Imagine that your strategy implies 10 points stop-loss and 20 points take-profit. You have find out that the average number of losing trades in one series made under your strategy equals 3. The price moves in some direction on the chart, and you have decided to sell 0. It is for some reason believed that the lot size should be always doubled, if the martingale is used. That is not necessarily so. It all depends on your desire and appetite for risk only. We have sold 0. We have got a loss of 10 points once again.
For the third time, we have taken profit. What should we do, if the third trade brings us losses, and the price keeps going up? Assuming that the price starts going further, and a signal occurs again. We begin to sell once again. What lot size should be used at that? We have found out by means of the backtesting that the average number of consecutive losing trades allowed by our strategy is three.
It follows that we can increase our position size by three times. The fourth losing trade is considered to be a non-standard case. It would be better to smoothly decrease the lot size up to 0. Traders got used to regard martingale as a trading in one direction only. The price goes against you. A stop-loss is triggered, and then a Buy signal occurs.
Why not to catch the signal? We open a Buy order, but we increase its lot size up to 0. We open a Sell trade of 0. Martingale and money management. It is necessary in case a stop-loss of the last order of your series is triggered.
Of course, we increase our risks a little. However, at that we adhere to prudence, since our task is to earn profit, but not to lose our deposit. Open a trade manually and then run an Expert Advisor. One of the methods of implementation of this strategy is to make use of technical assistance in the course of your trading. For example, you can identify entry points and open positions manually and then launch an Expert Advisor, which automatically opens additional positions that have an increased lot size.
However, the method has a disadvantage. This approach will not allow you using signals generated by your strategy: It would be a good idea to open positions, which have an increased lot size, at the levels of support-resistance.
We should enter the market on the resistance levels or any other important levels in the same way. I guess you understand that you should test your strategy in full over the price history before you start trading on a real or demo account. I would like to remind you that these elements can be implemented, if only you have a profitable strategy.
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