Do You Still Lose?
Position Sizing and Trade Management in Forex
Hello 
Last night signals made 215 pips. The GBP/CHF could also make 100 pips easily but was stopped by the trailing stop with 15 pips. It is not a problem. I have some strict rules about setting stop loss and trailing stop that I never ignore. Although sometimes they keep me from making more profit, sometimes they also keep me from losing a lot. When you believe in your system and rules don’t make any exceptions and be happy with the result. This is called “discipline”.
What about the tip of the day for today? Before I give you the tip of the day I want to tell you something. I have noticed that some of you just open this website and look for the signals to take the positions and don’t care about the trainings and tips. It is up to you but try to read them please. I spend my time to share something with you and I like you to read and learn them.
For the tip of the day, I was supposed to talk about the physiology of trading. I will do that for the next days but today I prefer the tip of the day to be the comment that my new friend Ivan, who is much more experienced than me in trading and life and …, has posted for the yesterday signals because it is about money and risk management which is very important.
Thanks Ivan for the heads up!
Ladies and Gentlemen! I am delighted to introduce Ivan from Australia with risk and money management in forex.
Here is his entire comment without any changes by me:
============================================
Please permit me, at your discretion, to provide some assistance for those who may be having some issues with position sizing and trade management. I would be happy for you to edit or provide guidance where necessary.
Today we had three trades for three wins, and out of the three, two were straight forward entry-and-exit profits of 100 pips each. The third trade – the GBP-CHF was most interesting.
After entry at 1.6168 at 0030 hrs 28th January 2009 GMT, the trade went to within 3 pips of target, before retracing to hit the trailing 80-pip stop loss. The price then dropped to 1.6130 before rallying to more than 1.6340 as I write. The trailing SL ensured we made 17 pips on the trade. I am talking paper trading, so spread may not be included examples only.
Today therefore, delivered to us a 217-pip profit. But how do you manage to trade these to best advantage? May I suggest the 2% rule is very good to maximize your profits, and protect and preserve your account.
More aggressive traders, who know what they are doing, and understand the accuracy of Forexoma’s selections, might prefer to work on higher percentages – such as 4% or 5%. I personally do not recommend such an aggressive approach until you have been trading successfully for some months. Patience will not only keep you in this business safely, but your account will also STILL prosper.
At the same time you are building experience. Traders should not be sitting back simply taking the signals. They should be using this gift of time and mental peace and relaxation to thoroughly read this site through from beginning to present day, and discover how to trade these currencies independently.
This is the gift that is being handed to you right now … today. Do not neglect your own instruction and education. In time you should be able to choose your own signals with the same accuracy as Forexoma.
So theoretically let us choose a $5000 account – I will use percentages, so you may apply the figures to whatever size account you have.
2% of $5000 is $100, and this is your risk.
Your risk is the amount of money you will lose if the Stop Loss is hit.
Your SL needs to be calculated so as to allow you to maximize profits and minimize risk.
Your total risk today would be $300 which is the total for the three trades offered. But this will be true only if you place your SL within 100 pips of entry.
In reality you may need to risk double that amount in order to keep your trade safe.
There is also no need to sit by and watch as a failed trade goes right through to your SL.
If you learn how to manage a trading position, you will be able to exit much earlier, before the price hits a SL.
Using a standard $10-per-pip account, you are only able to have your stop loss placed 10 pips away.
This is not practical nor within the rules of this strategy, so for small accounts there are two choices:
a) Either increase the percentage at risk which is highly dangerous to your account and not recommended … or …
b) Move to a mini or account at which each pip is worth $1.
Even then, the SL will only allow 100 pips, so although Forexoma has recommended much longer SL placement, this method could be very suitable provided you are willing to monitor the trade.
One further option is to move to a micro account – and many people already utilise this strategy with small accounts available.
Keep in mind that this is not a scalping strategy in any way, and therefore you should expect to need much larger SL.
You may not agree but it is possible to use the ATR indicator to calculate SL, if a factor of 1.5 times ATR (Average True Range – or Average Trading Range for the Time Frame traded) is used.
There will be times when even this is not large enough, and your trade will still be stopped out.
