Risk Management | lot Size allocation

This video tutorial is going to explain to you risk and how to choose your lot sizes, right? So you guys will find out about the or I'm sure you already know about the Ellen calculator, so I'm just going to pull it up here and just explain a few things to you. So let's say you choose your risk of 0.03 on an account of $1,000. It will tell you here that this is your lot size, that your lot size that robot is going to open is 0.03. Now the robot is a dollar cost averaging robot and it will trade with the trend. And when the trend changes, then the robot will trade counter to the trend. So if the price of gold is going up and the price comes down, the robot will start opening buy trades on the way down. So let me open up a chart here for you so that you can start understanding what I'm talking about. Let's say that the robot. There's a big red candle. Let's say there's a red candle. What will happen is, is that the robot will start opening trades at specific intervals. Now what kind of trades are these going to be? These are going to be bar trades. So how the robot works is it's going to open buy trades counter to the trend. And then when the candle retraces or a new candle opens and the price goes up, all these trades that were red, these buy trades, they were red, they now green. And the robot will then close these trades out. Now these buy trades, obviously when the price is coming down here, okay, is going to create a drawdown for you. But you, what you need to understand is what will that drawdown be and how do you mitigate this risk? So this is what this video is about. So if we go to the server, I'm going to explain to you how to find out what lot sizes to use so that you can keep your drawdown at its lowest and still maximize on profits. So what I'm going to do is I'm going to just open up a trade. I'm going to click on new order, but I'm not going to click on, I'm not going to place an order. I'm going to place a pending order, which is it's like an order that when certain parameters are met, the order will execute and the trade will be in play. So right now what we can see is we can see that the price is at 2912. So I'm going to put in a pending order at 2901. Okay, let's go to new order. And I'm going to say I don't want it at market execution. I want a pending order, and I want a buy limit. And if we go back to the calculator, the calculator is saying that the, the robot is going to place a 0.03 lot size. So I'm going to put in there the 0.03 lot size, and then I want to understand what the drawdown is going to be if the price comes down to, let's say, 2800. Can the price come down to 2800? Absolutely. So I'm just going to place the order and you'll see that stop loss, pending order. Where do I want to place it? I want to place it at 29003 is where I want to place this trade. Okay? So there you can see, here's the pending order. There it is over here buy limit. And here is the stop loss. Now, when I take my, my mouse and I hover over this trade, what will happen is a little box will come up and it'll tell you what the drawdown is of that trade. And as you can see, the drawdown of that Trade is, is $3, which is 0.3% of your account, and just that trade is 0.3% of your Account and $3. But you need to remember that as the price is coming down, the robot can open trades all the way down. So you could have 10, 15, or 20 trades. So let me do some maths, and let me work out some maths for you so that you can see exactly what the drawdown could be if the price retraces down to 2800. Right. So I've done some maths here, up to 13 trades. And I've started off with the 2900 price. That that is where the initial order was placed. And this is what the drawdown will be if the price goes down to, let's say, 2800. So I've reduced each trade's drawdown by approximately 10%. It could be more, it could be less. Now, the reason I say that is because the robot is programmed to place trades at different distances, and it only places one trade per candle. So it depends on where the candle is and away from the previous trade that will that the robot will then decide when to place a trade. So the coding of the robot is coded so that.

Your first one to three trades will open at a distance of, let's say.

20 pips. And as the robot starts opening more trades, the distance between the trades gets wider and wider so as to limit the amount of trades that the robot is going to open. And, and the reason for that is to contain your drawdown. So as the robot starts opening trades, the distance between trades increases so that your drawdown doesn't get out of hand. So let's say hypothetically, the robot opened 13 trades and this is on one chart, and your drawdown was $22.

So what that basically means is if you had a thousand dollar account, this would be a 2% drawdown in totality. So how do we work that out? We say $1,000 and we say equals that divided by that and we can say equals that times 100. And that will get to your, that'll get to your, your drawdown 100%. So let's just do that like that. It's 2%, as you can see. Okay, so if you had four charts trading, it means that your drawdown would be 8% over your four charts. Now it could be more, it could be less depending on when your trades opened, the distance between the trades. But if, for example, it was 5%, you could say that your drawdown over four charts would be five times four charts would be 20%.

So now you can start understanding, if you go back to this trade, how to contain your drawdown and how to get the best possible lot sizes for your account.

So if we had to delete this trade, let's say delete the trade and we create a new trade. Let's say new pending order, and we say here, let's go back to the calculator, we go to the calculator here and we say we want to increase the risk, and we want to increase the risk to let's say a 2, a 02. So we now know that the lot size is going to be a two lot. So if we put in a two lot here and we put in here the pending order, we'll put in here the stop loss of 2800 and then we put in the buy price of 29. Oh, I'll put you at 2900 and we'll place the trade.

Here is the order and here is the stop loss. So now you can see here that the trade is going to be the drawdown on that trade. Just that trade is going to be $20. So if we go back to the sheet here, the risk management. So let's say the risk was $20 here you now, okay, what the potential drawdown is per trade. And you can see here, the total drawdown here is $149. And this is for one chart. So if you were running four charts, four charts, you could say equals that times four charts is 60%. So we'll just change that to 60%. So we could say that this is a fairly high risk strategy because you have a hedge functionality. And the hedge functionality is probably going to kick in at between 25 and 30%, depending on how you've set it up. My setting is at 25%. That's when I like to hedge. But it's up to you when you want to hedge. So at 20% over here, probably be about there. 11 trades in your account will hedge and your robot will still continue to trade and you'll still make profit. But it is a high risk setting. So now you can start understanding how to.

Choose your best lot sizes because now you understand what the risk is going to be per trade. So what I'm going to do is I'm going to leave this calculator for you, okay? On the, on the website, you can go and download it and you can start messing around with the different figures and the different lot sizes so that you can start understanding what lot size you really want to use. So I hope that you found this video interesting. And if you need more information or you don't understand something, just come on to the EA setup group and you can ask questions there. I'll see you on my next video.