Position Sizing

[Position Sizing]

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

[Position Sizing]

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

[What Do You Trade, and Why?]

What do you trade, and what are the factors that led to that decision?

 

I trade stocks, my reasoning is (admittedly) stupid. Stocks are all I know.

 

I'm looking forward to hearing why some people trade stocks, choose not to, why they choose to trade other instruments. I think this discussion could provide a lot of insight on the characteristics of these instruments.

 

Hi Firm Biz,

 

I must say I am 100% spot forex. Reasons: you cant beat the leverage, I can make 20 pips a day scalping, and that is all i need. I can do it in under two hours, (sometimes I get it in minutes). No need to trade another market for me.

 

Also, by scalping, I do not need to watch the market all day, my system provides several entries in a two hour period, so I can trade what i see, then shut down and spend time with my family (that's what its all about, right?)

 

...good trades,

Sam

[How I Would Charge for a Trading Course/system]

MM,

 

Since they are your idea, why don't you perform the tests, then post the results, and show us what you mean? It would do this forum a great service. I would love to see how a child's random scribbles can be turned into a successful trading strategy.

 

I never said I didn't consider what other traders are doing, I just said that the example you provided, where the market runs out of buyers and sellers does not happen in the forex market. The day forex liquidity dries up is the day the world stops turning, that is the day that international business comes to a halt, if that happens, then there will not be liquidity in ANY market.

 

To address your point about for every winner there is a loser (still not sure how this affects your success)...

 

If what you are trying to say is that there is a finite currency supply (the market) and that supply is continually being redistributed between the players, then yes, I agree, But to say that your winning trade is another traders losing trade I believe is incorrect.

 

Think about this, if you open a trade against another trader, then when you decide to exit, why doesn't the trader on the other side of the trade get to choose when he exits? Why would you get the privilege to decide when to close the trade? The truth is, your entries and exits are matched up against different trades. If you are Long Eur/Usd, you have to "sell" to exit. so when you exit someone else has to "buy" it. That "buy" could be someone closing a short trade (for loss or profit), or it could also be someone else opening a new long trade.) each trade is not a head on battle with another trader. I would characterize it more as everyone vs. the market.

 

Of course not everyone can win, there will always be losers, and there is no such thing as a 100% trading system, you will always have losers, it is a part of trading, it's about having more winners than losers and managing risk.

 

 

Sam

[How I Would Charge for a Trading Course/system]

There is also the issue of getting a feel for live trading. It's like learning to ride a bicycle with training wheels attached. I guess that's kind of a "wimpy" image for the macho and egotistical world of trading.

 

There is no place for ego in the market..

[How I Would Charge for a Trading Course/system]

OK. Which Fibonacci level works? And If they work, then why would they be any different than levels drawn on a chart by a child with crayons? Price reacts at every single tick or pip. You can choose to assign meaning to it or not. Your child's crayons would be just as effective as trading Fibonacci levels, so what is the benefit of signing up to provide you with satisfaction when we could have our child draw on our charts and give them the satisfaction that you seek?

 

Your idea of someone not needing to be a loser is somewhat flawed or at least not well thought out. If you enter long and, as you say, an institution is taking the other side of the trade and could care less that you are trading because they are simply liquidating a position as a result of commerce, then when you and your other traders need to sell, who are you going to sell to? If you are doing this for 5 years, you should know that you should not enter a trade unless you are pretty sure that someone is going to be willing to pay you for the risk you are taking. It sounds like you willfully paying someone else. If you can't identify who the loser is going to be, then the likelihood is that you are the loser in the trade. Do you enter trades based on hope and magic?

 

I will give you a simple example. If your group and I are the only traders trading and I am an institution squaring my books and you buy all the currencies I have, then who do you sell too if I never intend on buying back?

 

MM

 

 

MightyMouse,

 

Great questions...

 

Fib levels do work and I am pretty sure there is wide agreement in the trading community about the effect of Fibonacci levels on price action, but no reason to take their word for it, I also need to experience things first hand before believing them. I'll start a thread on fibonacci levels and post some charts that illustrate. (hopefully this week).

 

When when you will be able to post your charts showing the effectiveness of a child's crayon? ..jk. No, seriously, a child drawing lines on a chart is an ineffective foundation for a trading strategy.

 

Concerning your "mini market" example about a situation where there is only 1 institutional trader and 1 group of retail traders, and the retail group gets stuck when the institiutional trader decides not to buy or sell, essentially "freezing" the market. This was my point in earlier post.. This situation could not happen in forex. The market is too large, there are buyers and sellers at every price, the market does not "freeze" (unless some global crisis were to occur). And worrying about an event that has such a small chance of occuring is just a waste of energy and can only prevent you from becoming a better trader.

 

This is when I say, at some point one must let these ideas go and start becoming serious about trading. There are many ways to trade a market.. fundamentally, technically, scalping, swing trading, using MACD's, using fibs, ichomoku clouds, (some even children's crayons). Many of these work, if you think it is possible to have a successful trading career, then start learning about a style that interests you, find someone who is trading that style and learn it, trade it on demo, stick to it, and decide if its right for you. But you can't sit on the fence worrying about hypotheticals forever, in the meantime, I'll be making pips!

 

...good trades,

Sam

[How I Would Charge for a Trading Course/system]

This is something I would think lots of people, especially beginners, would be interested in. Is your screen projected in real time so that viewers could just follow your trades and do exactly what you are doing?

 

Exactly tradewinds, some traders are content just following and making pips, but I encourage them to learn, because I am giving guidance every second, I post recordings of my trading sessions on my site, so you can get a good feel for my trading style even before a potential trader starts their trial period. My site is ForexMalibu.