Let’s look at the interesting trade today - the GBP-CHF.
The ATR on the 4H TF at the time of trade placement was 128 pips.
1.5 x ATR = 192 pips.
Forexoma recommended a SL of 491 pips or 3.3 x ATR.
You may be thinking: “I can use leverage to make more money†but the use of leverage only allows you to trade MORE LOTS – it does not allow you to place cheaper SL.
This happens because brokers usually require you to trade a minimum 1 lot, and you can add fractions of a lot to the minimum – eg 1.3 lots, but not 0.7 of a lot.
The alternative would be to trade micro lots and then trade 5 lots of micros.
This equals 0.5 mini lots, and is one way around the problem of trading less than one whole mini lot. I hope that can be understood.
Whichever method you select – use it all the time – do not chop and change around, or your trading will become erratic and very inconsistent.
Find something with which you are comfortable, and stay with it. Before you decide to change something, test it thoroughly first.
It may well be that your method is not perfect, but still does safely bring in the pips.
Preservation of your account is more important than profits, so this situation highlights the need to be properly funded if you expect to trade Forex successfully.
Let’s continue for now with these figures, and we can perhaps discuss the way around this problem as we proceed, and some feedback from Forexoma or other members comes to us.
If we enter this trade on a $5000 mini account with a SL of 491 pips we are in fact trading with a risk of 9.8%.
Even using a SL of 192 pips is a risk of 3.84% and the trader will either need to fund the account with more money, or drop down to a smaller SL or trade a micro account.
The GBP-CHF went to within 3 pips of our target today, before retracing to be taken out at 1.6185, delivering us 17 pips.
We could only watch while the retracement went below our entry to 1.6130 – hopefully members took Forexoma’s advice and used the trailing stop to prevent this situation.
Otherwise losses would have been around 38 pips. The trade later recovered, but it would not have been consistent with our strategy to have taken advantage of this recovery.
Experienced traders may have managed their trade using their own methods, and made an exit before the trailing stop was activated.
That is why I emphasize the need for traders to properly educate themselves, and not rely totally on being spoon-fed.
The education you give yourself will repay you many times over, for your effort.
Ivan
Australia
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Today signals will be posted in the below table at 17:00 EST which is 22:00 GMT. Make sure to be on time!
Announcement (01:41 GMT, 29th Jan): Ok! We are done for tonight. No more orders. Click here if you are late.
|
Note: |
||||||
CP |
What to Do? |
Entry Price |
Stop Loss |
Trailing Stop |
Take Profit |
Results |
EUR/USD |
- | - | - | - | - | - |
GBP/USD |
- | - | - | - | - | - |
USD/CHF |
- | - | - | - | - | - |
USD/JPY |
Buy (23:05 GMT, 28th Jan) | 90.40 | 88.61 | 40 | 90.90 | -179 (15:24 GMT, 3 Feb) |
|
|
||||||
USD/CAD |
- | - | - | - | - | - |
USD/SGD |
- | - | - | - | - | - |
USD/NOK |
- | - | - | - | - | - |
USD/SEK |
- | - | - | - | - | - |
USD/DKK |
- | - | - | - | - | - |
|
|
||||||
EUR/JPY |
- | - | - | - | - | - |
EUR/CHF |
- | - | - | - | - | - |
EUR/GBP |
- | - | - | - | - | - |
EUR/AUS |
- | - | - | - | - | - |
EUR/CAD |
- | - | - | - | - | - |
EUR/NOK |
- | - | - | - | - | - |
|
|
||||||
GBP/JPY |
- | - | - | - | - | - |
GBP/CHF |
- | - | - | - | - | - |
GBP/AUS |
- | - | - | - | - | - |
GBP/CAD |
- | - | - | - | - | - |
|
|
||||||
CHF/JPY |
- | - | - | - | - | - |
CHF/SGD |
- | - | - | - | - | - |
|
|
||||||
CAD/JPY |
Buy (22:31 GMT, 28th Jan) | 74.63 | 71.82 | 80 | 75.63 | -281 (10:06 GMT, 30th Jan) |
CAD/CHF |
- | - | - | - | - | - |
|
|
||||||
AUS/USD |
- | - | - | - | - | - |
AUS/JPY |
Buy (22:58 GMT, 28th Jan) | 60.25 | 57.27 | 80 | 61.25 | -298 (10:06 GMT, 30th Jan) |
AUS/CAD |
- | - | - | - | - | - |
AUS/CHF |
- | - | - | - | - | - |
AUS/NZD |
- | - | - | - | - | - |
AUS/SGD |
- | - | - | - | - | - |
|
|
||||||
NZD/USD |
- | - | - | - | - | - |
NZD/JPY |
- | - | - | - | - | - |
|
|
||||||
SGD/JPY |
- | - | - | - | - | - |
|
Total: |
-758 |
|||||
Further Reading:
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leaving our website, please take a look at the other articles we have published.
