MT4 Position Sizing

I made a mistake and deleted my demo accounts on my phone, but it works out. Now, I can sync my desktop account with my phone, and set up alerts for potential entries and exits.

I have figured out few things today to help going forward.  For one, I began my last trade incorrectly in regards to the Trend Rider set up.

1. Watch for the EMA 12 to cross EMA 36 - cross above for potential long, below for short.
2. Wait for price movement to come down (or up respectively) and touch EMA 12. That's the entry point.
3. Set stop loss (S/L) at EMA 36.
4. Set profit target at twice to three times the stop loss above (or below) the entry point.
5. Exit when ADX 14 goes above and comes back down to 40.

The thing about this set up is that it neglects to mention the position size. That's where my studying comes in.  I spent a lot of time this morning before work as well as my lunch break, looking into percentage in points (pips) and position sizing.  A good youtube video that helped a little by Karen Foo really got me to start playing with some numbers.  There's even a mathematical mistake in the video, can you catch it?  I also read some articles online about it too. I'll try to reiterate it below for my readers, and also for myself.

Alright, let's take the currency pair, EUR/JPY (Euro and Japanese Yen) as an example.  The second currency, or counter currency is the one that sets the pip value.   Let's say the EUP/JPY exchange rate is 117.964.  That means 117.964 Yen for one Euro.  

My account's in USD though. So we use the USDJPY exchange rate. Let's say it's 106.278.  That's 106.278 Yen for 1 USD.  We're almost at position size. 

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Now, back to the Trend Rider. Let's say the 117.964 was my entry point and the EMA 36 is 30 pips below.  Since we're talking pips in Yen, that's 

(.01/pip)*(30 pips) = .3

30 pips below would be 117.964 - .3 = 117.664 = S/L

My target price (TP) would be 2(.3) = .6 above the entry price (60 pips... that's aggressive sounds to me).

117.964 + .6 = 118.564 = TP

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I got that part pretty well, now comes the position size.  So let's say I have $5000 in my account. I only want to risk 4% on this trade.

.04(5000) = $200.   In Yen,

 

200 USD*(106.278 Yen/USD)= 21,256 Yen.

21,256/30 pips = 708.52 yen/pip

(708.52 yen/pip)*(10 usd/106.278 eny)*10 = number of units = 667 = .007 lots = 7 nanolots of volume.  That should be the volume I enter into MT4.

It took me an hour to get that. I hope it's right. This is a confusing topic right now, despite reading and listening from 4 or more sources at this point.

Value/(lot*pip) 

More of this to come.

Next up is understanding how leverage/margin comes into the picture because my calculations didn't include any so far.

MT4 Charting Tools

In the MT4 User Manual, I covered the Chart tools yesterday.  Things I'll be using very soon include:

• Template - Save time settings and indicators

• Chart Shift - puts latest price moves in the center of the chart
• Standard deviation lines - place line and double-click to set the number of deviations
• Fibonacci lines as support/resistance
• Comments placed for announcements.
• Profiles menu is in File menu to save groups of charts
• Parameters tab - most specific data of indicators

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That was it for the reading. Onto my 1st trade using Trend Bouncer.  I entered into USDJPY, 

• Leverage is 1:200 using WSI Technology Ltd. as a broker.
• Opened buying 1.00 at the ask price of 106.466 
• the EMA 12 having already crossed abode EMA 36.
• The ADX 14 indicator never reached 40.
• I closed just a minute ago at 160.327. That was a spread of 139 pips.
• EMA 12 was still above 36.  I could have waited for ADX 14 to rise to 40, but I had no stop loss set.
• Profit: -130.73
• Swap -20.83
• Commission: -35

I'm sitting here with a calculator trying to figure out how to generate all these numbers beyond the price move, and it's a little tricky. Tomorrow's trade, I'm using MetaQuotes as a broker because I don't have to worry about swaps or commissions in the calculators.  Yes, I have two demo accounts open right now.

On the charts, I've also zoomed in a lot to view the candlesticks over the last day. The other thing I need to do is set position size. I'll be extra aggressive for training purposes at 10%:

Balance: $4879.59

.1(4879.59) = $488

The leverage in this account is 1:50. So, 1 lot = 100,000 / 50 = 2,000.

Rounding 488 up to 500, 500/2000 = .25. I can purchase up to .25 lots.  I think that math's right.  Well, that doesn't include the spread, which is really my risk.  Still, I'm stopping here and I'm just going to open a trade for tomorrow with volume .25 and see what it looks like.