as quoted by OzFx
Hello Friends,
A lot of people has been talking about Money Management and I thought it is better to discuss this now than later. Original strategy recommends to use 5 lots and take profit every 50 pips. Some people recommend to start with 1 lot and add more once the position moves into your favor. Others have used 30-60-90 pip profit taking points and some are just happy with 100 pips a day.
Here is what I think. If you have decided to trade Daily chart then expect to have bigger draw downs and aim for bigger profits. No point waiting for a whole day to bag some lousy 50 pips. If you are starting new and don't have enough funds to open 5 lots then either wait to save some more money, borrow some or scale down to micro lots.
Money management is most important part of trading and should be the first thing you should work on. No matter what system you trade, you would fail if you let your account eaten up by some bad trades. At anytime don't open trades more than 5% of your account balance. If your exposure is already high then don't enter new trades or scale down to meet 5% rule.
For people who really think 5 lots is too much, try this:
1. Enter initially with 1 lot with SL 100.
2. When position moves +50 then enter 3 more lots with SL 50. Move SL at BE for first position.
3. Close the first original one at +100, second at +150, third at +200 and let the fourth run.
We would 4 scenarios from the above setup:
Worst Case: -150 (3 x -50)
After entering 3 more lots at +50 price went and hit SL. First lot closed at BE.
Bad Case: -100 (1 x -100)
Price move against us from the beginning and first lot hit SL.
Good Case: +450 (100 + 150 + 200)
All 3 and first original hitting our PT and final one closed along with 3rd PT.
Best Case: 450+
Previous scenario + 4th lot runs and hits +1000
I would love to hear what others think and also if someone can do a quick back test using EA with and without 200SMA. If we all decide to go this way then for accounting purpose I would only count the maximum profit target we hit and not count pips from individual lots.
For ex. if we enter EU at 1.5000 and we closed 4th lot at 1.5250 the I would add 250 to our weekly total and not 700(100+150+200+250). This will help compare this system with others. Same goes for losses.
Some people are also think 200SMA doesn't help much and keeps out of trades. Here is a crazy idea. While entering trades with 200SMA filter use the original MM, otherwise use the new MM.
I personally think that 200SMA is a great filter and would increase the number of profitable trades. Also remember that we are not trying to catch every move. The Need To Trade is what burns people's account.
Cheers,
Oz
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