"So there it is, my money management formula: (account balance * risk percent) /largest loss = contracts or shares to trade.â From Pg 183 Long-Term Secrets to Short-Term Trading, Williams, L. 1999 How would I apply this formula to FX miniâs to determine how many mini lots to trade ?. For the example: Account balance is 20,000.00 USD Leverage 100:1 Minimum trade size 10,000 per lot Largest Loss (per the 10,000 size) = $60 Risk percent 16% So how many lots of 10,000 miniâs would I take per trade? Please show work so I can try other examples. Many thanks.
(account balance * risk percent) /largest loss = contracts or shares to trade It's self-explanatory really. 'account balance' - $20,000 '* risk percent' - say 1% (don't know where you got 16% from!) '/largest loss' - in your example 60 pips stop loss ....so $20,000 times 1% is $200, $200 divided by 60 is $3.33, $3.33 per pip means a 33,000 trade size on something like Eur/Usd
"(account balance * risk percent) /largest loss = contracts or shares to trade" Sounds to me that is an incomplete citation of the formula. When you calculate some number with that, it makes no difference if you trade C, GOOG, ES or Eur/Usd? Also begs the question, how do you determine the largest loss, since its quite possible that it is yet to come? Fixed percent risk makes still sense to me, since it doesn't rely on some arbitrary assumptions.
He is using a fixed percent, "account balance * risk percent". He's then saying divide that amount by the largest loss which could be sustained on the trade (ie your stop loss).