the most important variable....not some fractals or other things!?

thanks for your wise comments


Flo


p.s.: My old problem with the digits is history. At Activtrades they have 5 digits,too.BUT when you give in your stop loss, you can say 100 instead of 1000.Pretty cool.
They have just 5 Digits at the chart. Your win pips have the right digits!!

[Edward Revy]

Glad to hear that, Florian

The risk IS the most important variable in the long run. We can compromise the money management rules in rare cases when we feel very strongly about the trade, but that's still a bad habit.
Think this way: if you start compromising with the stop distance because of the fractals one time, then because of something else another time, it could lead to a whole new trading performance. If you decide to stay aside and not take a trade when it doesn't meet risk management rules, that's a position - a choice where don't take unnecessary risks.

[Ghaz]

thanks Edward for your wise advise!!
I think I have now a good money management and I can calculate it. In most cases I take the daily average. It fits very well.

[KajolThappar]

Yes, I am check it and Its is right