Please, i want to start by saying that what am about to describe would rather be considered as a METHOD Than a STRATEGY
My method can only be adopted by those who are patient and would want to go on a very low risk trading
My theory is based on the fact that you want to risk little and gain little. if you are that person contented with little profit then this method is for you.
Let's assume you have $10000 in your trading account and only want to risk just 1% of it in a trade
this means you would be risking just 1% of $10000 = $100 in your trade
from this, your stop loss has to be such that you can only loose $100
You may decide to use a lot size of 0.1 ($1 per pip) and your stop loss would be 100pips OR
You go by my method of splitting that lot size further. i may decide to split the lot size into four (4)
that is 0.1/4 = 0-.025 (oops!!! most broker wouldn't support that for a standard account but if you are with instaforex, you can simply use 0.25 which is $0.25 per pip)
NB: Lowering the risk means reducing the profit as well. if you are not okay with this then i think you should stop reading this thread from here because this method isn't for you.
Oh!! your still reading?
i have probably seen one person who would rather want to stay longer in this market
Now instead of just using the $1 per pip lot size, i have decided to divide it into four more part of $0.25 per pip which means i need to have a stop loss of 100pip (maximum of $25 loss) for each division to give the maximum of $100 risk for my trade
THE METHOD PROPER
Now, let us assume you have done your analysis on probably Eur/USD per and want to go on a SELL at a price of 1.3000
Remember that the maximum we wanna loose is $100 meaning that each of the four (4) sub divided lot size should have a stop loss of 100pips
Since my entry point is 1.3000, i can further decide to break my entry point too into for different points as follows:
POINT A at 1.3000
POINT B at 1.3050
POINT C at 1.3100
POINT D at 1.3150
Now let see how i would do it:
At POINT A
Market type: SELL ( Applicable to all the other entry points)
Order: Instant sell at 1.3000
SL : @ 1.3100
TP: optional ( you decide that)
Lot size: $0.25/pip ( applicable to all the other entry points)
AT POINT B
Order: Sell limit @ 1.3050
SL: @ 1.3150
AT POINT C
Order: Sell Limit @ 1.3100
SL : @ 1.3200
AT POINT D
Order: Sell Limit @ 1.3150
SL @ 1.3250
when you look at the points above, will find that:
1. All the their entry points are of 50pips interval ( its not rigid. i choose this for my illustration)
2. they have 100pips stop loss each
Now, if enter my first trade at POINT A and the market moves up against me and gets to POINT B, the POINT B market would be triggered but POINT A market will be on a loss of 50pips (-$12.50)
if the market eventually returns to POINT A, then i POINT A market is on even meaning no profit and no loss but POINT B market would be on +50pips (+$12.50)
If that is not the case but the market kept going against me and gets to POINT C then i will finally loose the market at POINT A ( because the market has moved 100pips already and the loss is -$25) and the POINT B market would equally be floating on a loss of -50pips ( -$12.50) while POINT C market is triggered.
If the market eventually falls back to POINT B then my floating loss at POINT B is cancelled and i will be at +50pips profit from POINT C market.
my net loss so far would be 50pips (gain from POINT C market)- 100pips ( loss made from loosing POINT A market) = -50pips ( -$12.50)
If the market keeps moving again to fall back to POINT A, then my POINT B market would be on a profit of +50pips (+$12.50) while the POINT C market would be on 100pips($25) profit. that is to say that i would finally be on a net profit of 50pips ( 150pips made from POINT B and C market - 100pips loss from POINT A market)
But if on the contrary the market kept going against me and reaches POINT D. this means that i would by now lost POINT B market ( SL will be hit which is -$25) while POINT C Market would be floating in a loss of -50pips (-$12.50)
At this point, i have lost a total of -$50 from POINT A and POINT B markets while my final market at POINT D is triggered.
If the market falls from POINT D to POINT C then the floating loss of POINT C market is cancelled while POINT D market would be up by 50pips ($12.5).
If the market further falls down to POINT B, i will by now be making 100pips profit from POINT D market and 50pips from POINT C market.
If the market further falls down to POINT A, I will be making 150pips profit ($37.5) from POINT D market and 100pips profit ($25 ) from POINT C Market.
this means that by now i would be making a profit of +50pips after subtracting the total of 250pips from POINT D and POINT C market from the loss of 200pips i made from POINT A and POINT B markets.
If on the contrary, instead of the market falling it went further up at 50pips above POINT D then i would finally loose POINT C market while POINT D Market would be on a floating loss of -50pips.
If am still unfortunate and the market moves 50pips more ( oh!!! what a bad day). i will finally loose all the market but still the total loss would be $100 by the market moving by 250pips altogether
ADVANTAGES OF MY METHOD
1. You are loosing the stipulated amount ($100 for our case) by when the pips moves 2.5 times more than when you use a single lot size. if i had used $1/pip, i would be loosing the $100 by 100pips but for my method of four division, i would loose the same $100 by 250pips
2[/COLOR]. in this method, you stand a chance of gaining something from the market than loosing all
DISADVANTAGES OF MY METHOD
1). If i open my first trade and the market kept going my way, my other pending order becomes useless and my profit would be divided by four (4) of what it should have been if i had used the whole lot size
In conclusion, someone will assume my method as though am trading against the trend but you know what?!!! You are WRONG!!!
Remember i did not specify any strategy but a method. you have to first use your strategy to determine your entry point point after which you can apply the POINT B, C and D