This is the lesson where it all starts to come together. How to position trade and how to actually place your trades into the market. We also take a detailed look at risk management and drawdown control, as well as aggressive drawdown control to get out of positions that don’t go your way. Finally, we have a look at Martingale and how that effects this style of trading.

Day 1 – How The Forex Market Moves & How To Measure Your Trading Success
Day 2 – Multi Time Frame Trading Analysis, Elastic Band Theory & Trading Psychology
Day 3 – Top Trading Indicators To Use For Position Trading Strategies
Day 4 – How To Position Trade, Trading Risks & Managing Your Drawdown
Day 5 – Strategies To Use as a Position Trader Explained In Detail

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Video Transcript

So, position trading boot camp day four. What we’re going to cover today is how to position trade. Okay, so this is going to be the main crux, if you like, of the course. This is going to be the main sort of theory session as to how to execute position trading, the pitfalls of it, the advantages of it. We’re going to look at some practical examples and all sorts of stuff. We’re going to look at drawdown control, how to manage drawdown, exposure to currencies, risk, everything to do with position trading and trading in general.

Yeah, your job as a trader is risk management and capital preservation. Those are the two most important things. So you need to know obviously how they fall in line with this style of trading. But we’re gonna kick off with why you are not successful yet. And this is basically a quick recap of the main reasons why people are not successful as traders. Okay, so this is, I’ll give you a quick preview of this slide just say, this is the big one, this is where you turn it around hopefully. Okay, so before we look at position trading and how to do it, we’re going to quickly recap the last two days, I should say three days, this is day four, and look at why you are not successful yet. Okay, so think about when you take a trade. Okay, whenever you take a trade, there’s one of five things typically that will happen. Okay, so you will either, when you hit that button, you will take a trade and I’m going to use an example of a long trade here, right? So you’re going to hit that button, you’re going to take a trade, it’s not going to work out, it’s going to hit your stop, and then it’s going to turn around and go your way and hit your target.

Yeah, how many times has that happened to you? So you take a trade, you get in, you put your stop there, it hits your stop, and then it flies off in your direction. Yeah. Second thing that can happen is you take a trade, it goes into profit, you move your stop up to break even, where you entered the trade to protect your capital. One of our main jobs is capital preservation and protection as traders. And then it pops back down, hits your break-even, gets you out, so you don’t lose any money.

How often does that happen to you if you use break-evens? Most people will be tempted most of the time to use a break-even stop. Third thing that happens is you take a trade, it goes into profit. It misses your TP, and then it reverses all the way down, hits your stop and takes you out. Yeah, that happens all the time to us as well, doesn’t it? Fourth thing, you take a trade, it goes into profit. It puts in a candle that scares you. So you get a massive bearish engulfing. There’s your TP. And then you get out manually. You just take that off.

And then usually what happens is it just pulls back and goes and hits your TP. Okay. The last thing that happens is you take a trade, you set your TP and it hits it. You make money. Yeah. So one of those five things tends to happen to every trader when they take a trade. Okay. It looks like there’s four bad things and one good outcome there, right?

But that’s wrong. A trade that hits your profit target, carried on going all day and you missed half that profit. How often does that happen to you? So you set a target, you set a three to one risk reward on a trade. It goes up and it hits it within a day and then it screams off and puts in a like five, six, seven to one risk reward ratio trade, yeah. So even though you’ve had one good trade that hit your TP, most of the time, if you look at that trade, it would have gone way further than you expected.

And that winner that you got is probably only still got you back to break even on the losing trades. Now you see the problem. We are constantly having negative things happen to us as we trade when we use stops. So the problem is, as we’ve established in the last few days, you are getting stopped out. We need to find a way to get profit consistently without getting stopped out. That is our goal as a trader.

So our goal is not to pick the top and bottom and be right. Okay, remember we’ve covered this already. So we’ve talked about how as position traders, we don’t need to worry about picking the top and bottom and being right on our entries. It’s not about getting a risk reward ratio on all our trades that’s really positive. So we can put it up on telegram and go look at this five to one risk reward trade I got. Our goal is to make money and not to give it to the market or to our broker in the form of stops. Okay, so we don’t use fixed stock. So we’ve established that. We will have a look at how we do position trading, how we actually do this. So we’re going to kick off by looking at some example trades. So I’ve got some slides which are trades that I’ve taken. They’re various strategies, okay, so ignore the time frame for the moment that you’re seeing on the chart. It’s just, I’m just demonstrating how position trading works and what can happen in position trades when you take them, okay?

So the one you can see on the screen here, this is my ideal, okay? So I get in for whatever reason, whichever strategy I’m using. And basically what happens is after I’ve got in, price moves down and it hits my TP. Yeah, that’s perfect. That’s exactly what I want to happen every time I hit that buy or sell button. The same as any trader, we want to get in and price just goes, yeah, no problem.

I’ll go exactly where you told me to go and I’ll hit the TP, yeah. So I take one entry, it goes my way and I make profit. Here’s another example. We looked at this chart the other day. Getting me one trade, okay, it moves down and then it pushes up and it hits TP, yeah. So it’s a normal trade that you would expect to take everywhere. So I take those trades exactly the same as everybody.

I just don’t use a stop loss. And in this case, you would have got stopped out. I didn’t. I made money. Yeah. So sometimes my first entry is wrong, but the second entry will play out. So I’ll get into one position, and it will push against me. And I’ll decide to get into a second position, because the market condition’s all right.

And then both of those trades will move up to a profit target, and I’ll get out of both of them at the same time and make money on both trades. Okay, so sometimes I need to take more than one entry. Like this one too. This case, you can see where my TPs were on this. Okay, it did eventually come up and hit my TP. I just got out early. Took one position, didn’t work out, pushed down, took a second position.

