Thread: 2) Money Management Assignment - PLACE A TRADE

Assignment : Place a trade in your demo account and base the size of your trade so you are risking no more than 5% of your equity on open trades while using a 1 : 2 risk to reward ratio. Reply to this thread telling us about your trade such as your equity and trade size. Be sure to note on your chart the point at which you would open the trade, place a stop, and take profits at. Please upload an image of the chart you were looking at to help convey to the class why you placed the trade. (If you need help posting a chart, watch this short VIDEO.)

My homework is as follows: Looking through the currency pairs I decided to trade the Aud/Usd because I am pairing the strongest currency, Aud, with the weakest one, Usd. Looking at the daily chart the pair is in a strong uptrend, trading above the 200sma and moving apart from it. The pair is also printing higher highs and higher lows. Moving to the 4 hour chart, we confirm that the trend is still up and it has had some pull back to support. The strategy that I will like to use is a breakout one. In the 4 hour chart when prices close above 1.01816 a new high will be formed and this will give us confirmation that the buyers are again in control. I will enter long at 1.01824 with a stop order at 1.00717 and place a limit order at 1.0438 for a 1:2 risk reward ratio. Now comes the calculation of my risk and number of lots to trade and please correct me if I am wrong because this is the first time that I do this part. Since the stop distance (1.01824-1.00717) equals .01107 or rounded it up to 111 pips the cost of 1 lot to trade will be: (111pips x $.10)pips= $11.1 per 1 lot. Now, I just want to risk only 2% of my account which is 5,000 so the amount I am willing to risk is 5,000 x .02 = $100. So the number of lots I can trade will be:$100/$11.1= 9. I will like to trade only 8 lots for a total risk of $88.8. Now, when the market moves up 111 pips I will do 2 things. First close the position for 4 lots with a gain of $44.4 (4 lots x 111pips x.10). Second I will move my stop order for the rest of the remaining lots to 1.01824 to break even. So I will have taken $44.4 from the risk and gain $44.4 of profit for a total of $88.8 that I can use to open another trade in another currency pair to diversify my risk. Please let me know if the calculations and the process of thought is correct. Thanks

Originally Posted by maria-o-ch

My homework is as follows: Looking through the currency pairs I decided to trade the Aud/Usd because I am pairing the strongest currency, Aud, with the weakest one, Usd. Looking at the daily chart the pair is in a strong uptrend, trading above the 200sma and moving apart from it. The pair is also printing higher highs and higher lows. Moving to the 4 hour chart, we confirm that the trend is still up and it has had some pull back to support. The strategy that I will like to use is a breakout one. In the 4 hour chart when prices close above 1.01816 a new high will be formed and this will give us confirmation that the buyers are again in control. I will enter long at 1.01824 with a stop order at 1.00717 and place a limit order at 1.0438 for a 1:2 risk reward ratio. Now comes the calculation of my risk and number of lots to trade and please correct me if I am wrong because this is the first time that I do this part. Since the stop distance (1.01824-1.00717) equals .01107 or rounded it up to 111 pips the cost of 1 lot to trade will be: (111pips x $.10)pips= $11.1 per 1 lot. Now, I just want to risk only 2% of my account which is 5,000 so the amount I am willing to risk is 5,000 x .02 = $100. So the number of lots I can trade will be:$100/$11.1= 9. I will like to trade only 8 lots for a total risk of $88.8. Now, when the market moves up 111 pips I will do 2 things. First close the position for 4 lots with a gain of $44.4 (4 lots x 111pips x.10). Second I will move my stop order for the rest of the remaining lots to 1.01824 to break even. So I will have taken $44.4 from the risk and gain $44.4 of profit for a total of $88.8 that I can use to open another trade in another currency pair to diversify my risk. Please let me know if the calculations and the process of thought is correct. Thanks

Great job. Your analysis is excellent and your figures are correct. This is the exact type of set up we should always be looking for. Very nice work.

Thank you very much and I will like to let you know that I have learned a lot and enjoyed very much your webinars. Thanks for all your help.

Originally Posted by maria-o-ch

Thank you very much and I will like to let you know that I have learned a lot and enjoyed very much your webinars. Thanks for all your help.

You're quite welcome and thank you for the kind words.

