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Money Management

Columbo said: "A Traders Plan: Let’s say that I told you my target batting average was 40% which means I’d be happy getting only 4 out of 10 trades right. For my risk/reward I am going to go with 1:3---This means for every dollar I risk my profit will be $3. The max I want to make on a trade is $300 Here are my trading results for week one Trade 1: -40 Pips Trade 2: +20 Pips Trade 3: -60 Pips Trade 4: -120 Pips Trade 5: +90 Pips Trade 6: +10 Pips Trade 7: +50 Pips Trade 8: -50 Pips Trade 9: -40 Pips Trade 10: -80 Pips Totals: -390 Pips in losing trades and 170 pips in profitable trades. (not looking so good….) A pip loss of -220 Remember the Money management rules??? Here is how each trade would break down: Trade 1: -40 Pips= 0.25 Lots Traded (Each Pip Move - $2.50) -$100 Trade 2: +20 Pips= 1.5 Lots Traded (Each Pip Move = $15) +$300 Trade 3: -60 Pips= 0.16666 Lots Traded (Each Pip Move = $1.67) -$100 Trade 4: -120 Pips= 0.08333 Lots Traded (Each Pip Move = $0.83) -$100 Trade 5: +90 Pips= 0.3333 Lots Traded (Each Pip Move = $3.33) +$300 Trade 6: +10 Pips= 3 Lots Traded (each Pip Move = $30) +$300 Trade 7: +50 Pips= 0.6 Lots Traded (each Pip Move = $6) +$300 Trade 8: -50 Pips= 0.2 Lots Traded (each Pip Move = $2) -100 Trade 9: -40 Pips= 0.25 Lots Traded (each Pip Move = $2.50) -100 Trade 10: -80 Pips= 0.125 Lots Traded (each Pip Move = $1.25) +$-100 As you can see with the money management in place, we made a profit of $600!! This is why when someone says “I make 100 pips a week” it does not impress me very much. We actually lost 220 pips in the above example and we still made money! It is best to focus on risk/reward, and set your lot size based of your stop loss/target prices. This works with in any market, just change the "lots" into whatever trading"