I'm starting this thread to talk about risk management practices with forex.
Forex and Risk Management
- Thread starter TraderGreg
- Start date
Personally, I am having some problems with my lot sizing. Originally, I entered trades on all the same lot size that would make each pip worth a set amount, and that was that.
However, recently I decided I wanted more risk control. My new concept is to have the risk for each trade at a set percentage: 0.5%, 1%, etc. However, my problem is that Oanda only calculates the risk on market orders. I like entering quickly on limit orders, and this creates problems trying to do the calculations myself.
I've been thinking of ways to do the calculations myself and with programs, but I run into problems with things like converting EUR/JPY gains back into dollars. Other options are a real pain. Is there any place where I can calculate my lot size to match a desired percentage?
What do you do?
However, recently I decided I wanted more risk control. My new concept is to have the risk for each trade at a set percentage: 0.5%, 1%, etc. However, my problem is that Oanda only calculates the risk on market orders. I like entering quickly on limit orders, and this creates problems trying to do the calculations myself.
I've been thinking of ways to do the calculations myself and with programs, but I run into problems with things like converting EUR/JPY gains back into dollars. Other options are a real pain. Is there any place where I can calculate my lot size to match a desired percentage?
What do you do?
I use the same position size for all pairs, and only adjust once a week or month (depending on P/L and feelings). I've found that trying to adjust position size actively during a trading session or to use different sizes for the different pairs is too much to worry about. I like to keep things simple.
I use this Excel calculation to calculate position size:
This is used as a guideline for drawdowns:
This may or may not work for you, but this conservative and simple approach has worked well for me. Good trading to you Greg.
I use this Excel calculation to calculate position size:
Code:
=(ROUNDDOWN(ACCTBAL*(0.125),-2)*10)
Code:
Max Daily Loss
=ROUNDDOWN(ACCTBAL*(0.02),0)
Max Weekly Loss
=ROUNDDOWN(ACCTBAL*(0.05),0)Yes, I definitely agree with you on trying to keep things simple. That's why I'm having a hard time deciding - doing a % trade-by-trade is a real pain, but it makes the account extremely easy to manage.
I do like your strategy of adjusting max drawdowns.
I will think about this more. Thanks!
I use Oanda too, and the number of units I buy or sell is dependent upon how much I am willing to risk. I don't know why Oanda only calculates the risk on market orders, but I wish they would do it on limit orders too.
So here's what I do:
1) Determine my entry and initial stoploss.
2) Determine the dollar amount that I'm willing to risk based on a percentage of my account balance.
3) Use Oanda's PIP / Profit Calculator (located under the Tools menu). I enter my entry as the Open and my initial stoploss as the Close, and then play with the Units until the P&L value is about the same as the amount I'm willing to risk that I determined in step 2.
4) Enter order using entry and stoploss determined in step 1 and position size determined in step 3.
It's a pain to have to use the PIP / Profit Calculator, but I've found it's the best option until Oanda makes it possible to see your risk when entering the limit order.
Good trading to you,
Jon
Hi Jon,
Not a bad strategy. The way I determined how to do it was go into trade preferences and select default stop/loss to a percentage (my risk is based on approximate percentages).
Then, open a limit order and plug in your entry price. With stop loss checked, it will calculate the % stop loss. Then, I uncheck the stop loss box, change the lot size, and recheck the stop loss box. It recalculates to my percentage, then I keep repeating until I get within a pip of my desired stop loss.
After writing down my limits and stop losses, I timed each strategy - I got 55 seconds for yours and 40 seconds for mine. I believe the only difference was transferring the calculator's numbers to the order box, but my way is far more susceptible to error. It also leaves a little variance (although negligible) in the stop loss, and could get more difficult to do in pressure.
I didn't include writing down the limit and stop loss, which would put an accurate entry at easily one minute and 20 seconds.
This is horrible. I asked Oanda about this twice yesterday, and they said they would forward it to their programmers. Can you help me out and shoot a recommendation too? There's no reason for this.
Not a bad strategy. The way I determined how to do it was go into trade preferences and select default stop/loss to a percentage (my risk is based on approximate percentages).
Then, open a limit order and plug in your entry price. With stop loss checked, it will calculate the % stop loss. Then, I uncheck the stop loss box, change the lot size, and recheck the stop loss box. It recalculates to my percentage, then I keep repeating until I get within a pip of my desired stop loss.
After writing down my limits and stop losses, I timed each strategy - I got 55 seconds for yours and 40 seconds for mine. I believe the only difference was transferring the calculator's numbers to the order box, but my way is far more susceptible to error. It also leaves a little variance (although negligible) in the stop loss, and could get more difficult to do in pressure.
I didn't include writing down the limit and stop loss, which would put an accurate entry at easily one minute and 20 seconds.
This is horrible. I asked Oanda about this twice yesterday, and they said they would forward it to their programmers. Can you help me out and shoot a recommendation too? There's no reason for this.
As a matter of fact, I think I will send them an email from multiple addresses. 
I'm just going to ask to incorporate the pip/profit calculator into the limit order box.
Their reasoning for not doing it was changing market conditions and exchange rates back into your currency I believe, but I believe suggesting a disclaimer that states, "*Calculations are theoretical and may not account for future exchange rates or market conditions at time of execution" or something should open their eyes.
I'm just going to ask to incorporate the pip/profit calculator into the limit order box.
Their reasoning for not doing it was changing market conditions and exchange rates back into your currency I believe, but I believe suggesting a disclaimer that states, "*Calculations are theoretical and may not account for future exchange rates or market conditions at time of execution" or something should open their eyes.
While you're at it, ask them about trailing stops, just for laughs.
http://fxtrade.oanda.com/forex_trading/fxgame/fxgame_beta.shtml
Additional information is provided at the bottom of the Limit Order window: the pip value, trade value, and margin used.
All they need to do is add the stop loss in, and nobody's dumb enough not to since they have the pip value already. I sent the recommendation already.
I would use a ton of smiley faces here, but I just don't think they entirely capture the moment.
Additional information is provided at the bottom of the Limit Order window: the pip value, trade value, and margin used.
All they need to do is add the stop loss in, and nobody's dumb enough not to since they have the pip value already. I sent the recommendation already.
I would use a ton of smiley faces here, but I just don't think they entirely capture the moment.