money management
Micro-accounts and money management
Hello Everybody,
Today I received an email for the weekly example of trade from Vic Noble, this video talk about micro-accounts and money management.
To be honest this is the first time I get the importance and advantage of using micro-accounts when we don’t have thousands and thousands of dollars in our account.
Basically this type of account let us to have a reasonable Stop Loss distance , let’s say 20 to 30 pips (from support or resistance,my personal advice is not taking those numbers randomly), trading 5 lots will allow us to still making interesting profits ($.50 per pip).
Please watch this video carefully, pause it if necessary, take notes, make your numbers and you’ll decide for your self.
Please notice I am not making any publicity for the “London close Startegy” , this post is only trying to emphasize the advantage of using microaccounts !
Cheers!
Max Ramirez
Risk of Ruin Table
Hello Traders,
It is said that Trading/Investing and Gambling are the same, well they might have similar characteristics, one of them and probably the main one is that they both are based in probabilities.
And that is exactly what make them different as well, in Trading/Investing a trader might put more probabilities on his/her side by choosing carefully his/her entries and exits points based on proven methodologies or systems and not just letting things happen by chance.
Mathematicians have developed formulas to calculate the risk of a gambler or trader for this matter to get ruined, these formulas are based on statistical data such as:
- Win Ratio – The percentage number of winning trades
- Payoff Ratio – How many dollars you earn compared to one dollar lost
- Percent of capital exposed
Here you have a Risk of Ruin Table considering that the trader is exposing 10% of capital on each trade .
| Risk of Ruin Probabilities | Payoff Ratio 1 to 1 | Payoff Ratio 2 to 1 | Payoff Ratio 3 to 1 | Payoff Ratio 4 to 1 | Payoff Ratio 5 to 1 |
|---|---|---|---|---|---|
| Win Ratio 25% | 100 % | 100 % | 99 % | 30.3 % | 16.2 % |
| Win Ratio 30% | 100 % | 100 % | 27.7 % | 10.2 % | 6.0 % |
| Win Ratio 35% | 100 % | 60.8 % | 8.2 % | 3.6 % | 2.3 % |
| Win Ratio 40% | 100 % | 14.3 % | 2.5 % | 1.3 % | 0.8 % |
| Win Ratio 45% | 100 % | 3.3 % | 0.8 % | 0.4 % | 0.3 % |
| Win Ratio 50% | 99 % | 0.8 % | 0.2 % | 0.1 % | 0.1 % |
| Win Ratio 55% | 13.2 % | 0.2 % | 0.1 % | 0.1 % | 0.0 % |
| Win Ratio 60% | 1.7 % | 0.0 % | 0.0 % | 0.0 % | 0.0 % |
Note that 0.0% probability means the total loss of equity is unlikely, but not impossible.
Hope this information will help you develop a sound Money Management system that cosiderably will reduce your Risk of Ruin!
Remember, rule #1 Don’t loose money and rule #2 Don’t forget rule #1.
Cheers for now,
Max Ramirez
sniper@sniperforextrader.com
Lot size Calculator
Hello traders,
Today is a great day, I just started using a sound Money Management/Risk Management system in my trading desicions.
After reading few chapters of the book “Trader’s Money Management System: How to Ensure Profit and Avoid the Risk of Ruin” I learnt how to profit in the markets and still keep a tight 2% of my trading account at risk in any trade.
I had to make some adjustments in my trading system, basically I am now trading in the 5 min chart which allows me to risk no more than 20 pips, If I find a candlestick signal in 15 min chart that is not bigger than my 2% rule sure I’d take it.
Now, first thing to do is to determine the 2% of my trading account (which is not very big for now to be honest), then once I got an entry signal I calculate the number of lots I can trade, this is determined by my Stop Loss point and my 2% capital risk that will let me know how agressive I can be on this particular position.
For example, let’s say my SL is of 15 points, if my 2% capital risk equals $20 then I will trade just one single lot.
But if I get an entry where my SL is of 7 points and still my 2% capital risk is $40 then I might trade 2 lots, which will increase my profit and still I’d keep a 2% of capital at risk, amazing eh?…at least I am very excited having this knowledge now!
Mr. Bennet A. McDowell sells his risk calculator for $198 usd, I have stolen his idea and created my own lot size calculator , which you can get for FREE here!
Just download the file from Google documents and modify it depending on your risk %, capital, etc..
Notice that this lot size Calculator is just for Forex.
Hope you’ll find this tool useful and take advantage of it as much as me!.
Cheers for now,
Max Ramirez,
send your comments at sniper@sniperforextrader.com
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