MONEY MANAGEMENT FOR SCALPING????
Posted: Tue Apr 06, 2010 5:02 pm
I have a good question that has been bugging me for some time. I am familiar with risk/reward and money mgmt for longer timeframes but where does it go for scalping? I see risks between 1 and 4% per trade in most guidelines but this is longer term trading.
Firstly, I use Walter’s VMA scalping system as linked here: http://forex-strategies-revealed.com/sc ... end-trades
I subscribe to his theory of 10 pts per day as I have long ago found out that the smaller trades have a much higher probability. And that 10 pts doesn't mean in one trade either.
Let me give some numbers. Firstly I get about 75% hit rate, R:R of 1:1 with a 5 pt SL and PT. I set my daily risk to 3% and weekly to 10%.
Here is the problem. If I get 75% hit rate, then 4 trades gives me my 10 pts. (3 wins 1 loss, SL and PT of 5 pts, so it’s 10 pts.). It means that I am making 2% per day. This is on high probability trades, not flyers. Non-compounded, this means 40% per month. If I compound daily or even weekly, it looks more like 50%. I am no Market Wizard, (maybe for the next edition) so I think that appears a little too much.
What it means to me is that for an account of $5000 I can take home $2000 + per month. I do this in about an hour per morning.
The difference between scalping and position or swing trading is that time is compressed. I get higher probability with a smaller RR ratio but more trades per week. Using the same risk of 1%, I have to use much smaller lots for long term trading due to the larger SL needed.
I guess what I want to know, I think it was Alex that was the scalping expert, but I am asking anyone, is this in line? And I am referring to the risk. It may seem to be too good to be true but I want to know from a real scalper what they are doing.
All comments welcome.
Grant
Firstly, I use Walter’s VMA scalping system as linked here: http://forex-strategies-revealed.com/sc ... end-trades
I subscribe to his theory of 10 pts per day as I have long ago found out that the smaller trades have a much higher probability. And that 10 pts doesn't mean in one trade either.
Let me give some numbers. Firstly I get about 75% hit rate, R:R of 1:1 with a 5 pt SL and PT. I set my daily risk to 3% and weekly to 10%.
Here is the problem. If I get 75% hit rate, then 4 trades gives me my 10 pts. (3 wins 1 loss, SL and PT of 5 pts, so it’s 10 pts.). It means that I am making 2% per day. This is on high probability trades, not flyers. Non-compounded, this means 40% per month. If I compound daily or even weekly, it looks more like 50%. I am no Market Wizard, (maybe for the next edition) so I think that appears a little too much.
What it means to me is that for an account of $5000 I can take home $2000 + per month. I do this in about an hour per morning.
The difference between scalping and position or swing trading is that time is compressed. I get higher probability with a smaller RR ratio but more trades per week. Using the same risk of 1%, I have to use much smaller lots for long term trading due to the larger SL needed.
I guess what I want to know, I think it was Alex that was the scalping expert, but I am asking anyone, is this in line? And I am referring to the risk. It may seem to be too good to be true but I want to know from a real scalper what they are doing.
All comments welcome.
Grant