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EURUSD Scapling

  #23 (permalink)

Bala, PA, USA
Trading Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Mirus, IB
Favorite Futures: SPY, Oil, Euro
monpere's Avatar
Posts: 1,858 since Jul 2010
Thanks: 300 given, 3,321 received

Arich View Post
Ha, unfortunately I don't like losing $1,200 a pop. But I think that's close to the best place for the stop loss with the targets set so high. I am probably wrong though. That's why I'm the beginner and you're the veteran.

You are trading your equity curve not the market. You should not be placing stops based on the amount of money you are comfortable to lose, you should place stops where it technically makes sense in the market, whether that is 10 ticks away or 100 ticks away. You should not arbitrarily say, I can afford to lose 40 ticks, so that is where I will put my stop. The market does not care how many ticks you can afford to lose.

This is where position sizing comes in. You should be placing your stop according to market analysis, then size your position accordingly to achieve or maintain the desired dollar risk. The formula is: PositionSize = DesiredDollarRisk / StopSize. (Search for Van Tharp's R-Multiples to learn more)

Using this method, you can say I only want to risk $50 on any trade, now using the formula you can size your position so that you will only risk $50 whether you place your stop 20 ticks away or 200 ticks away. If your account size will not allow you to do this, then you are under capitalize for the trading method you are using, therefore you should be trading micro lots in order for you to have more granularity in position sizing.

If you are using Ninjatrader here is an on chart position sizing indicator that does all the calculations for you: TradeRuler

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