Part II. Position Size Calculation
Commander in Pips: I’ve decided to make a small addon to the money management chapter and still discuss the framework of position size calculation due risk provision. I remember that you’ve solved tasks about profit/loss and margin very well, so probably you can do this by yourself easily. I hope you don’t mind if I show you some examples. In fact, we have just one additional parameter – risk value in a single trade. All other calculations remain the same.I’ve decided to do a demonstration of why you need to calculate a safe amount to trade. Call out an entire platoon and load them all into one van.
Pipruit: You’re right. Too many troops in too little space, and we could be missing a whole platoon in the next battle if one van has a flat tire. Some guidance initially doesn’t hurt.
Commander in Pips: Very well, then let’s start with it. Do you remember what parameters we’ve used when we calculate profit/loss, margins and so on?
Pipruit: I do, they are:
 Currency pair that we trade;
 Currency of our account;
 Cross rates if we need to convert results into some other currency – neither counter nor base currency.
 Currency pair that we trade;
 Currency of our account;
 Cross rates if we need to convert results into some other currency – neither counter nor base currency.
 Total assets value on account;
 Maximum acceptable loss value in percents in each trade;
 Stoploss value in pips.
Let’s say that our assets value is 10,000 USD, our maximum loss in every trade is 1.5% of total assets and our average stoploss order is 280 pips as we’ve said based on daily volatility. Later you will be able to use any parameters – the overall framework will be the same. So, here is the first task:
TASK#1 is simplest 1. Let’s suppose that your account denominated in the counter currency of the pair that you intend to trade, say, EUR/USD. Estimate dollar maximum risk value and lot size.
Pipruit: Ok, that doesn't looks too hard:
1. Our money amount of risk in each trade is equal to 10,000*1.5% = 150 USD.
2. Based on stoploss order in pips, our lot should be equal to: 150/0.028= 5357.14 USD or ~0.05 standard lot.
1. Our money amount of risk in each trade is equal to 10,000*1.5% = 150 USD.
2. Based on stoploss order in pips, our lot should be equal to: 150/0.028= 5357.14 USD or ~0.05 standard lot.
Commander in Pips:Let’s make the task a bit harder. What if your account currency is the same as base currency? Relatively to our example, what if your account was EUR denominated?
TASK#2. Let’s suppose that your account denominated in the base currency of the pair that you intend to trade, say, EUR/USD. Estimate the dollar maximum risk value and lot size.
Pipruit: Well, then my risk will be 150 EUR instead of USD and depending on EUR/USD rate I might have either greater lot (if EUR/USD>1 or smaller one, if EUR/USD <1). By the way, what is the EUR/USD rate?
Commander in Pips: Let’s say the EUR/USD = 1.3480 when you are planning your trade.
Pipruit: Ok, then:
1. Our money amount of risk in each trade is equal to 10,000EUR *1.5% = 150 EUR.
2. Or 150EUR x 1.3480 ~ 202 in counter currency (USD)
3. Based on stoploss order in pips, our lot should be equal to: 202/0.028= 7214.28 USD or ~0.07 standard lot.
1. Our money amount of risk in each trade is equal to 10,000EUR *1.5% = 150 EUR.
2. Or 150EUR x 1.3480 ~ 202 in counter currency (USD)
3. Based on stoploss order in pips, our lot should be equal to: 202/0.028= 7214.28 USD or ~0.07 standard lot.
Commander in Pips: So, let’s pass to the task where we might have to use crosscurrency rates…
TASK#3. Your account denominated in EUR, but you intend to trade USD/CHF. All other parameters are the same. Assume that the current EUR/USD rate is 1.3480 and the current USD/CHF is 0.9165
Pipruit: Since our fiscal result will be formed in CHF, we need to somehow express our limit loss in CHF…
1. Our money amount of risk in each trade is equal to 10,000EUR *1.5% = 150 EUR.
2. Now we need to calculate the EUR/CHF rate = 1.3480/0.9165 = 1.2354
3. Hence, my maximum loss in CHF will be: 150EUR x 1.2354 ~ 185 CHF (counter currency)
4. Based on stoploss order in pips, our lot should be equal to: 185/0.028= 6607.14
1. Our money amount of risk in each trade is equal to 10,000EUR *1.5% = 150 EUR.
2. Now we need to calculate the EUR/CHF rate = 1.3480/0.9165 = 1.2354
3. Hence, my maximum loss in CHF will be: 150EUR x 1.2354 ~ 185 CHF (counter currency)
4. Based on stoploss order in pips, our lot should be equal to: 185/0.028= 6607.14
Commander in Pips: Well done!
Commander in Pips: And finally is the task with the JPY. Although this is almost the same as task#2, but many people have problems with JPY, since the is quoted for 100Y but not for 1 Y.
TASK#4. Your account denominated in CHF, but you intend to trade CHF/JPY. All other parameters are the same. Current CHF/JPY rate is 85.05.
Pipruit: Hm, let’s see:
1. Our money amount of risk in each trade is equal to 10,000 CHF *1.5% = 150 CHF.
2. Or 150 CHF x 85.05 ~ 12,758 Y in counter currency (Yen)
3. Based on stoploss order in pips, our lot should be equal to: 12,758/(0.028*100) = 4556.43 JPY
1. Our money amount of risk in each trade is equal to 10,000 CHF *1.5% = 150 CHF.
2. Or 150 CHF x 85.05 ~ 12,758 Y in counter currency (Yen)
3. Based on stoploss order in pips, our lot should be equal to: 12,758/(0.028*100) = 4556.43 JPY
Comments
Table of Contents
 Introduction
 FOREX  What is it ?
 Why FOREX?
 The structure of the FOREX market
 Trading sessions
 Where does the money come from in FOREX?
 Different types of market analysis
 Chart types
 Support and Resistance

