Hi there, I am Sonya and after debating for a while with myself and my best friend I decided to share something with all of you which I think can make a big difference in your forex trading results regardless of which strategy you decide to execute. I tried and tested this in my PaxForex account for over two years and with over 5,000 executed trades and am therefore confident that this does indeed work. Since I perfected my Lot Size Strategy, my trading results have improved drastically and my account is growing a lot faster than before I started to follow this approach.
Please keep in mind that my Lot Size Strategy is not a stand-alone trading strategy, but one which you combine with the trading strategy you prefer. As the name suggests it deal with volume rather than identifying buy and sell signals. A lot of forex traders are only focused on a trading strategy which generates accurate trading signals and ignore that volume plays as important of a role as the direction of the trade. A lot of blown trading accounts occurred do to the misuse of lot sizes which is why I think it is important for traders to utilize them correctly.
Many traders, often new ones, approach forex trading with insufficient funds. This means that the lot sizes they should trade are very small. Smaller lot sizes means smaller trading profits, but also smaller trading losses. Since many a very short time-frame and want to earn profits fast, they tend to increase their lot sizes to a very big amount in comparison to their trading account balance. While this does result in bigger trading profits, it will also accelerate trading losses. This usually cascades and forex traders are more often than not left with big trading losses or blown trading accounts.
Another bad habit is that after suffering a trading loss, many traders reduce their lot sizes. This means that after facing a bigger loss than expected, the lot size is reduced which will yield smaller profits. It therefore takes a lot of good trades to cover the loss. In most cases, a series of profitable trades increase confidence in the strategy and at the time the trader decides to increase the lot size another loss will wipe out those profits. In some cases the total account balance remains in a constant downtrend despite profitable trades outnumbering losses.
It is very important to execute a trading strategy which you can trust in all market situations. It requires time to create this which is yet another reason that you can’t rush this process. Once you have settled on your trading strategy, I can highly recommend to layer my lots size strategy over it. You need to make sure that you don’t overtrade which means selecting the proper lot size. I operate my trading account with a leverage of 1:500 and this matters as it impacts the pip value of each currency pair.
I recommend that you check your pip values by using the PaxForex Calculator which is a handy tool and gives you a very good idea of how your lot sizes impact you forex account. I will take the EURUSD as an example, my leverage means that each 1.0 lot that I trade gives me a pip value of $10. In other words each 1 pip move is worth $10. The way I like to ensure safe operations is that for each 1.0 lot that I want to trade I set aside $5,000. I know to some traders this may sound like a lot of money, but it is better to be safe than sorry.
So if you have $1,000 in your trading account or 20% of my $5,000 level, than each trade should be 0.20 lots. Now place all trades with the same lot size level, don’t adjust it regardless if you face a loss. This means that if you lose a forex trade with 0.20 lots and earn one with 0.20 lots than you recovered your loss if your stop loss and take profit levels are the same. Keeping take profit and stop loss the same is the second part of this strategy. I place the same pips distance for my take profit and stop loss. Many prefer a 1:2 ratio, but I prefer a 1:1 ratio and a bigger percentage of trades which earn me money than those that lose me money.
I do adjust my lot size level after each $1,000 move. When I have $5,000, I trade 1.0 lot and when I earn my way up to $6,000 I will trade 1.20 lots per position. Should I drop to $4,000 I will adjust my lot size level to 0.80 lots. Having a progressive lot size approach and a take profit/stop loss ratio of 1:1 plus a trading strategy which generates 65 positive trades and 35 losses out of each 100 trades placed has helped me push my account balance to the upside. Try my Lot Size Forex Strategy together with your trading signals and see if you benefit the same way I did.