Hi,
Thanks Ivan, I must say that I have seen my trading ability improve as I have taken the time to look at Forexoma’s trades and attempt to interpret what made Forexoma choose those trades. I have been practising a lot on my practice account and have seen my success rate climbing steadily. I have actually been surprised by the amount of improvement. i cannot emphasise enough how true your comments are on taking the time to learn from those that know what they are doing. I have asked Forexoma questions that have intrigued me and he has always been most helpful.
Take this opportunity to learn, it is a privilege.
Hey Forexoma, just to make sure: we don’t have positions today?
Milka
Hi Forexoma….
Ivan is on the money with his post and should not be ignored.
Well done mate…
cheers
Ross
i’m very glad to see here people who are sharing a lot of useful informations and also who are teaching others how to think. I have learned a lot from this website and now I’m sorry that I didn’t discover you long time ago.
you’re doing a very very good job.
Thank you
i’m very glad to see here people who are sharing a lot of useful information and also who are teaching others how to think.
you are doing a very very good job
HI,
i’m new in this forex world but thanks a lot for the info. i ve learnt a lot. keep up the good work.
Thank you Forexoma…..Had a good day yesterday….Looking for more pips today.
Regards,
Reg
Hi Forexoma and fellow traders
Today has been a little different from the past couple of weeks, and it is good for us all to be reminded that the markets can not be told what to do – there are many influences that can affect our trading. Today – traders needed to use their thinking capability and knowledge to manage their trades more intelligently – to locate possible Support and Resistance and Pivot Points and Fibonacci levels as tools.
Once prices broke through these levels, it would not be likely they would return, as the Support is now Resistance, and the PRIMARY or long term trend is DOWN – against the direction we are attempting to trade. That is another element against our success.
It highlights the need for people to think for themselves and not just log in to pick up a few freebie signals and then log out again. Again, what is happening today should be a powerful motivator for all of us to understand exactly what is driving the markets. Fundamental Issues, Technical Analysis and in a smaller way, Sentiment.
All three signals today were in effect SHORT the YEN.
The YEN has been strengthening which means pairs coupled with the YEN will be falling. Looking at the charts I saw that the USDJPY, the CADJPY and the AUDJPY have all been in strong primary downtrends.
However, these past few days they have all been in Intermediate rallies, and indeed they did seem to have further to run before striking Resistance.
So we actually WERE trading within a strong secondary uptrend, with a good probability of success. At the time of writing, I have had two of my three trades stopped out – the USDJPY and CADJPY. I still have the AUDJPY open, but have moved my SL much closer. I will explain how I traded today:
As soon as I had the signals I checked the trends and located support and resistance and went ahead and opened my trades as instructed. Everything seemed to be in order, so I set my usual SL and TP orders too.
But it was soon apparent that the market had other ideas for the YEN pairs today. It seemed to me after the second 1 Hour candle, that the trend was reversing for at least this Asian session – it may rally hard into the London session shortly. We do not know.
I did not wish my trade to run through to the SL so I looked at Fibonacci levels and Pivot points, searching for areas of strong SUPPORT, where a rally might begin. Where Support or Fibonacci or Pivots come together, we call this “confluence†and this indicates an extra strong area, with a higher probability of price respecting that level.
Here is my analysis of the three trades:
CADJPY: Opened LONG at 74.57 with usual SL and TP in place.
