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HELP with understanding this FORMULA plz....
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HELP with understanding this FORMULA plz....

  #1 (permalink)
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mdsvtr's Avatar
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HELP with understanding this FORMULA plz....

So here is an Example of a trade that I am havin One problem understanding, and that is this.... Is the most I can lose on this trade -$2.04 ( 30 pip stop x 6.8 per Pip ) or will I lose 61.2 cents per Pip that this trade goes against me ? Since I could trade 9 micro lots given my Formula, is it 61.2 cents I'm at risk per Pip it goes against me as well as 61.2 cents profit per Pip that it goes in my Favor ? Thanks for the help Guys, here's my EXAMPLE... USD/CAD example, you said USD/CAD = 1.4718 (I'm sure you know that the actual price of the USD/CAD is closer to parity --- but, let's use your number for this example.)

If the USD/CAD is 1.4718, then the formula for finding the pip-value of the USD/CAD (in U.S. dollars) is:

For nano lots: 1 pip = $0.01 / 1.4718 = $0.00679

For micro lots: 1 pip = $0.10 / 1.4718 = $0.0679

For mini lots: 1 pip = $1.00 / 1.4718 = $0.679

For standard lots: 1 pip = $10.00 / 1.4718 = $6.79
In each case, the pip-value is X / the price of the USD/CAD, where X is a penny, a dime, a dollar, or ten dollars, depending on the size lot you are going to trade.

Once you have entered your lot size into the formula in this way, the formula will give you the result in terms of that lot size.

So, in the case of your micro account, the correct pip-value is 6.8 cents.

Using your 2% risk and 30-pip stop-loss (from your previous example) the formula would work out this way:

Position Size, in micro-lots = [(Account Balance, in $) x (Risk %)] / [(Stop Loss, in pips) x (Pip Value, in $ per micro-lot)]

= [1000 x 0.02] / [30 x 0.068]

= 20 / 2.04

= 9.8 micro-lots
(which you would have to round down to 9 micro-lots in order to stay strictly within your 2% risk parameter)

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You are doing good so far ... now how many losing trades in a row @30 pips will deplete your account to point of ruin? How often does it show in your analysis that it will happen?

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
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