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💰Risk Management

Position Sizing & Lot Calculation

Professional risk management is the foundation of profitable trading. BananaEA offers three position sizing methods to match your trading style and account management preferences.

LotMethod - Position Sizing Method

Overview

What it does: Determines how BananaEA calculates lot size for each trade.

Available methods:

  1. LM_RISK_PERCENT — Risk percentage of equity per trade (professional standard)

  2. LM_RISK_AMOUNT — Risk fixed currency amount per trade

  3. LM_FIXED_SIZE — Use same lot size every trade (simple/predictable)

Method 1: Risk Percent (Recommended)

RiskPercent

What it does: Risks a percentage of account equity per trade.

Configuration:

  • Default: 1.0%

  • Range: 0.1% – 10.0%

  • Recommended: 1.0% – 2.0% for most traders

How it works:

Example with $10,000 account:
RiskPercent = 2.0%
Maximum risk = $200 per trade

If SL = 20 pips:
Lot size = $200 ÷ (20 pips × pip value) = Auto-calculated

If SL = 50 pips:
Lot size = $200 ÷ (50 pips × pip value) = Auto-calculated (smaller lots)

Key advantage:

  • Risk stays constant as percentage (always 2% per trade)

  • Lot size adjusts automatically based on SL distance

  • Wider SL = Smaller lot size (maintains constant $ risk)

  • Tighter SL = Larger lot size (maintains constant $ risk)

Risk Percentage Guidelines

Risk %
Trader Type
Max Drawdown Risk
Recovery Difficulty

0.5-1.0%

Ultra-conservative

Very low

Easy

1.0-2.0%

Professional

Low-moderate

Moderate

2.0-3.0%

Aggressive

Moderate-high

Challenging

3.0-5.0%

Very aggressive

High

Difficult

5.0-10.0%

Extremely risky

Very high

Very difficult

Best practices:

  • Beginners: Start with 1.0% until you understand EA behavior

  • Experienced: 2.0% is professional standard

  • Prop firms: Follow firm requirements (typically 1-2%)

  • Never exceed 5% per trade (extreme risk)

Account Growth Compounding

Advantage of percentage-based risk:

Starting account: $10,000
RiskPercent = 2.0%

Trade 1: Risk $200 (2% of $10,000)
Win $600 → New balance $10,600

Trade 2: Risk $212 (2% of $10,600) ← Automatic compounding
Win $636 → New balance $11,236

Trade 3: Risk $225 (2% of $11,236) ← Continues growing

With fixed lot, you miss this compounding effect.

Method 2: Fixed Amount

RiskAmount

What it does: Risks the same currency amount per trade.

Configuration:

  • Example: 100.0 (risk $100 or €100 or £100 per trade)

  • Range: Minimum = 10.0, Maximum = account-dependent

  • Currency: Same as account base currency

How it works:

RiskAmount = 100.0 (USD)

Every trade risks exactly $100:
- If SL = 20 pips → Larger lot size
- If SL = 50 pips → Smaller lot size
- Account grows from $10,000 → $15,000 → Still risks $100/trade

Use cases:

  • Precise dollar risk control for personal rules

  • Prop firm challenges with specific $ risk limits

  • Managing multiple accounts with consistent $ risk

Limitations:

  • No compounding effect (fixed $ risk as account grows)

  • Must manually adjust RiskAmount as account grows

  • Less efficient capital utilization

Method 3: Fixed Lot

LotSize

What it does: Uses the same lot size for every trade.

Configuration:

  • Default: 0.1 (mini lot)

  • Range: 0.01 – 100.0 (broker-dependent)

  • Common sizes:

    • 0.01 = Micro lot ($0.10/pip on forex majors)

    • 0.1 = Mini lot ($1/pip on forex majors)

    • 1.0 = Standard lot ($10/pip on forex majors)

How it works:

LotSize = 0.1 (mini lot)

Every trade:
- Same lot size (0.1)
- Risk varies based on SL distance
- SL = 20 pips → Risk $20
- SL = 50 pips → Risk $50

Use cases:

  • Testing strategies with consistent position sizing

  • Very small accounts (< $500) where percentage risk is too small

  • Learning EA behavior without complex calculations

Limitations:

  • Risk per trade varies based on SL distance (inconsistent)

  • No risk protection (could risk 10% on one trade, 2% on another)

  • Requires manual lot size adjustments as account grows

Tip: Start small (0.01–0.05) while learning.