Trade began to run against me, so I located Pivot Point and Fibonacci levels, and well as price areas of recent strong support.
Daily Pivot was located at 73.87
One Hour Fibonacci level located at 73.84 at (38.2 level)
No recent strong Support level.
Seeing the confluence of Pivots and Fibs, I decided that was an excellent place to place my SL – a level at which I would be convinced the trade was not going to succeed, and so I would be better to stand aside today from this trade, if stopped out here. I placed the SL a few pips below this level, at 73.77 and was stopped out decisively.
USDJPY: Opened LONG at 90.43 with usual SL and TP in place.
This too began to run against me, so I located the areas of Support, Pivot Points and Fibonacci levels.
Daily Pivot was located at 90.03
Strong recent Support located at the round-figure number of 90.00
4 Hour FibFibonacci level at 89.91.
Strong confluence exists near the 90.00 level, of all three indicators of support, so I set my SL just under these at 89.87.
AUDJPY: Opened LONG at 60.42 with SL and TP placed.
Another retracing pair today.
Daily Pivot: 59.92
Support: 58.80 but very weak.
Fibonacci level on 59.80
A difficult decision to make, but I did not want to stop out too early, and the Pivot Point was broken earlier. Fibonacci was too close to the price and I wanted to allow the trade to breathe a little. I settled for a SL at 58.80 but have closed the trade manually at 59.18. It was not looking like rallying at any time up to this point.
This is how I managed these trades today.
You do not have to be a Professional Trader to manage your trades Professionally. You do not have to win to call your management “Professionalâ€. Sometimes trades do run through and take out your intelligently placed SL. You do sometimes walk away with a loss, but you can hold your head high for managing the trade well.
We may get a bounce yet – but I am not concerned – I made my decision and I have no regrets.
Kind regards to all
Ivan
Australia
Good morning Forexoma.
I stumbled at this site yestaday, I am very new to forex and i’d like to learn. Please what is the difference between Trailing Stop and Stop loss?
Thanks
Hi Lanre,
Trailing stop moves the stop loss when you are in profit. So it protects the money you have made.
Best regards,
Forexoma
Thank you Stuart and Ross and others for your kind words.
I am no expert - self-taught too, and still making silly errors at times.
But it is encouraging to hear from people who appreciate the value of any kind of education that improves the ability of traders to “read” the market better.
I hope many of you used the 80-pip trailing stop strategy today, or at least used your heads!
Difficult but not disasterous.
Always a better trade ahead, so keep your perspective - the market is never one-way traffic.
What a nice group of people I have found here - always appreciative.
Good on you all.
Ivan
it was not a good night. why? First of all my stop limit was not the right one because I played only with 100 usd and I set the stop limit exactly like you.
Conclusion : first mistake : RISK MANAGEMENT
My balance now is 0
Second mistake, the signals were false. I did an analysis before you and because I’m in the begining I didn’t have self confidence. My analysis showed me that the moving average indicator and MACD indicator give me a SELL signal if we would consider the chart daily but if I switched to WEEKLY then definetly I would say that is a BUY signal. So in this point I didn’t know what to do. So what else you must do in such cases? what indicator shows you into which direction is going to move the market?
Or what indicators did you use last night?
Thank you
Hi Gabriel,
I don’t think that it was not a good night. We analyze, take the positions and set the stop loss and let the market move. I am sorry to hear that your balance is zero but again I am sorry to say it was your own fault. If you had a $100 account you should have taken only one of the positions and not all of them and you should have traded only 0.01 lot.
I use technical analysis to find the direction. I don’t think that any of the signals were false. The problem is some people think that as soon as you take a position it should jump to profit and hitting the target. The positions I take can be held for several days until they hit any of the stop or target orders.
The other thing is that sometimes you see a strong and sharp signal but the market doesn’t follow it and goes to another direction. We never know. That’s why we have a stop loss there.
Best regards,
Forexoma
hi Gabriel….
We are the keeper of our own destony….
We have three choices when Forexoma posts HIS selections….
1) Blindly take his positions….believing past results is guaranteed similar future results
2) Take his suggestions onboard and do you own anaylsis…then decide for yourself
3) Nothing
What decision you take…it is YOUR decision….
