I did a similar tool to what you did but more advanced in Excel for the Forex market many moons ago but never used it for the Futures market. In my approach, volatility does not affect my stop loss. Most of my trades are placed "on the edge" on a pullback or small retrace. My stop loss almost never varies. For the RUSSELL the average is 6 ticks with some fluctuation of around +4 ticks. That's about the same thing with the ES. I do not trade anything else. I personally use 1 contract by chunk of $3500USD. That's as you say simple and straightforward. The difference in exchange rates does not affect me as there are so small. As i wrote previously, if we could use fractional lot size as we can in the Forex market it would be another story but that's not the case.
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Your spreadsheet design is superior, but you have not integrated the idea that the money management stop-loss is linked to volatility. When trading on margin - as opposed to trading stocks - both profits and risk depend on leverage.
In my opinion, the best way to control leverage is a three-step-process. In a first step you adjust the stop-loss to the volatility of your investment. I just used the average true range of a 5 min chart. In the second step you determine the number of contracts to trade. Both steps together are nothing than fine-tuning leverage.
The third step, and this is really advanced money management, is to adjust leverage to the expectancy and the risk of ruin of your setups. This is something I am not mastering now, but I am eager to learn that. Currently reading the book by Ralph Vince on Money Management. Until I understand more, I will stay with my rule of thumb, which is 1% of equity risked per trade.
Last edited by Fat Tails; October 17th, 2010 at 05:17 PM.
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It is not directly integrated but indirectly as i was taking it into account. Basically we need to define two things, ie, the size of the risk in terms of ticks/pips and the percentage of your equity you are ready to risk for that trade. Mataf has done a web tool to this effect :
I don't think you need to go that far in your quest. Technical analysis is somewhat limited, you can only enter at specific points given the current conditions of your instrument of choice. If there is enough volatility or movement then you will get some follow through otherwise if price stops moving then no matter your past experience (expectation) you're going to lose. The only reason why we can win in trading is because price cooperates and keeps moving in a somewhat orderly fashion.
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1.Using the mouse click to select 3 prices ( stop, entry and target)
2.Adding stuff to the menu and the toolbar.
3.Getting the instruments tick value.
4. Converting that value - real time - to your base currency**
5. Placing orders on a chart without using a strategy.
None are 'easy' but 1 and 4 are particularly difficult.
Edit - as a workaround you could just have an exch rate that you update manually at the beginning of each day.
If those items are done already in the commercial application, why not just buy it? Or work with the developer to improve it or add a feature you deem necessary, instead of creating your own version.
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2. Much more importantly - you can't get access to the source code. So improving or adapting it is limited.
3. Developing our own version improves learning and will lead to improvements elsewhere (IMHO)
I did actually trial it - and found it to be relatively poor in some areas.
Essentially it's the old saying
'Feed a man a fish, you feed him for a day; teach him to fish and he can feed himself.'
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