Capital management by ATR (real margin average)

1, Why ATR?

The tools that trade a little longer will notice that each currency pair is different, the price is not the same. There are pairs with very large and strong fluctuations like the British Pound (GBP), and also pairs like EURCHF that only inched a little. So there is no reason why you would risk the same amount of capital for currency pairs running at different amplitudes, it is also possible for children to figure it out. For currency pairs with a wide range of prices, we have to go small, reduce exposure because high volatile assets themselves have great risks, otherwise we have. can raise the risk capital up with the assets that run slowly, with low amplitude to increase profits.

And ATR is the tool that allows you to do that.


The ATR (Average True Range) is a great tool that allows the user to know exactly the absolute amplitude at which the price has run over the previous n sessions (default n equals 14). The ATR value for the GBPAUD pair is 208 pips, more than 2 times the volatility of EURUSD at 98 pips. So, based on the above results, it is crazy to risk the same amount of capital with these two pairs! Logically, we are forced to reduce our risk capital with mad dog-style pairs, and it is also possible to raise capital with slow-running pairs in an attempt to make a profit.

You can add this tool to your chart, it is set by default in MT4, located in the first item in the Oscillator section. With this tool, the default session number is 14, but you can customize as needed if necessary.


2, So what does it have to do with capital management?

A number that everyone talks about in capital management, is 2%. The maximum risk for a trade is 2% of the total account. That means that if your account is 100 dong, your maximum loss is only 2 dong. Many of you uploading pictures showing your green interest accounts really like the eyes, but capital management is in accordance with the all-in-black and red school.
So we have the first formula: Risk = 2% * Balance.

No matter how big your account is, 100 or 1000 or 10000 or 100000 USD, your exposure to risk is still 2%. Of course, that percentage can change based on your risk appetite. Those who are afraid of death will reduce to 1% and accept less food, and those who eat salty foods, just give it up to 4% 5% and accept the high risk of kidney stones.

Next, we define the stop loss. Stop loss is what allows you to have a less painful and stinging death (compared to squeezing losses or weighing orders), and stop-loss is one of the standards of a professional trader, so If you say trade does not need to stop loss, go free and then come here invite you to stop reading, we do not speak the same language. The recommended stop loss is 1.5 * ATR, with the ATR reading in terms of pip value. For example, ATR with EURUSD daily frame today is only worth 0.0098, which is 98 pips, so if you place a sell order right now, your stop loss will be 1.5 * 98 = 147 pips upwards of the entry point. The price just goes in the opposite direction of that point and you out.


Of course, the 1.5 * ATR is just a recommendation, you can completely change to 2 * ATR or 1.2 * ATR or 1 * ATR, this is up to you, but experience 1.5ATR is a level. Stop loss is relatively reasonable because it leaves enough distance for the price to move without being too afraid of sudden shock or stop the hunt, especially when trading with a large time frame like H4 or Daily.

Finally, we determine the appropriate command volume level. You simply divide the amount of Risk calculated above and divide it by SL. For exchanges with the price at the 5th decimal, the instruments divide by 10.

Repeat:
  • Calculate the risk. Risk = 2% * Balance
  • Calculate SL. SL = 1.5 * ATR with ATR in pip value
Calculate the maximum volume for 1 raft. Volume = Risk / SL for 4-decimal, or Volume = Risk / (SL * 10) for 5-decimal exchanges.
This set of jurisdictions will help you to accurately plan your risk exposure, and allow you to accurately determine your losses. This is a set of powers that is extremely pleasing to you, and extremely suitable for you from a variety of schools, anyone can apply.