We must accept responsibility for our own decisions.
Will there be more days like this to come….YES….and thats GUARANTEED.
You could pay $1000s per year for PAID professioal suggestions…and have no better results…..consider that.
My personal view is that trading with less than $1K US is not is not in the persons favour… but that is the individuals decision.
cheers
Ross
Thanks Ross.
Hi Vahlid,
You had commented to Sean Cousins on 2009-01-27 19:02:35 ,
“I don’t know if the trading platform you use supports trailing stop or not. Trailing stop just moves the stop loss when the price moves to your position direction. For example you go long and put the stop 200 pips below the entry price. The price goes up while you have set the trialing stop to 100 pips. So when the price goes up for 100 pips the platform moves the stop loss to breakeven. Then it moves the stop pip by pip if the prices keep on going up. The advantage is if the price returns your stop loss will take you out with a profit.”
I was wondering concerning trailing stops. On my trading platform if my stop is 200 pips from entry with a trailing stop of 100 pips when the price goes 100 pips in my favor my stop then moves to 100 pips from entry position. It would take another 100 pip move, totaling 200 pips in my favor, to breakeven in this case . What platform can I use that will do as you have commented above.
Best regards,
Fitz
Hi Fitz,
When you have a 100 pips trailing stop, as soon as your trade goes to profit for 100 pips, the stop loss will be moved to breakeven. Then for any pip that it keeps on going to profit it moves the stop one pip close.
MetaTrader has the best trailing stop system.
Best regards,
Forexoma
Hi, Forexoma, first i want to tell you that this is the first time i am visiting your website. I actually stumbled on one of your posts today. So i have not yet used any of your services, but suffice to say that i have read some of your articles here and i am very grateful for what you are doing at absolutely no cost. I will take your advice and read everything you post so that i can become better at forex and also i will be following your signals.
Thank you
Hi Austen,
Thanks and welcome.
Best regards,
Forexoma
Hello Forexoma….
Im noticing with interest that the trade for AUSJPY was exited for -298 pips.
I personally did not take this trade because of the indies I use to determine if I should be in any trade.
I use pivots points, fibs and S/R lines…to give some ‘insite’ as to where it could go.
Ok… S/R lines…
The 60.25 entry line, if you look on the 4H chart..ithid line s a very powerful resistance line, as it goes back along way in time. Both as resistance or support. A strong break, and hold of this line would have been a good indicator of continued rallying. That was not to be.
Why did it fail at this line..?
Because of many resistance positions at this line in the past.
It then retraced back to the 60.00 support line. This should have been the springboard for the rally.
But it failed too…
Now..this is where the MAJOR pivot line comes in to play..at the 59.93 support position. Also 38.2% fib retracement line is at 59.82. Further… the 21EMA was broken at the fib support line too.
MAJOR confluence area….if it fails in this area…then the alarm bells are ringing … loud.
Conclusion….exit of any long trade at any of these positions…with a loss of under 50 pips……and a possible short position taken….
I know all is ‘perfect’ in hindsight….. but pivots, fibs and S/R lines are used by the big players in the market.
If you need further proof of this…have a look at the current PA area on the H1 chart with pivots turned on.. Major support on the S1 pivot(57.00 exactly). .. but is now stuck under the 78.6 Fib resistance line….. flatlining.
If the fib resistance line holds..then it goes south.
And visa-versa… technically speaking.
This beckons the question….with a profit target of +100 pips….and a SL of say -300…this makes the reward to risk at 1:3….
I know you like not to be taken out on retraces…but if it going to move that far away from your entry point…then maybe the trade is not worth the effort.
This is only my opinion …. and not to be taken in a negative manner.
regards
Ross
Hi Ross,
Thanks for your analysis and explanations. I will need some time to check those positions and compare my analysis with yours. I will let everybody know.
Please feel free to express your opinion at any time. I assure you that I will not take it in a negative manner. All kinds of comments are welcome even if they say something strongly against me. If you see the comments have to be moderated by me before they become published on the weblog it is because I receive a lot of spam and pornographic comments that have to be filtered.
Thanks again.
Best regards,
Forexoma