| Friday, 8 June 2012 10:14

Written by alanetoro

How much is the right amount to open a trade with?  I use a very basic formula; I do not open a trade with more than 2-5 % of my equity. Then to cover myself even more I use the stop losses. The profits are also locked in as the trade moves into profit by reducing the stop loss and extending the take profit. So if the market pulls back, your stop loss will kick in and the position will close.

How does this all work? Let’s look at an example; my total equity is \$3500, you open a trade for \$100 at a leverage of x25, pip rate is 0.20 the entry price is 1.2500; you set the stop loss at minus 50 pips (50x.20 =\$10) i.e. 1.2450, and your take profit at 1.2650 (that is a gain of 150 pips x.20 =\$30 profit). Total risk was \$10 if it hits stop loss. Profit is \$30 which is a 30% gain.

Example

Total equity \$3500

Enter position 1.2500

Investment \$100

Pip value 20

Leverage 25

Stop loss 50 pips off 1.2450 (50 pips x.20 total \$10)

Take profit 150 pips 1.2650 (150 pips x0.20 profit \$30)

Total amount of risk to equity \$10

Total profit \$30

If the trade reaches 1.2800 by moving stop loss and take profit, the total profit is \$60.

In summary:

Low leverage

Set up stop loss

Set up take profit

Move stop loss to lock in profit

| Friday, 8 June 2012 10:14

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