Lot size calculator for good money management

Jan 1, 2008 6:09pm | Edited Jan 20, 2008 5:05am | Post 1

TrevA

Hi All

In my estimation, 80% of the threads on systems seem to discuss finding the best entry rather than discussing money
management. To me this seems a little misdirected because even sub-optimal entries can be very profitable with the right money
management. More effort placed in managing money, calculating an optimal stop-loss and limiting losses will result in greater
long term profits for you.

When you hear phrases like "only risk 2%" what does this mean to you? Does it mean use 2% of your equity to buy currency? Does
it mean only allow 2% of your equity to be at risk of loss? Does the amount risked include profits from open trades and how do
you know what stop-loss to use? If you have a stop loss of 30 pips, what should your lot size be? If you only want to risk 2% but
need a 100 pip stop loss, what should your lot size be?

If you would like answers to these questions then perhaps the percentage of equity model might be for you.

Why use the percentage of equity mode?

Using this model, you only risk a percentage of your equity on each position which means your risk is proportional to your equity
and provided you stick to stop-loss you choose, are protected from financial ruin and only have the potential to loose the risked
amount.

For example, using the spreadsheet attached, if you were risking 5% of $500 equity with a 40 pip stop loss your lot size would be
.06 of a lot. If your equity was $100,000 with the same risk and stop loss your lot size would be 12.

So, by making sure that you allocate a percentage of equity to a trade and then determine the lot size from your stop-loss pip
size, you ensure that you trade with your eyes open and eliminate guesswork.

I use this sheet to calculate lot sizes for a trade from risk % and stop-loss pips. It can be used for any currency pair but you would
need to adjust the spread and pip value for your currency.

If the risk level is too high then adjust it accordingly. A wider stop loss reduces your profit and adjusts the lot size accordingly.

If you like to place a stop loss behind a fibo level or a support/resistance level then enter your stop loss pips into the spreadsheet
and the spreadsheet will give you the corresponding lot size for your risk.

It assumes 1 standard lot is $100,000 so if you use a different lot size the adjust it accordingly.

How does it work?

It simply takes your equity, risk %, pip value, spread and stop loss to calculate the lot size. It also gives you 1/5 lot sizes so that
you can place multiple orders for scaling in or out.

Example
You have $5000 in equity and wish to risk 5%. The pip value is $10 on a standard lot and your spread is 3 pips (EUR/USD). Your
stop loss is 35 pips.

What should the lot size for your order be? Answer: 0.66 (approx).

The spreadsheet can also be used as a compounding ready reckoner to show how small gains (30 pips) can compound very
quickly to significant returns.
I'm open to suggestions and ways to improve the spreadsheet so if you have any ideas or ways to make it better then please let
me know.

The spreadsheet has a password to protect the formulas from being inadvertently changed so if you wish to change the
formulas then unlock the sheet with 'password'.

Other calculators:
http://www.forexfactory.com/showpost...5&postcount=22
http://www.forexfactory.com/showpost...7&postcount=13

Regards,
TrevA

Attached File(s)

Percentage Equity Model.xls 92 KB | 25,496 downloads

Jan 1, 2008 7:07pm | Post 2

Pirin

Looks nice, thanks

Jan 2, 2008 12:07am | Post 3

cryten

Best one I've found , thanks man

Jan 2, 2008 3:53pm | Post 4

forexlion

I let my indi do the job for me

double mr = (MarketInfo(Symbol(), MODE_MARGINREQUIRED)/10);

double m40 = MathFloor((AccountBalance() / mr) * 0.40);
double ls = m40 * 0.1;

You can change the -0.40 if you do not like the 40% trading.

Jan 2, 2008 4:10pm | Post 5

mattrader

Great effort, thanks

Jan 2, 2008 6:04pm | Post 6

TrevA

Quoting forexlion
I let my indi do the job for me

double mr = (MarketInfo(Symbol(), MODE_MARGINREQUIRED)/10);

double m40 = MathFloor((AccountBalance() / mr) * 0.40);
double ls = m40 * 0.1;
 You can change the -0.40 if you do not like the 40% trading.

This is so cool. I too was thinking about putting the calculations into an Indicator as well.

While my platform (metatrader) allows scripts to be run, it doesn't give you a macro language like excel or word. It would be so
cool to just press a button and have the trade executed with all the predefined parameters...

Whatever mechanism is used, it's good to see money management being used in its various forms.

TrevA

Jan 13, 2008 4:24pm | Post 7

Atomic_Sheep
I don't get this whole money management cuffuffle... they say its important laddi daddi da... but the way I see it is... if you risk 2%
of your trade as everyone says you should be... and lets admit that finding 2% of your current bank account isnt hard... then
whats so hard about money management?

