Money management system #3 (Lot size management)

This is another approach to lot size management:

L - loss
W - win
1L - a loss of 1 lot
2W - a win of 2 lots and so on

Lot size management rules:

Rule #1. If you win your first trade in a series, you count it as a win and start a new series;

Rule #2. When you lose, you keep trading the same size until you hit a winner. After one win, you trade equal to the aggregate of the previous losses (example: after 4 losses at 1 lot followed by 1 win at 1 lot, you increase your trading size to the sum of the 4 losses - 4 lots in this example);

Rule #3. If you have a series of losses, one win, then another series of losses, you trade the size of your most recent bet multiplied by the length of the larger losing streak;

(Example 1: after 2 losses at 1 lot, 1 win at 1 lot, 3 losses at 2 lots, and 1 win at 2 lots, you are now betting at 6 lots (3 losses by 2 lots);

Example 2: after 3 losses at 1 lot, 1 win at 1 lot, and 2 losses at two lots, you would trade 6 lots since the current bet size is 2 and the largest losing streak is 3)

A natural result of this system is that there are circumstances where the trader will be breakeven before two consecutive wins. This happens when a second win is achieved within the number of trades equal to the largest losing streak of the series. Example: L L L L W L L W would actually result in a breakeven case.

Again, the biggest danger is a large amount of losses with intermittent wins that aren't consecutive. Example: L L L L W L L L L L L L W translates to trading at 28 lots (streak of 7 losses multiplied by the current trade size of 4) per trade following that second win. Add two losses to this example and you're down 56 lots and still looking for two consecutive wins.
...On the other hand, if a trading system brings so many losers and so little winners, may be it is time to change the system... :)

Happy trading!

Edward Revy,

Copyright © Forex Strategies Revealed

For now, I think the best strategy is to make each trade that is, divide the amount available in the account for a number (which can vary upwards or downwards according to the percentage of correctness of the chosen strategy), to arrive the value of the lots. For example: $ 1000/2500 = 0.4 lots.


Worst one i ever heard..Go to hell with your blown account

It doesn't seems to be good strategy...always trade with 2-5% of your account balance and keep lot size based on pip cost( depends on the currency pair).

This is terrible . I'm only a begginer but i can say it's terrbile... this system is like an anchor it's like u throw an anchor u pull it up a little than he drags u 10ft , than u pull him up a little , and again he draggs u back until u hit bottom ( 0.00$) ... and another thing " are now betting at 6 lots (3 losses by 2 lots); ..." from when does forex is betting ?

Am really impresse with this site. Ed u re doing wonders. Let me share my own lot size management here. #1 acc. With less than 2000 USD shd trade 0.1 lot, 2k - 3k 0.2, 3k-4k 0.3 lot and so on. 10k 1.0. Use a SL =30pip n use d cci n PSAR describe by Edward as exit. Locate a gud entry system. D idea is if u have 500 Usd in ur acc wit 0.1 lot size it will take 33 straight loss trade 2 wipe ur equity which is nt possible wit gud trading system. Also, i prefer 1:500 leverage bt don't b tempted 2 increase ur lot above ur equit as i hv described above. Hapi trading. Fx executioner.

Yep, "Martingale Strategy" is the term I was looking for to describe what this sounds like. I'm convinced you don't want this.

@User on May 25, 2010 - 14:51. "I turned $1200 into $11,000. But then here's the disaster."
Just for grins, how long did it take you to bust when you traded options with this method? Some of us want to last years.

And please, "You know when certain trades are going to be good ones". If that were true, you should bet your entire account when "YOU KNOW". However, the fact is that you DO NOT KNOW when certain trades are going to be good.

Conclusion: Stay away from this method!!!

Very good point, it is good practise to decrease lot size after each loosing trade

I really have a point here, this strategy is what 90% of traders do, if you don't believe me, go and check your demo account and check how much leverage are you using. if you are using more than 10 times your leverage, then, this is the strategy you are using without knowing it. Traders can lose their account in few trades b/c they use high leverage.

In this current strategy, the author is using high leverage without knowing it. When you lose in the trade, the available funds are more less, and the margin is far less and he or she still manage to take the same position which is just how we, the traders do it when we over leverage our accounts.
This strategy is a wake up call to all of us.

Happy trading
H Akbour

Martingales should be left in the Casino room..

I left the post on May 25, 2010. The one where I stated that I had actually put it to use with binary options. This is in response to the post above this current one. As I said earlier, you do have to put it with a good strategy. This strategy shouldn't even be considered unless you have a winning strategy. This lot management here is just icing on the cake, filling in the gaps. That's all. If you don't have a profitable system you will fail. But to those that do, you can turn your 70%-80% winning system into a 100% system with this strategy. If you are on this site there is no way you should not have found a system that wins 50% of the time. There are plenty. One of my favorites is the 4 candles in advanced. The trick is to tweak these systems to your own personality. I still thank whoever posted the strategy.

Schemes like this are the sign of someone who has no confidence in their trading plan, or better yet has no plan at all. NEVER increase your risk past your stated risk level... and yes, you should have a maximum risk level... and it shouldn't be "I'll keep increasing my lot size until I win".

To those of you pushing the "Kelly criterion" in these comments, you might as well stop. First of all, using Kelly requires you to have a system that has a greater than 50% win rate. It also requires that you know intimate variables about the trading system to choose the proper risk level... the people considering these strategies have no idea what those variables are, and most don't have systems that win more than 50%.

Martingale Strategies almost never work. Also read Van Tharp's books on this

This is so totally, utterly stupid, there are no words to describe it.

As far as I am aware, a similar "strategy" has sunk Barings Bank. It WILL sink any account it is applied to, small or big.

Losses need to be faced and accepted. Getting reckless trying to bring back a small loss WILL result in a large loss.
In turn, getting reckless trying to bring back a large loss will eventually result in a margin call.

Before concluding let me ask you guys, have you ever backtested this concept ?
Just get what it tells historically and decide something on your own.
The backtested results may be worst but it would give you an insight to this lot size management and you can contribute to your strategy and improve it or mix it with your strategy, it would have an impact.
"The Best is hidden in worst"

Post new comment

We read every comment. Proceed if you're a human: