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Is any of you following the Fixed Ratio Method on FX markets? I would like to discuss pros and cons for FX traders out there that are actively using this approach in sizing.
Can you help answer these questions from other members on NexusFi?
Hello, I trade FX and I am interested in the fixed ratio method and would like to implement it in my trading but I don't know if I must calculate the lot size to start with and how.
For example I have found this but I don't understand how they found the lot size at the end...
"The third step in the previous formulas has been to determine the lot size to start with. This can also be done by defining the Effective Leverage (Please refer to Chapter A03 to calculate the Effective leverage).
The formula with all the variable looks like this:
Max. Drawdown = 200 USD
Initial Capital = 1,000 USD
Fixed Ratio (Delta) = Effective Leverage x Largest Drawdown / 2
1% x 200 / 2 = 100 (effective leverage of 100:1 - trading 0,1 lot)
2% x 200 / 2 = 200 (effective leverage of 50:1 - 0,05 lot)
3% x 200 / 2 = 300 (effective leverage of 33,3:1 - 0,03 lot)"