[How I Would Charge for a Trading Course/system]

The topic is interesting because there are extreme conflicts. Why would anyone with an excellent system want to sell it? That doesn't make any sense to me. It brings up issues having to do with the intentions of the person selling the system, indicators, services, subscription, etc. One motivation a successful trader might have to make information available to others, would be a way to boost their ego. But there may be a certain degree of goodwill also. And I have read posts from people who stated that they had been helped in the past, and wanted to "give something back" to the trading community. So what motivates someone to put together a blog, subscription, indicators, or a system, could be a mix of motives and intentions. Effort needs to be exerted, and some wisdom employed, in order to determine what a person's intentions are.

 

One point that I am trying to make, is that for me personally, I want to have good intentions and a high standard of behavior. On the surface, having a 110% money back guarantee seems naive, and doomed to failure. And obviously, under most situations, a 110% money back guarantee would be foolish to offer. But consider if the sale were combined with a method of trying to filter out people who were not good candidates, plus a mentoring system, that might be a basic foundation for a way to increase the odds of success.

 

I don't have any plans to sell a trading system or trading indicators. What I'm saying is, that IF I were going to do that, then I would want to do business at a very high moral and ethical standard. That's the way I want to live me life, and that's the type of person I want to be.

 

Great conversation..

 

This is a common curiosity.. everyone wants to know why successful traders will share their systems..

 

First, you are not hurting your strategy by sharing.. If anything you are helping it.. For example, the reason fibonacci levels work so well is because everyone uses them. They are a self fulfilling prophecy so to speak, so if you can build up a group of traders all buying together, they will all help their positions, because buying makes price go up.

 

For those that claim that it wont work because their must be a loser on the other side is not realizing how big the market is. Not all transactions in forex are speculative traders, most transactions are actual commerce that is happening between large corporations, banks, and financial institutions who have very different reasons for making a forex transaction.. they could care less about some successful trader's strategy. So the idea of everyone being on the same side of a trade is impossible, unless you could persuade George Soros to follow your trades (ain't happenin')

 

To address the motives of any one "selling" a system, there are many reasons, one happens to be diversification of risk. It does not matter how successful a trader is, he will tell you that "not at risk" money is superior than "at risk" money. In my case, It is easy, I trade everyday, so why not project my screen through an online traderoom for the benefit of other traders and do what it is that I am doing anyway, TRADE! It's just efficient, plus I get the satisfaction of helping others and make connections with people all over the world.

 

Forex Education is an industry and the poor ones get weeded out in due time. I am proud to say I have been doing this publicly for over 5 years and have yet to receive a negative review.. you can google me

 

However, my whole point is... the skepticism is understood.. there are a lot of scams out there, but you will not know until you do your due diligence and then actually give one a try. You will make mistakes, and hopefully, you will learn from them.. But, at some point you have to let it go... and start getting serious about trading..

 

And in my opinion having a mentor or coach is a necessary step.. There are things that cannot be learned in a book, dvd, or online course, many things must be learned by watching live traders trade a live market..

 

...good trades,

Sam

[How I Would Charge for a Trading Course/system]

Thanks Steve,

 

still havent got the backlash yet, but I welcome the debate..

[How I Would Charge for a Trading Course/system]

Tradewinds and Mighty Mouse,

 

Good conversation, But you are missing one perspective, that of the forex mentor...

 

Consider this..

 

A professional sports team holds spring training try outs. This professional team has the best coaches money can buy, who have developed the best curriculum (training program) possible, using top of the line equipment and facilities. However, of all the pro athletes in attendance, some will be all stars, some will be second stringers, and yes, there will be some who frankly get cut from the team.

 

for those athletes that get cut, who's fault was it? was it the coaches? was it the equipment? No. The difference is INSIDE EACH ATHLETE. You see there is a level of personal responsibility that comes with learning a new skill and then using that skill to achieve success. maybe it's perserverence, maybe discipline, who knows? it's different for everyone.

 

I guess what I am trying to say is that it is not about the system, it is about the INDIVIDUAL TRADER, a good trader can make almost any system profitable, but a lousy trader will lose money with a profitable system. So it is noble of you to offer 110% refund, but you would be making the mistake of believing that YOU can single handedly make someone successful, and that is simply not true.

 

Does Harvard give you a refund on your tuition if you are not successful in the career of your degree? Not hardly. But do you doubt the credibility of that school? of course not.

 

Some people are just not cut out to be traders. and if you offer unrealistic refunds, you will be out of business and will not be able to help anyone.

 

Just my two cents...

 

...good trades,

Sam

[Which Trading Platform is Better..I Need Play Money to Trade]

The short answer.. Any broker will give you a demo account to trade (thats the "play money" you are looking for.) As far as platforms go, you just have to experiment. they are all different, some of the more popular ones are mt4, and tradestation, but each broker will have their own variation.

 

Of course the other option would be to find a third party signal provider with their own platform and just use your broker's platform for the BUY and SELL buttons..

 

personally I think the best platform out there comes in the form of Dynamic Fibonacci grids. I have been using them for over 5 years and use nothing else besides them. They work great especially for intraday scalping and shorter term swing trades.

 

 

...good trades,

Sam

[Order Execution Question: Lots or Odd-lots?]

Hi Avarice,

odd lots shouldn't be a problem since there are so many traders trading minis and micro lots. It is easy for a broker to match up the orders. as far as your stop being a MKT order, that is standard, stops are usually (if not always) a market order, which does, as Negotiator correctly pointed out, expose you to more risk in volatile market conditions...

 

...good trades,

Sam