[carltonp]

Hello Fellow Traders,

I'm not sure if I'm phrasing this question correctly, but here goes.

As you'll probably guess from the following question, I'm fairly new to trading.

Over the last 10 weeks, 02/22/2011 to 04/01/2011 I have placed 46 trades. I currently trade equities.

Sixty one percent of the trades closed at a profit. However, the Pay-off Ratio is terrible, 0.64.

At the moment, I'm risking $100 per trade with R/R of 1:5. So for every $100 I would like to achieve $150. I size my trades purely on how much I would like to risk and how much I would like to gain. Therefore, the number of shares I purchase would be determined on this factor alone.

I would say that most of my winning trades close for about $100 and my losing trades stop me out at $100. The reason why I mention that is because it would seem the poor pay-off Ratio is partly due to taking profits before they reach $150 but always letting my losses run until they stop me out at $100. However, I don't believe that is the major reason for the poor pay-off ratio.

I believe the major reason for the poor pay-off ratio is due to bad position sizing. The problem is I don't know the best way to size my positions, other than how much I'm will to lose and how much I want to gain.

Another option is to stop trading equities and start trading another financial instrument.

If any of you guys/girls can give me some advice on position sizing and what instruments you think are better traded than equities (bearing in mind I'm a relatively new to trading) I would be very grateful.

Cheers

Carlton

[shakespeare515]

Originally Posted by carltonp »

Hello Fellow Traders,

I'm not sure if I'm phrasing this question correctly, but here goes.

As you'll probably guess from the following question, I'm fairly new to trading.

Over the last 10 weeks, 02/22/2011 to 04/01/2011 I have placed 46 trades. I currently trade equities.

Sixty one percent of the trades closed at a profit. However, the Pay-off Ratio is terrible, 0.64.

At the moment, I'm risking $100 per trade with R/R of 1:5. So for every $100 I would like to achieve $150. I size my trades purely on how much I would like to risk and how much I would like to gain. Therefore, the number of shares I purchase would be determined on this factor alone.

I would say that most of my winning trades close for about $100 and my losing trades stop me out at $100. The reason why I mention that is because it would seem the poor pay-off Ratio is partly due to taking profits before they reach $150 but always letting my losses run until they stop me out at $100. However, I don't believe that is the major reason for the poor pay-off ratio.

I believe the major reason for the poor pay-off ratio is due to bad position sizing. The problem is I don't know the best way to size my positions, other than how much I'm will to lose and how much I want to gain.

Another option is to stop trading equities and start trading another financial instrument.

If any of you guys/girls can give me some advice on position sizing and what instruments you think are better traded than equities (bearing in mind I'm a relatively new to trading) I would be very grateful.

Cheers

Carlton

Hi Carlton,

I think a good amount to risk is somewhere between 1-4%, depending on the trader.
If you are new, you should STILL BE ON DEMO until you develop some consistency, but when you start to, then maybe just start at 1% (it's not sexy, but you must keep your risk low in the beginning.

To calculate your lot size, do the following..

Example account size $1000:

• Identify your trade including stop loss and target.

• If your stop loss is 100 pips, and you only want to risk 1%, then you must make 100 pips = 1%.

• 1% of $1000 is $10, so you cannot risk more than $10 on this trade, so you must divide the $10 into 100 pips..

$10/100 pips = 0.1 $/pip

what size lot will give you $0.1 per pip?

Answer: 1 micro lot.

So on a trade with a 100 pip stop, witha $1000 account and 1% risk..
you should trade 1 micro lot,

If you were risking 2% you could trade 2 micros,etc.

Hope this helps,
Sam

[shakespeare515]

All that was assuming you are talking about forex, of course..

[carltonp]

Hi Sam,

That helps immensely. I will take your advice and use your example with my future trades.

Cheers mate...

[TheNegotiator]

Hi carltonp,

First of all, welcome to TL! If I understand what you are saying correctly, you have made about $1000 pre-commissions. If that' the case, and your commissions are not putting you under water, it's not bad at all. Most noobs are expected to lose money to begin with. One thing I'd definitely note though is the that although you are on the face of it trading profitably, a 1:1 risk:reward ratio is probably not going to be especially great in the long run when you are only taking 1 trade in 5 as overall profit(3 win -2 lose). So I think it's worth taking a look at your strategy again and analysing whether or not your winning trades usually continue in the same direction and what the normal MAE (max adverse excursion)of those winners is so you are efficiently placing your stop at the point where you are wrong. In the case of where you take profit, it may or may not be appropriate to scale some of your position off in order to let it run further but with lower risk and trail your stop. However, this of course depends on the market you trade, the strategy you employ and your commission structure. The other thing is you should really keep updating your analyses as 46 imo is probably a bit of a small sample size.

[MightyMouse]

Carlton,

Its all going to depend on what you are trying to accomplish, what your risk tolerance is, and the size of your account.

A 1 to 1.5 R/R is mathematically a valid R/R depending on your percentage winners. To get the 1.5 reward, you are going to have to leave the position on and not second guess the success or failure of the trade before it succeeds or fails. The fact that you have pulled the trade at 1 to 1 is actually reinforcing a bad habit. You have to let it stay and figure out the real success rate of the method you are using. If you are trying to do a stop or target method, then leave the computer and let either the stop or the target to get hit.

If you continue pulling the trade before the trade is over, your size winner will begin going down even though your percentage winners remains high. You will be frustrated because you are mostly correct, but you are losing money. I have lived this. Lots and lots of traders have. The sooner you fix this the better.

I literally walked away and came back 15 minutes later. While i was away, I simply accepted the fate that I would find when I get back. When I got back most of the time it was still at my entry even though I thought i was stopped out. I would leave again until i was filled one way or the other. It was great. It was like a grieving process for the death of fear. Soon I was able to just sit there and not think about it and follow my trade.

If you are going to trade live, risk as little as you possibly can until you can turn a profit. You won't miss much if you risk less than 100. If you miss out on trades that make 150 gross per trade, you aren't missing much anyway, but if you are trading with a small account, 100 could do damage pretty quickly.

Good luck

MM

[carltonp]

Negotiator/MightyMouse,

Thanks ever-so-much for responding.

I'm reading and re-reading your comments before I respond.

In the meantime, are you guys essentially saying the issue isn't necessarily position sizing but having the courage to let my trades continue to my profit target?

To be totally straight with you, what I've been doing is letting the price go beyond 1:1 target of $100. Once it goes past the price by say 5 ticks I'll raise my stop to $100. The thinking behind that is if the price goes down to my newly raised stop its going to to down much further - and almost every time it does and I just come out with $100 instead of my target of $150.

I know the last statement is poor grammar but does that make sense?

Negotiator, thanks for welcoming me to TL.

Cheers

[carltonp]

Sam,

I did mention that I trade equities, not forex. Therefore, your sample may not relate to me?