The Way of Investment (Part 4)

Investment's Road to Success (Part4）

　2022年2月のAUDJPY Buying trade stop loss width examined.

1．      About stop loss width

Since this is a daily or4-hour chart trade, the width is somewhat wider.

When entering beyond a threshold, the difference from the recent low is about276PIPS, when entering beyond the uppermost level, the difference from the recent low is about393PIPS.

In actual trading, the drawdowns were, respectively140PISP and49PIPS, so it is not necessary to set stop loss exactly at the recent low line; even a150PIPS

In the first place, in case of buying, positions are opened at points that rise upward, and in selling, at points that fall downward, so there is little worry about large counter-moves. Even if you set the stop loss to200PIPS in this example, there was no problem.

2．      Capital management

Stop loss width200PIPS for daily trades, capital management is examined.

＜Required margin＞

In domestic securities firms, leverage is25 times, soAUDJPY buying83,000 yen per lot (100,000 currency units) is considered. The required margin is calculated as follows.

Required margin= 83.000 ×　100,000 / 25

          　　 = 332,000 yen

＜Spread loss＞

From the moment you hold a position, this spread loss becomes negative. The spread amount varies by broker and also with market conditions.

For exampleAUDJPY3.5PIPS,

             Spread loss= 3.5 × 100,000 / 100

= 3,500 yen

＜Stop loss width＞

  Since the maximum drawdown was140PIPS, assume the stop loss width is set to200PIPS.

             Capital required to withstand the stop loss= 200 × 100,000 / 100

                                              ＝200,000 yen

Above totals, to open a long position of 1 lot, you need535,500 yen.

If total funds are1,000万円, opening a 1-lot long position yields maintenance margin rate(%) as follows.

  Maintenance margin(%) = (Account balance ＋ Unrealized P/L) /Required margin×　100

×100

= 300.15 %

Maintenance rate when the rate drops to the stop-loss level is2,

Maintenance rate2  = ( 1,000,000 – 3,500 – 200,000 ) / 33,2000 ×100

             ＝239.9％

If total funds are1,000万円, even with opening a 1-lot position you will not go bankrupt.

However, given the assumed stop loss width of200PIPS, drawdown could reach 20% of total funds, which is quite a high risk strategy.

How much risk to tolerate depends on the trader's philosophy, so there is no single answer for what is best, but generally2% to5%

If safety is prioritized and operating with risk2%, the number of lots would be10分の1の0.1ロット.

Profit range is about900PIPS, so trading 1 lot yields a profit of900,000 yen, and trading0.190,000 yen.

3．      subsequent

In Investment's Road to Success (Part 3),“Wouldn’t a strategy of buying on a pullback in CHFJPY be good?”was written. Though retrospective, I tested it on a chart.

The figure above is CHFJPY, 15 year624 to 28

　CHFJPY is overall in line with the rising trend line labeled ④. It is also supported at resistance/support lines ① and ②. Drawing the counter-trend line ③ shows a small triangular consolidation formed between the rising trend line ④. If the price breaks above the triangle, rebounds at the resistance/support line ② twice, and also rebounds at the rising trend line ④, that area becomes an excellent buying spot.

　In 15-minute candles, after a bullish candlestick closes, even if you buy, the downside to the most recent low is48PIPS, take profit is waves ahead, and the take profit width is the red-arrow width. The take profit width is about160PIPS, giving a risk-reward ratio of in the “classic” trade.

On a closing basis, the price does not fall below the buy entry. Even in the worst case, the drawdown is only. From the fifth candlestick onward, profits accumulate steadily, making this a reassuring “classic trade.”