Professional Currency Trading: Position Sizing

Amendments to last post. The goal for the past 7 weeks and 80 trades was a stop from 10 to 25 pips with a 50 pip profit target. Most trades had profit factors far greater than 50 pips but I didn’t run trades to full term for the sake of scores and for purposes of precision as I wanted a high Risk Reward Ratio. Roughly 60 or so trades were just so perfectly executed with 10 to 25 pip stops and 50 pip targets. This month’s trades were 31 for 1184 pips and my goal was 30 trades for 1500. The idea this month was less trades for more pips than last month. I chose about 8 currency pairs and followed those prices methodically up and down and I hit highs for longs then followed down for shorts.  I didn’t trade election returns cause it was to easy to earn pips and I felt it was cheating the professional score. Each trade had a goal. For example, multiple longs and shorts were taken in one currency pair. The 6 duds I traded were misses on multiple longs and shorts yet initial targets hit perfectly.

Position sizing is another must know concept to FX professionals and includes

1. Risk Size 2. Value Per Pip, 3. Stop Placement  4. Value of Pip moves. 5. # lots.

Risk Size. Question is what is the risk of an account or better stated how many pips to trade.  Answer: Currency denomination X 0.01 = 1% of account. The basics:

USD $5,000 X 0.01 = 50 pips to trade  at 1%. $5,000 X 2% or 0.02 = 100 pips to trade. $5,000 X 0.03 = 150 pips to trade. $5,000 X 0.04 or 4% = 200 pips to trade. Suppose 10%. $5,000 X 0.10 or 10% = 500 pips to trade. 20%, $5,000 X 0.20 = 1000 pips to trade.

Note percentages. Its the secret to currency trading profits. How much will a $5,000 account grow at 1% and 50 traded pips and how many overall trades. For beginner’s, its perfect. For skilled, not good. I’m deviating a bit from the overall theme of this post to add advice.

2. Value Per Pip.  USD 1% at 50 pips for a 200 pip trade = 0.25 by 50 Divide 200. USD 1% at 50 pips for 150 pip trade = 0.33, 50 divide by 150. 50 divide 100 pip trade = 0.50. USD 1% at 50 pips for 20 pip trade = 2.5

USD 2% at 100 pips for 250 pip trade = 0.40. USD 2% at 100 pips for 200 pip trade = 0.50. USD 2% at 100 pips for 150 pip trade = 0.66. 100 Divide 100 = 1.0.  USD 2% at 100 pips for 50 pip trade = 2.0.

Pip Moves. For EUR/USD 1 divide by 10,000 = 0.0001. Every currency pair has a different pip value. EUR/USD is always offered in examples because its easy. What 0.0001 equates to is 1 pip or 10,000 x 0.0001.  USD/JPY I believe trades at pip values at 0.88 so 1 divide by 100 = 0.01.

Lot Sizes. Per Pip X 10,000 then divide by 1. Assume $5,000 at 1% = 50 pips. A 200 pip trade = 50 divide 200 = 0.25. Lot size = 0.25 X 10,000 divide by USD 1 = 2.5 lots.

Stop Placement. The risk is 50 pips therefore stop is placed at 50 pips or 50 pips from entry.  An imperative is know entry and exit before the trade.

I will expand on the above rules and principles in next post to offer advice and more examples. Also, stops and stop placement will post.

 

Brian Twomey, Inside the Currency Market, btwomey.com,

 

 

 

Professional Currency Trading: Expectancy

From introductions 7 weeks ago to serious FX professional currency traders and 7 weeks of 80 + scored trades under intense statistical and FX rigor, my scores were not only good and high but I entered the rankings and qualifications  of a professional currency trader. Humbly speaking, I knew I was good but the question how good was answered. I’m astounded, elated and thrilled. More thrilling is I was accepted to become a professional trader and I will be trading for “others”. More details as time progresses. Long time friends and followers would know special thanks to my sincere friend with 43 consecutive years of FX trading and experience at high levels of corporate and bank treasury Depts.  As I’m able, scores, trades, results and deep trade details will post here soon.  From the Forex Gods, James 4;2 V James 4:3.

Part of professional trade scores fall under the concept of Expectancy. Expectancy answers 1. What is the mean of trade results, above = profit, below = loss. 2. Most important is how reliable is the trade strategy. 3. Expectancy provides profit forecasts.

4 Data Points to Expectancy. 1. Number of winning trades. 2. Number of losses. 3. Amount of money won. 4. Amount of money lost.

Net Profit = Amount of money won minus amount of money lost. My Net Profit was very high each month and overall.

Win Rate = Number of winning trades divide Total Trades. Win Rate at 75 % – 80% for 1st month dropped to about 70% ish as more trades were taken. First month = 43 winner trades. Second month = 31 winner Trades. 6 Duds trades. 1 trade was ongoing as results were tabulated. These numbers are considered very high by Fx Professionals.

Loss Rate = 1 minus win rate.

Average Winner = Money won divide Total Trades Won.

Average loser = Money lost divide by total losses.

Average Reward Divide by Risk = Average Winner Divide by Average loser.

Expectancy Forecasts.

Expectancy Per Trade = Win Rate X Average Winner Minus Loss Rate X Average Loser.

Or

Expectancy Per Trade = Net Profit divide by Total Trades.

Expectancy Per Month ( Forecast Profits) = Expectancy Per Trade  X Average number Trades per month.

Expectancy Per Amount of Money Risked =  Net Profit divide Average loss. Answer = Answer divide by Total number of Trades.

Next Articles:  Position sizing, money management, Risk Reward, Pip Values, Pip Values Per Currency, Pip Values USD V EUR V GBP. Equity and % Risk per Trade. Here answers how to trade professionally by money management standards.

 

Brian Twomey, Inside the Currency Market, btwomey.com