Position Sizing with XAUUSD, XAGUSD and WTI

tom82 · 21 January 2013

How do we work out position sizing with XAUUSD, XAGUSD and WTI?
I like to use a fixed dollar amount for my risk.
What I do to work out my position sizing when I trade fx pairs is:

Say I wanted to risk $50 on a trade and my stop loss distance is 72pips, I would:
Risk amount / Stop Loss number of pips
50/72=0.69

peter2 · 24 January 2013

You need to know the contract size to calculate your position sizing properly.

$50 / 0.0072 / 10,000 = 0.69 mini lots
$50 / 0.0072 / 100,000 = 0.069 std lots

If your XAUUSD contract size was 100 oz and your trade risk was $10/oz

$50 / 10.00 / 100 = 0.05 lots

You may need to include a currency conversion for a more accurate position sizing.

$50 USD * 1.05 / 10.00 / 100 = 0.0525 std lots

tom82 · 24 January 2013

Thanks. Thats what I want to find out from the calculation, how many contracts for the position size to put on.

Some people have told me Risk / stop loss in pips = risk per pip in $.

peter2 said:
You need to know the contract size to calculate your position sizing properly.

$50 / 0.0072 / 10,000 = 0.69 mini lots
$50 / 0.0072 / 100,000 = 0.069 std lots

If your XAUUSD contract size was 100 oz and your trade risk was $10/oz

$50 / 10.00 / 100 = 0.05 lots

You may need to include a currency conversion for a more accurate position sizing.

$50 USD * 1.05 / 10.00 / 100 = 0.0525 std lots

tom82 · 24 January 2013

I don't practice the % risk model, only the fixed dollar amount risk ie I know how much I am going to risk on a trade and I know the number of pips before entering as well.
However I could use a formula for position size that includes % risk as I will also know the % of my account that I will be risking on the trade by (risk * 100) / total capital in account.

peter2 · 25 January 2013

I don't think you understand this position sizing calculation yet. Practice with it and use it with yen prs.

It's vital to your own account to understand your capital risk in each trade before you start it.

harreymartin · 16 February 2013

I don't practice the % risk model, only the fixed dollar amount risk ie I know how much I am going to risk on a trade and I know the number of pips before entering as well.
However I could use a formula for position size that includes % risk as I will also know the % of my account that I will be risking on the trade by (risk * 100) / total capital in account.

tom82 · 18 March 2013

I found the following on another forum, hopefully it will help other people also wondering how to calculate their position size:

Let me explain how I calculate with an example...

Let's say you were looking to go long on Gold with the following specs:

Enter Gold at $1649.65/oz
Stop Loss at $1625.00/oz
You want to risk $100

This is a SL difference of $24.65. So you need risk $100 over $24.65.

The ounces you must thus buy is $100/$24.65 = 4.06 ounces. But you have to work out how many lots this is equivalent to.

The lot size you have to buy is determined by how many ounces = 1 lot (defined by your broker). My broker says 100 ounces = 1 lot therefore the lots I will have to buy is:

ounces/100 = 4.06/100 = 0.04

tom82 · 3 August 2013

peter2 said:
You need to know the contract size to calculate your position sizing properly.

$50 / 0.0072 / 10,000 = 0.69 mini lots
$50 / 0.0072 / 100,000 = 0.069 std lots

If your XAUUSD contract size was 100 oz and your trade risk was $10/oz

$50 / 10.00 / 100 = 0.05 lots

You may need to include a currency conversion for a more accurate position sizing.

$50 USD * 1.05 / 10.00 / 100 = 0.0525 std lots

Ok, so I'll use an example to see if I'm getting this.
Amount you want to risk in $ / the difference between opening and stop loss price or risk per ounce / contract size

$50 / 17.23 / 100 = 0.02

So 0.02 lots (2000 units) is traded.

So you just replace 100ounces with 1000 for wti and 5000 for silver?

peter2 · 5 August 2013

Yes, you've got it.
As most markets have a base currency of USD you may have to apply a currency conversion if you want to know your risk in another currency (like AUD).

Risking $50 USD ~ $50/0.89 AUD ~ $56 AUD

CFDS are great for trading smaller sizes than the futures' markets. Remember that you are paying extra for this privilege via the spread between bid/ask.

tom82 · 5 August 2013

peter2 said:
Yes, you've got it.
As most markets have a base currency of USD you may have to apply a currency conversion if you want to know your risk in another currency (like AUD).

