Controlling Forex risk and success rates with big stops

 Controlling Forex risk and success rates with big stops

Question

What if you had a system that gave you a success rate of 40% when going for target which is the same size as your stop.

What if you could double your success rate if you doubled your stop. Would you?

What if you could Control Forex risk and success rates with big stops

See how a Forex trader called Jacobus from Pietermaritzburg in South Africa doubled his $ 4 000 trading account 10 times and became a Forex millionaire in only 7 months and 5 days using this principle.

Reasonable common sense trading technique

It is relatively easy to find turning points in the market if you are trading a price exhaustion system such as channel trading or a momentum system using the 4hour and upwards timeframes. Especially if the price has already travelled 150 to 200 pips and the fundamental sentiment is indicating a possible change in trend and offering no support for the current trend.

Sometimes it is not possible to locate the exact turning point but it is possible to do so with a reasonable  degree of accuracy. The degree of accuracy is often determines your success rate.

The last 20 trades

So let’s say a trader knows that in the last 20 trades made using a price exhaustion technique the success rate was 55% when he risked the same size stops as the target.  So if the average target was 100 pips 55% would hit the target resulting in a 1 100 pip gain. In 45% of the cases the stop will be hit resulting in a loss of 900 pips. So the net gain after 20 transactions would be 200 pips. At $10 a pip a gain of $2 000 would be acceptable if only 1 lot is traded.

Increasing lot sizes

So now the trader becomes greedy he want to increase in gains using the same technique.

So he can trade 2 lots a transaction in future – this will increase gains to $ 4 000.

Increasing stop sizes

Or he can look at another alternative.

Let’s say that by increasing the stop he would increase his success rate to 75%. So for 20 transactions of 100 pips he would gain 1 500 pips (75% x 20 transactions x 100 pips). His losses however would be 1 000 pips (25% x 20 transactions x 200). His income would be $ 5 000 (500 pips x $10). Already a big increase.

So what if he then became greedy and increased his lots to 2 lots per transaction. His gains would be $ 10 000.

The next step would be to lots size as a percentage of the account balance. This will ensure that your income rises in relation to your account size.

Do it now

So why not start this process.

The first bit of information required is about your last 20 trades is the number of successes and failures and the average loss and average profit per transaction (Even when using an EA this information should be available). Once you have that re-trade (on a back trading basis) your losses with a stop loss that is double your average loss size.

If your income goes up you have a winner and increase your stop sizes and lot size according to account size.

Don’t do it if

If your income does not go up you should not increase your stop sizes – don’t do anything discussed above.

Simple process – simple results

That is all Johannes and his friends did.

The problem with this approach

Most traders do not have 20 recent trades (remember this also applies to EA trades)

If they have 20 recent trades they may have traded 3 to 5 different approach

so…. the next time you have 20 completed trades using a consistent trading approach try the above technique

More support for this approach

World renowned trader Larry Williams who once traded $10 000 of his own money to $1 Mil in a (futures) trading contest was a dedicated system developer and he found that after testing hundreds of failing systems the majority of them became positive when the stops were increased.

 

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1 Comment

  • Guus van Goethem

    Reply Reply February 5, 2017

    I came across this email trawling through my archive. This is mighty interesting for me because I was already past 20 trades with 40 TP and 80 SL. I am just about profitable, but have now to look for a better system. My system was just to trade the trend if the trend is clear and in the same direction two tfs u
    p

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