I CAN NOT RISK MORE THEN 50 PIPS
I recently posted an opportunity for people to watch a webinar trading strategy on how to spot and trade a "FAKE BREAKOUT". The one concern I got for feedback was that this is a strategy best used on longer time frames. ie..Daily, Weekly etc... and having to use a larger SL to trade. I have used the strategy as low as the 4hr charts. But, Hector is correct about the random noise on the lower time frames that may give false signals when trading the Strategy he has shown below the daily charts.
So what about trading on longer time frames and limiting yourself by only allowing for a max of 50 pips for a SL. I personally do not limit my trades based solely on how many pips I can risk
But first how many pips I can win in any particular trade. Or what is my Risk To Reward Ratio(RR) For example I see a trade set up that has a potential gain of 100 pips. I have to set my SL 50 pips from entry to allow breathing room. So my effective RR is 2 to 1. It is a valid trade based on the Money Management rules I have of a min 1.4 to 1 RR ratio. Ok so what if I had to have a 60 pip SL?? Some will not take the trade solely based on the SL rather then on the Reward associated with the risk. Lets get deeper into this when setting up a trade by example.
Let say you have a 1,000 Micro account and you are only willing to risk 3% of your account on any given trade. That is 30.00 of what ever money you are using. But for this one lets use US$
I spot a trade on the AUDUSD that requires a 30 pip stop to allow for breathing room and the trade has a potential to go 60 pips. Valid based on my RR. Ok so I want to risk $30 for possible $60.
How many lots can I trade to maintain this. 10 micro lots right?? yes.
Ok now lets look at this same pair that requires a 60 pip SL to go 120 pips. UH OH can't trade this because it is more then 50 pips SL. Well, that is not true you can in fact still trade this maintaining your MM rule of only risking 3% or 30 bucks. How?? LOWER YOUR LOT SIZE. That simple.
To trade this how many lots can you trade still maintaining your 3%?? That would be half of what you traded on the first trade with a 30 pips stop. Yes 5 MICRO LOTS. You do not well, I do not limit my trades based on how big my SL can be But what my RR is. I mean if I have a weekly setup my stop may be 120 pips or more but my gain could be 250 pips or more possible 1,000s on a Weekly trade.
So there it is, you can in fact have a larger SL and still keep your MM and risk in check. Now you ask how am I going to calculate this every time I have a trade setup. Here is what I use. This is one cool tool. You tell it how much you have in your account, What you want to risk in a percentage, How many pips is your SL, the type of account you are trading IE..Std,mini,micro and it will tell you how many lots to trade to maintain your MM rules. Some may already be using it or have never seen it. Yes it is Free.
So what about trading on longer time frames and limiting yourself by only allowing for a max of 50 pips for a SL. I personally do not limit my trades based solely on how many pips I can risk
But first how many pips I can win in any particular trade. Or what is my Risk To Reward Ratio(RR) For example I see a trade set up that has a potential gain of 100 pips. I have to set my SL 50 pips from entry to allow breathing room. So my effective RR is 2 to 1. It is a valid trade based on the Money Management rules I have of a min 1.4 to 1 RR ratio. Ok so what if I had to have a 60 pip SL?? Some will not take the trade solely based on the SL rather then on the Reward associated with the risk. Lets get deeper into this when setting up a trade by example.
Let say you have a 1,000 Micro account and you are only willing to risk 3% of your account on any given trade. That is 30.00 of what ever money you are using. But for this one lets use US$
I spot a trade on the AUDUSD that requires a 30 pip stop to allow for breathing room and the trade has a potential to go 60 pips. Valid based on my RR. Ok so I want to risk $30 for possible $60.
How many lots can I trade to maintain this. 10 micro lots right?? yes.
Ok now lets look at this same pair that requires a 60 pip SL to go 120 pips. UH OH can't trade this because it is more then 50 pips SL. Well, that is not true you can in fact still trade this maintaining your MM rule of only risking 3% or 30 bucks. How?? LOWER YOUR LOT SIZE. That simple.
To trade this how many lots can you trade still maintaining your 3%?? That would be half of what you traded on the first trade with a 30 pips stop. Yes 5 MICRO LOTS. You do not well, I do not limit my trades based on how big my SL can be But what my RR is. I mean if I have a weekly setup my stop may be 120 pips or more but my gain could be 250 pips or more possible 1,000s on a Weekly trade.
So there it is, you can in fact have a larger SL and still keep your MM and risk in check. Now you ask how am I going to calculate this every time I have a trade setup. Here is what I use. This is one cool tool. You tell it how much you have in your account, What you want to risk in a percentage, How many pips is your SL, the type of account you are trading IE..Std,mini,micro and it will tell you how many lots to trade to maintain your MM rules. Some may already be using it or have never seen it. Yes it is Free.
Let me know what you think and good luck trading.
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