Risking $50 USD ~ $50/0.89 AUD ~ $56 AUD

CFDS are great for trading smaller sizes than the futures' markets. Remember that you are paying extra for this privilege via the spread between bid/ask.

Thanks very much for your assistance, I really appreciate it!

That is some of the reason I am interested in CFD's and forex as it is possible to trade in small amounts and the flexibility of doing so. I'm interested in trading the commodities by a forex broker rather than a straight out CFD broker, pretty happy with the MT4 platform but not to keen on some of the platforms some offer (such as the CMC platform), any comments and advice on this?

My accounts are in AUD with AxiTrader, FXCM and CMC Markets, though am considering moving to a broker that has more commodities, axi and fxcm mainly have gold, silver and wti with forex, I'm considering thinkforex or Invast, know of any more that have a good range of commodities or advice?

As you probably guessed I like to know how to do the calculation manually, and I think it is important to know how to do it and work it out so you can make sure you are staying within your risk amount. Also it is good to know so you can enter details into a trading journal / spreadsheet.

Say I'm risking $AUD50 and I want to know how much it is in USD I would just do the following?
AUD risk amount * exchange rate you want to know what the risk is
50 * 0.89 = $USD44.50

Looking back at my example, if it were gold:

$50 / 17.23 / 100 = 0.02

So 0.02 lots (2000 units) is traded.

2000 units is actually 2ounces I think?

peter2 · 5 August 2013

Yes 0.02 lots is 2 oz (for XAUUSD).
Hope you realise that the silver contract is a big one. If you can't trade gold profitably don't try silver.

My suggestions:
Don't try to scalp as your costs will be a huge hurdle to overcome. Try to target good R/R trade setups.
It's easy for me to point out the importance of good R/R but it's very difficult to stay in a trade when volatility increases suddenly.
Be aware that the commodity markets move during the UK session and can be very volatile during the US session (esp. 1hr before US open). Don't start a trade with a tight SL just prior to news or the start of the UK,US sessions.
The only thing that will help you stay in the great trades is a set of rules that you know works.
Your success will be determined by your trade management once you start a trade.

Start trading in only a few markets at first. Look at others when you are consistently profitable in your favourites. Commodity markets move when you are not looking at them (lol).

I would add good luck, but you really need to have a solid trading plan and an excellent grasp of risk management before you start.

peter2 · 5 August 2013

This is an example of what can happen at the start of the US session (XAUUSD, 15m)

The indicator shows me the start, high and low of each session (Asian, UK, US ) which are 1hr before the main stock exchanges open.

If you had bought the break-out of the sideways range and used a tight SL (not below the low of the day) then you would have been cleaned up by the increased volatility and missed the spike up.

tom82 · 5 August 2013

peter2 said:
Yes 0.02 lots is 2 oz (for XAUUSD).
Hope you realise that the silver contract is a big one. If you can't trade gold profitably don't try silver.

My suggestions:
Don't try to scalp as your costs will be a huge hurdle to overcome. Try to target good R/R trade setups.
It's easy for me to point out the importance of good R/R but it's very difficult to stay in a trade when volatility increases suddenly.
Be aware that the commodity markets move during the UK session and can be very volatile during the US session (esp. 1hr before US open). Don't start a trade with a tight SL just prior to news or the start of the UK,US sessions.
The only thing that will help you stay in the great trades is a set of rules that you know works.
Your success will be determined by your trade management once you start a trade.

Start trading in only a few markets at first. Look at others when you are consistently profitable in your favourites. Commodity markets move when you are not looking at them (lol).

I would add good luck, but you really need to have a solid trading plan and an excellent grasp of risk management before you start.

I trade price action, inside bars, pin bars and fakey and look to achieve 2:1 rr or more, trade on daily charts and 4 hour charts.
I have a trading plan that details how I can trade these patterns. Have only been trading forex and recently WTI.
Yeah tight SL wont work on gold as it can move several hundred or thousands of pips in a day.

Can you recommend any books (or parts of books) or websites on these topics trading xauusd, xagusd, wti etc risk reward, position management?
Have you found any useful?

tom82 · 5 August 2013

peter2 said:
Yes 0.02 lots is 2 oz (for XAUUSD).
Hope you realise that the silver contract is a big one. If you can't trade gold profitably don't try silver.

My suggestions:
Don't try to scalp as your costs will be a huge hurdle to overcome. Try to target good R/R trade setups.
It's easy for me to point out the importance of good R/R but it's very difficult to stay in a trade when volatility increases suddenly.
Be aware that the commodity markets move during the UK session and can be very volatile during the US session (esp. 1hr before US open). Don't start a trade with a tight SL just prior to news or the start of the UK,US sessions.
The only thing that will help you stay in the great trades is a set of rules that you know works.
Your success will be determined by your trade management once you start a trade.

Start trading in only a few markets at first. Look at others when you are consistently profitable in your favourites. Commodity markets move when you are not looking at them (lol).

I would add good luck, but you really need to have a solid trading plan and an excellent grasp of risk management before you start.

Was I correct with the following statement?

"Say I'm risking $AUD50 and I want to know how much it is in USD I would just do the following?
AUD risk amount * exchange rate you want to know what the risk is
50 * 0.89 = $USD44.50"

peter2 · 5 August 2013

Yes you are correct.

I don't know of any resources that fully discuss position sizing and risk management using cfds. Even the cfd providers don't provide a thorough discussion as that would show their real costs. They seem to prefer to keep things complicated.
Use cfds to learn how to trade with "skin in the game" and preparation before trading the futures' markets.

I like price action also and put more emphasis on the daily bars than the 4H. A 4H candlestick bar that is formed during the "dead" time zone means nothing. Likewise a 4H doji or inside bar formed during the Asian session has less meaning than at other times.

Interesting that you have noticed the fake-outs. You could build a good edge using those as well as my fav bar (the outside reversal bar or key reversal).

tom82 · 5 August 2013

peter2 said:
Yes you are correct.

I don't know of any resources that fully discuss position sizing and risk management using cfds. Even the cfd providers don't provide a thorough discussion as that would show their real costs. They seem to prefer to keep things complicated.
Use cfds to learn how to trade with "skin in the game" and preparation before trading the futures' markets.

I like price action also and put more emphasis on the daily bars than the 4H. A 4H candlestick bar that is formed during the "dead" time zone means nothing. Likewise a 4H doji or inside bar formed during the Asian session has less meaning than at other times.

Interesting that you have noticed the fake-outs. You could build a good edge using those as well as my fav bar (the outside reversal bar or key reversal).

Know any good resources on forex on those topics?
Similar to CFD.
Yeah, I dont do inside bars on the 4H though, too many of them and too many that don't work out. But obvious pin bars and fakes on the other hand...

Know of any good information on outside bars and key reversals?
Mostly I trade with the trend.

tom82 · 12 August 2013

Say I was selling WTI, per your formula I would:

$1000 / 3.5 / 1000 = 0.28

Is that right?

Or would I sell 2.85 lots?

tom82 · 12 August 2013

tom82 said:
Say I was selling WTI, per your formula I would:

$1000 / 3.5 / 1000 = 0.28

Is that right?

Or would I sell 2.85 lots?

It was meant to be:

1000 / 0.33 / 1000 = 3.03

Cant delete the other message, time expired.

peter2 · 12 August 2013

Yes that is right.

Crude Oil ( contract size = 1000), Risking $1000 USD, Size of iSL = 0.33

Amount to be Risked / size of iSL / contract size = std lots
$1000 USD / 0.33 / 1000 = 3.03 lots

To risk $1000 AUD: 3.03 * 0.915 = 2.77 lots (makes sense as the AUD is worth less than the USD)

tom82 · 12 August 2013

peter2 said:
Yes that is right.

Crude Oil ( contract size = 1000), Risking $1000 USD, Size of iSL = 0.33

Amount to be Risked / size of iSL / contract size = std lots
$1000 USD / 0.33 / 1000 = 3.03 lots

To risk $1000 AUD: 3.03 * 0.915 = 2.77 lots (makes sense as the AUD is worth less than the USD)

Ah good I was right in changing to to 1000 for the contract size.

So you just multiply the lot size by the AUDUSD rate?

Ok, thanks. Just testing out on demo.

Position Sizing with XAUUSD, XAGUSD and WTI

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