Choosing the Right Method

Decision Matrix

Use LM_RISK_PERCENT when:

  • ✅ You want professional money management

  • ✅ You want consistent percentage risk per trade

  • ✅ You want automatic compounding as account grows

  • ✅ You're trading with $1,000+ account

  • ✅ You want to scale position size with SL distance

Use LM_RISK_AMOUNT when:

  • ✅ You have specific dollar risk limits (e.g., prop firm rules)

  • ✅ You want precise dollar risk control

  • ✅ You're managing multiple accounts with same $ risk

  • ✅ You prefer manual compounding decisions

Use LM_FIXED_SIZE when:

  • ✅ You have very small account (< $500)

  • ✅ You're testing strategies with consistent sizing

  • ✅ You want simplest approach while learning

  • ⚠️ Understand risk varies per trade (not recommended long-term)

Risk Management Best Practices

The 1-2-3 Rule

Golden risk management rules:

  1. Per-trade risk: 1-2% of account

  2. Total exposure: ≤ 10% of account (all open trades combined)

  3. Daily loss limit: 3-5% maximum

Example with $10,000 account:

Per-trade risk: 2% = $200/trade
MaxOpenTrades: 3
Total exposure: 3 trades × 2% = 6% ($600 max)
Daily loss limit: 5% = $500 stop trading for the day

Account Size Recommendations

Account Size
Recommended Risk %
Max Open Trades
Total Exposure

$500 - $1,000

1.0%

1-2

2-3%

$1,000 - $5,000

1.5%

2-3

4.5-6%

$5,000 - $10,000

2.0%

3

6%

$10,000+

2.0%

3-5

6-10%

Drawdown Recovery

Why low risk % matters:

Drawdown
Recovery Needed

-10%

+11.1%

-20%

+25%

-30%

+42.9%

-50%

+100%

Lower risk per trade = Easier recovery from losses.

Prop Firm Trading

Common Prop Firm Requirements

Risk limits:

  • Maximum 1-2% risk per trade

  • Maximum 5% daily loss limit

  • Maximum 10% total drawdown

BananaEA configuration for prop firms:

LotMethod = LM_RISK_PERCENT
RiskPercent = 1.0  (conservative for phase 1)
MaxOpenTrades = 2-3  (limit exposure)
AllowMultipleTrades = false  (prevent scaling-in)

Phase 1 strategy (getting funded):

  • Lower risk (1.0%)

  • Conservative TP targets

  • Strict daily loss limits

Phase 2 strategy (funded account):

  • Moderate risk (1.5-2.0%)

  • Balanced TP targets

  • Continue strict risk management

Advanced Risk Techniques

Position Sizing Based on Win Rate

Higher win rate strategies:

  • Can use tighter stops (lower SL multipliers)

  • Can risk slightly higher % per trade

  • Can scale-in more aggressively

Lower win rate strategies:

  • Require wider stops (higher SL multipliers)

  • Should risk lower % per trade

  • Should avoid scaling-in

Kelly Criterion (Advanced)

Formula for optimal bet size:

Kelly % = (Win Rate × Avg Win) - (Loss Rate × Avg Loss) / Avg Win

Example:

Win Rate = 50%, Avg Win = 5R, Loss Rate = 50%, Avg Loss = 1R
Kelly % = (0.5 × 5) - (0.5 × 1) / 5 = 40%

Recommended bet: 20-25% of Kelly (8-10% per trade)
BananaEA safe implementation: 2% per trade

Why use fraction of Kelly:

  • Full Kelly is too aggressive (high volatility)

  • 25% of Kelly is professional standard

  • BananaEA's 2% default is conservative and safe

Risk Monitoring

Track These Metrics

Per-trade metrics:

  • Risk % per trade (should be consistent)

  • Actual $ risk per trade

  • SL distance in pips

  • Lot size used

Portfolio metrics:

  • Total exposure (all open trades)

  • Largest single trade risk

  • Correlation between open trades

  • Daily/weekly P&L

Warning Signs

Reduce risk if:

  • ❌ Experiencing losing streak (5+ consecutive losses)

  • ❌ Drawdown exceeds 15%

  • ❌ Emotional decision-making increasing

  • ❌ Account below comfortable level

Increase risk when:

  • ✅ Consistent profitability over 100+ trades

  • ✅ Account grown significantly (still keep % constant)

  • ✅ Strategy proven on live account

  • ⚠️ Never exceed 3-5% even when winning

Troubleshooting

Issue: Lot Size Too Small

Possible causes:

  1. Risk % too low for account size

  2. SL distance too wide

  3. Account balance too small

Solutions:

  • Increase RiskPercent (within safe limits)

  • Use tighter SL distances

  • Deposit more capital

  • Consider using RISK_FIXED_LOT for very small accounts

Issue: Lot Size Too Large

Possible causes:

  1. Risk % too high

  2. SL distance too tight

  3. Calculation error

Solutions:

  • Decrease RiskPercent to safe levels

  • Verify SL/TP settings

  • Check broker lot size limits

  • Enable ShowDebugLogs to see lot calculations

Issue: Inconsistent Risk

If using LM_FIXED_SIZE:

  • This is normal behavior (risk varies with SL distance)

  • Consider switching to LM_RISK_PERCENT for consistent risk

If using LM_RISK_PERCENT:

  • Risk should be consistent

  • Check for manual lot size overrides

  • Verify no other EAs are modifying trades

Related Settings

Quick Reference

Risk Method
Best For
Key Advantage

LM_RISK_PERCENT

Professional traders

Automatic compounding

LM_RISK_AMOUNT

Prop firms, precise control

Exact $ risk

LM_FIXED_SIZE

Testing, small accounts

Simple/predictable

Recommended configuration:

LotMethod = LM_RISK_PERCENT
RiskPercent = 1.0
MaxOpenTrades = 2
Total exposure = 2% (conservative default)
PreviousTrade Management ModeNextStop Loss & Take Profit

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