Candlesticks – what are they?
 Part I. Candlesticks – what are they?
 Part II. How to interpret different candlesticks?
 Part III. Simple but fundamental and important patterns
 Part IV. Single Candlestick Patterns
 Part V. Double Deuce – dual candlestick patterns
 Part VI. Triple candlestick patterns
 Part VII  Summary: Japanese Candlesticks and Patterns Sheet

Mysterious Fibonacci
 Part I. Mysterious Fibonacci
 Part II. Fibonacci Retracement
 Part III. Advanced talks on Fibonacci Retracement
 Part IV. Sometimes Mr. Fibonacci could fail...really
 Part V. Combination of Fibonacci levels with other lines
 Part VI. Combination of Fibonacci levels with candle patterns
 Part VII. Fibonacci Extensions
 Part VIII. Advanced view on Fibonacci Extensions
 Part IX. Using Fibonacci for placing orders
 Part X. Fibonacci Summary

Introduction to Moving Averages
 Part I. Introduction to Moving Averages
 Part II. Simple Moving Average
 Part III. Exponential Moving Average
 Part IV. Which one is better – EMA or SMA?
 Part V. Using Moving Averages. Displaced MA
 Part VI. Trading moving averages crossover
 Part VII. Dynamic support and resistance
 Part VIII. Summary of Moving Averages

Bollinger Bands
 Part I. Bollinger Bands
 Part II. Moving Average Convergence Divergence  MACD
 Part III. Parabolic SAR  Stop And Reversal
 Part IV. Stochastic
 Part V. Relative Strength Index
 Part VI. Detrended Oscillator and Momentum Indicator
 Part VII. Average Directional Move Index – ADX
 Part VIII. Indicators: Tightening All Together
 Leading and Lagging Indicators
 Basic chart patterns
 Pivot points – description and calculation
 Elliot Wave Theory
 Intro to Harmonic Patterns
 Divergence Intro
 Harmonic Approach to Recognizing a Trend Day
 Intro to Breakouts and Fakeouts
 Again about Fundamental Analysis
 Cross Pair – What the Beast is That?
 Multiple Time Frame Intro
 Market Sentiment and COT report
 Dealing with the News
 Let's Start with Carry
 Let’s Meet with Dollar Index
 Intermarket Analysis  Commodities
 Trading Plan Framework – Common Thoughts
 A Bit More About Personality
 Mechanical Trading System Intro
 Tracking Your Performance
 Risk Management Framework
 A Bit More About Leverage
 Why Do We Need StopLoss Orders?
 Scaling of Position
 Intramarket Correlations
 Some Talk About Brokers
 Forex Scam  Money Managers
 Graduation!