No Loss Hedging Martingale Strategy for Absolute Beginners
Let's assume I have a trading system that when gives a 1/1 risk/reward signal, can win at least 20% of the times (for example: BUY TP: 20 points and SL: 20 points)
these are all scenarios we have when receive signals:
Win
Loss - Win
Loss - Loss - Win
Loss - Loss - Loss - Win
Loss - Loss - Loss - Loss - Win
----------------------------------------------------------
I start trading with 0.01 Lot size:
if I win, I make $1 profit, and just wait for another signal.
otherwise:
Loss // i have lost $1 in first trade then i need to compensate this loss in my next trade, and make another $2 because I spend my time for two trades, so i trade with 0.03 Lot with my second signal:
if I win, I make $3 and $2 profit for two trades, now i just wait for another signal to trade with 0.01 Lot size
and so on ..
I need $1 in my first trade, $3 in second, $7 for third, $15 in 4th, and finally $31 for 5th trade.
this way I make $1 profit per trade. and i don't care if trend goes in one direction without a retrace. I think this strategy could work with a $100 balance.
GBPJPY Example
Let's assume to take GBPJPY as an example so we decided to take a buy at 138.000 with TP at 138.200. But, instead of using stop losses, we will hedge our position until it closes at BE. So, after we entered we immediately put a new sell stop order at 137.800 with double lot and a TP at 137.600
(20 pips distance from our entry) We have a few scenarios (see a numbers by arrows): 1. We were right and our TP is hit - we are happy ) 2. We were wrong and the price activated our sell stop order. Then the price hits 137.600 level, so both our trades are closed now at BE we lost 1 lot x 40 pips, but won 2 lot x 20 pips, so we lost only commission in this case) 3. The price had activated our sell stop order, but has not hit its TP level, reversed and went to 138.200 (TP level for our first trade) Well, we were ready for it, therefore we had already put a new buy stop order with 3 Lots at the level of the first entry - 138.000. in this case we won 4 Lots x 20 pips and lost 2 lots x 40 pips, so it's a breakeven again. 4. But today the market is in range and doesn't want to be trending a lot, and price reversed again before touching TP level for our buy stop orders, reversed and went south right to the 137.600. In this case we should have put a new sell stop order with 6 Lots at 137.500 level. So we lost 4 lots x 40 pips and won a lots x 20 pips = breakeven. We can continue to add new orders until we are able to exit all the positions at BE. We just have to be sure that our leverage is enough to put new trades, but, since margin are not counted for two hedged positions, I think it shouldn't be a problem. And I don't think that we will need too many orders, because even in a choppy market the price will hit one of the levels, sooner or later.
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