Jan 13, 2008 4:28pm | Post 8

Gnat
Cryten referred me to this! I will have a look. Thanks for sharing!

Jan 13, 2008 8:38pm | Post 9

liujiangshi

This is good.Thanks for sharing.

Jan 14, 2008 5:09pm | Post 10

TrevA

Quoting Atomic_Sheep
I don't get this whole money management cuffuffle... they say its important laddi daddi da... but the way I see it is... if you risk
2% of your trade as everyone says you should be... and lets admit that finding 2% of your current bank account isnt hard... then
whats so hard about money management?

Atomic Sheep

Money management isn't hard but most people are preoccupied with timing trade entries rather than managing their money. To
me, the goal of money management is to keep me in the game as long a possible.

Whether you risk 2% or 50%, how do you know where to place your stop-loss given the pip value (GBP/JPY is different to
EUR/USD) for the pair? Each pair has a different spread and different volatility so this complicates things. Also, do you put your
pip behind the nearest support/resistance level or just at an arbitrary distance from your entry?

To me this is the cuffuffle of money management and what makes it so interesting.

TrevA

Jan 15, 2008 4:02am | Post 11

Atomic_Sheep

Ah ok I see now.
 Jan 16, 2008 1:37am | Post 12
Mr. Roboto

My favorite position size calculator can be found here. Go to Trading Tools, then Risk Management.

Jan 16, 2008 3:58am | Post 13

TrevA

Quoting Mr. Roboto

My favorite position size calculator can be found here. Go to Trading Tools, then Risk Management.

Do you mean this one: http://www.mataf.net/en/forex/tradin...sition-sizing/

TrevA

Jan 16, 2008 4:09am | Post 14

pipal

Thanks TrevA & Mr Roboto. That's what I am learning to respect in my trading.

Jan 16, 2008 4:23am | Post 15

Mr. Roboto

Quoting TrevA
Do you mean this one: http://www.mataf.net/en/forex/tradin...sition-sizing/

TrevA

Yup, that's the one.

Jan 16, 2008 4:23am | Post 16

fxtrader1979

Quoting TrevA
Do you mean this one: http://www.mataf.net/en/forex/tradin...sition-sizing/

TrevA

Thats a pretty nifty tool there I like it. Also TrevA I agree that no where near enough attention is given to money management
which is the real key in my opinion to successful trading.

-FXTrader1979

Jan 16, 2008 4:26am | Post 17

Mr. Roboto

Quoting pipal
Thanks TrevA & Mr Roboto. That's what I am learning to respect in my trading.

No problem, pipal. If you're money management is anything like mine, you're going to find yourself using that calculator
everytime you make a trade.
 Jan 16, 2008 4:55am | Edited 5:10am | Post 18
HidaBull

I am currently reading a very good book about MM and found your excel sheet very helpful.
However, I don't understand how to use it to be accurate, let me ask you questions so I can be sure to not mistake how to use
your sheet:

1- For example: Level 1 equity is 500 USD and "target" is to get 30 pips, however I collect more pips and get to 45 pips.
- Level 2 equity was supposed to be 530 USD, but my current equity real level is now 545 USD, what do I do? I correct level 2
equity to the 545 USD or just keep on the planned "map" and trade as targeted next level, the extra pips helping to jump into next
level faster ?
Hope it make sense so you can understand my question.
I have couple more questions but prefer to go step by step.

Thanks a lot

Jan 20, 2008 4:27am | Post 19

giraia_br

could anyone help me?

Marketiva like Oanda uses 'units' not lots. Leverage is 100:1, so with the $5 practice account i can use max 500 units.

for example buying gbpjpy at 211.83 with stop at 206.90 what numbers of units should i enter the trade to risk 10%?

how use the calculators to do that calc?

thanks in advance.

Jan 20, 2008 4:55am | Post 20

TrevA

Quoting HidaBull
I am currently reading a very good book about MM and found your excel sheet very helpful.
However, I don't understand how to use it to be accurate, let me ask you questions so I can be sure to not mistake how to use
your sheet:

1- For example: Level 1 equity is 500 USD and "target" is to get 30 pips, however I collect more pips and get to 45 pips.
- Level 2 equity was supposed to be 530 USD, but my current equity real level is now 545 USD, what do I do? I correct level 2
equity to the 545 USD or just keep on the planned "map" and trade as targeted next level, the extra pips helping to jump into
next level faster ?
Hope it make sense so you can understand my question.
I have couple more questions but prefer to go step by step.

Thanks a lot

This is a good question... I just correct the next level... usually on a daily basis. The levels are just a guide.

in your case, you would set the level 2 equity to 545 because the percentage of equity determines your lot size.

TrevA