Here is my 15 minute AUSUSD chart dated 11Jan2011
60 minute trend is down & 15 minute swing also confirms the down trend

I had stochastic sell trade @ 0.9865 & stop at 0.988, The trade was triggered at 7.45, the price rebound just near to stop & reversed back without hitting my stop.
The price reached at 1:1 RR level, the stop moved to entry, Trade was stopped out at break even.
Further more we see the price tested the resistance level 0.988 ( The stop loss level) twice & failed back to 1:2 RR level the time at which I was not in the trade & lost the opprotunity to earn the profit.

Here are some points in mind about the described trade.

1) The stop loss level is the vital level which is observed by most of the traders & difiicult to break, so if I am correct in the trade stop will not be triggered easily, but entry level can not be that much vital, so after achiving 1:1 RR level the market noise may stop out the trade at entry.

2)It is easy to accept losses gracefully if I am stopped out, but frustating to aceept loss of profit once the trade is stopped out at entry & then reached to 1:2 RR level.

So if I decide to aceept full loss on non performing trade & not to move the stop at entry when 1:1 RR is achived, & look only for 1:2 RR profit what will be impact on my money management?? Can I grow my account with this style??

Originally Posted by 1601053957

Here is my 15 minute AUSUSD chart dated 11Jan2011
60 minute trend is down & 15 minute swing also confirms the down trend

I had stochastic sell trade @ 0.9865 & stop at 0.988, The trade was triggered at 7.45, the price rebound just near to stop & reversed back without hitting my stop.
The price reached at 1:1 RR level, the stop moved to entry, Trade was stopped out at break even.
Further more we see the price tested the resistance level 0.988 ( The stop loss level) twice & failed back to 1:2 RR level the time at which I was not in the trade & lost the opprotunity to earn the profit.

Here are some points in mind about the described trade.

1) The stop loss level is the vital level which is observed by most of the traders & difiicult to break, so if I am correct in the trade stop will not be triggered easily, but entry level can not be that much vital, so after achiving 1:1 RR level the market noise may stop out the trade at entry.

2)It is easy to accept losses gracefully if I am stopped out, but frustating to aceept loss of profit once the trade is stopped out at entry & then reached to 1:2 RR level.

So if I decide to aceept full loss on non performing trade & not to move the stop at entry when 1:1 RR is achived, & look only for 1:2 RR profit what will be impact on my money management?? Can I grow my account with this style??

I do not know what the exact impact would be, it cannot be quantified, but it does seem logical. Personally, I do not move stops to break even and look for more favorable risk to reward ratios. It really depends on the individual trading style and what the trader is comfortable with.

Yes, point number 2 is why I do not move stops to break even. It is not a matter of frustration, it is just that I want a clear technical reason to be exited from the trade.

Originally Posted by Stephan noel

hi...
Nice work dear....
this shows that how completely you have to done analysis and how should you make decisions about money. to manage money is tough one work but to get more and more advantages and benefits you have to manage money properly.

Money Management is definitely an important part of the equation Stephan.

Thank you for your input - best of luck with your trading!

Money management is too much important in the trading,if you manage the money than you are stable in the market and earn more money in the form of benefit,all the person is worship money

My favorite Money Management Rule is to never average losses.

Dollar Cost Averaging works less often than people like to believe. If you're going to dollar cost average, dollar cost average up because you know you're trades are working and paying you as you're adding into the trade. From there, trail your stop so you're keeping your risk tight

Happy Trading.

Originally Posted by devinderjit

Money is such a resource which is necessary for all major projects of a business or industry. It is however kept in circulation and its profit is used to pay all other expenses, but most part of it is utilized in fix assets like land, machinery and building which are most expensive nowadays. A big part of money is also required for maintenance of building, machinery and some unpredictable issues. Everybody wants huge profits from it in a very short span of time which is quite risky. Money management is an experienced talent and it depends on people how they react with it. Reliable services, long time dedication and healthy mind always bring positive results.
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Help me, i watched video however i can't post my chart ???

Thank you for reaching out to the instructors.

Here is a simple chart picture to show you the steps.



1. Save As Image
2. Go To DailyFX+ Premium Trading Course Q&A Forum
3. Build Post & Insert Photo
4. Submit Post.

I hope this helps.

Originally Posted by thuongdo07

Help me, i watched video however i can't post my chart ???