# Fixed-Volatility Money Management

Fixed volatility looks to limit the market’s volatility to a fixed percentage of your account balance. To calculate the number of contracts to trade according to fixed volatility, you would use the following formula:

Market volatility (Pips risk in dollar value) refers to market movement measured by using ATR Stop-Reversal Level.

Fixed volatility does not take into account a trader’s individual risk. If the market’s volatility measure is within the fixed-percentage account limit, a trade is taken, regardless of its individual risk. Similarly, if the market’s volatility expands and exceeds the fixed percent account limit, a trade will not be selected, regardless of its individual trade risk.

For example, if you had USD15000.00 account balance and wanted to limit your risk to 2% of your account, you will face 200 pips risk which determined by using 10-day ATR. Pip value for EURUSD is USD1.00 (in mini account).

The following table illustrates how the number of contracts traded changes with the market’s volatility.

 Account Balance Fixed Percent Fixed % dollars Market’s 10-day ATR Contracts Added Points Pip Value \$\$ Vol Actual Round Down \$15000 2% \$300 64 \$1 64 2.3 2 \$15000 2% \$300 157 \$1 157 1.9 1 \$15000 2% \$300 269 \$1 269 1.1 1 \$15000 2% \$300 533 \$1 533 0.56 0

In short, when market volatility is high, fixed volatility tells you to trade less because market is wild and dangerous. When the market settles down, fixed volatility tells you to trade more because the market is behaving itself. It should be noted that if 10-day ATR is used as stop loss, then fixed percentage and fixed volatility would produce the same position size.

## 2 thoughts on “Fixed-Volatility Money Management”

1. Very nice article … totally makes sense.

BTW, the second row with actual contracts 1.9 … shouldnt we round it to 2 instead of 1 ?

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• L. C. Chong says:

as of now, when I place order, I dun round.

I might change….

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