Then the buying pressure came in from the sellers. I got out of that one and I got out of this one just above the entry of that one. And I would have put a trailer on this one and then this one hit TP as well. Okay, so it moved up and hit the target. Actually, there’s probably a training spot that took me out on this one, but you get the point. You don’t have to exit both positions at the same time. So sometimes you can get into positions and you can take different TPs on them.

But the idea is we know that the move is coming. We know the direction the market is likely to move in based on where we’ve been. So we enter multiple positions in that direction. Sometimes I’m really wrong and I need to get in three times. So this is a good example of a big, strong push down. Took a position, had a small TP on it. Okay, if you look at where this TP is, you can probably tell why I put that TP in there because this is a big propulsion candle.

So this is a one, two, three gap. There’s my TP. It pushed down further. So I took a second position, put another TP in that one, two, three gap. And it pushed down a little bit further. I took a third. And then as it pushed up, took profit on each trade individually again. Here’s an example of the same process, but this time it’s a short.

Three positions got out of all three of those positions individually. Occasionally, I’m just playing wrong and I need lots of entries. Okay, so it’s not going to be a one shot, one kill, one entry process like you have with normal trading. Sometimes you’re going to get into one, sometimes two, sometimes three positions. Occasionally you’re going to get into situations where you might need to get into four, five or six positions, depending on what market conditions are. But remember, we can adjust our entry price. And that’s what I’m gonna show you today to make sure that when the market does move in our direction, we can escape with a profit.

So occasionally I’m just playing wrong and I need lots of entries. So I took five positions in this case, three of those I took off together and these two I took off together. So this is kind of two position trades, if you like, but it’s all part of one idea that the market is gonna push up. So I’m right on direction, as you can see, but my timing isn’t always great.

So this is the problem that we have as traders, timing is what we can never really get right, which is why we continuously get stopped out. So my timing on this was wrong. You can see the RSI on the Audi chart. This wouldn’t have been the reason for taking this particular trade, but you see the RSI pushed up and we were expecting some kind of selling pressure to come in, but it actually took probably half a day to a day longer than we were expecting, but that’s fine.

So we just scaled into the position we’d get out when the expected move happens. And the expected move virtually always comes, isn’t it? As we’ve looked at. And occasionally I’m just playing wrong for days on end. My timing sucks and the market just pushes hard. One thing we discussed was that we have no control over the market. The market is moved by the institutions and banks and they will do what they want with it.

We have no control over that. So we just have to ride the waves that they put into motion. So in this particular case, we pushed up very hard and we stayed pushing hard for a good day, maybe two days but eventually they started to take their profits. So sometimes you’ll get into positions and you will need to take partial profits as you go and do what we call drawdown control. So this is an example of a trade that went, didn’t go really wrong, it just took way longer than expected.

So sometimes you’re gonna be getting into positions, you’re gonna be stuck in them because the market just does not want to let you out at this particular time. Okay, so every trade I make is calculated and planned to be wrong when I get in. So the direction I’m trading is virtually always right as you’ve seen. My entries, however, are from way too early, but statistically my edge will play out at some point soon because it has historically over and over again.

And this is the elastic band theory, the buyer and the seller theory. The buyers have to become sellers. When the elastic band gets stretched, we have an opportunity to get into the market. We see it playing out consistently in the market. But it’s just sometimes the timing we get into is just totally wrong. And quite often it’s totally wrong because we have no control over that part.

So these are the three mechanics to position trading that you need to understand. This is what kind of makes position trading different to your traditional stop loss risk reward style of trading. So the first thing is that we scale in small, okay? And we let the market participants move the positions into profit when they are ready, okay? than trying to enter into the market and force the market to go to our take profit level and try to avoid it hitting our stock loss level, we get in with very, very small positioning and we dip our toe in the water to see if this idea that we’ve got is going to be right. And we let the market move us to that level that we are expecting it to get to when they’re ready.

All right. get to when they’re ready, all right? We’ve established over the last few days, timing is something we can’t predict. So we ignore timing, we let them decide when it’s time for them to move the market. So we get into the market in the direction we’re expecting them to go in, with very, very, very small positions, all right? And we’re gonna cover lot sizing and how you calculate it shortly.

We move our entry price consistently so that we can benefit from when they move the market in our direction. So by entering multiple positions or multiple trades in a single position, i.e. currency pair, it allows us to change our entry price. So if we get our initial entry wrong, we can adjust that price down to a different level if we’re taking a long or up if we’re taking a short by entering into multiple trades in that position. And this allows us to wait for the market to correct itself or wait for them to move it to where they want to move it to. And we adjust our entry position to make sure that it gives us an exit at either a break even or a profit depending on our portfolio and how we’re going. Okay. And we’ll look at options and ways to do that as well. And the third thing, and most important thing, is we constantly monitor our drawdown so that we can control our exposure and risk accordingly.

Okay, so our job becomes risk managers and drawdown controllers, if you like. So when we take a trade, one of a few things is gonna happen. We’re either going to hit our TP, okay? And we’re not gonna worry about that. So we’ll place the trade, we’ll set the TP. If it hits it, brilliant. We don’t even need to look at it, do we? We don’t worry about it.

It just goes into our P&L and we forget it. If it doesn’t go into our P&L and forget it, we were gonna need to monitor that position and look after it. So our job is babysitting our positions. And to do that we just need to continuously look at our P&Ls and make sure that none of the positions that we’re in is getting too far out of hand and if so we’re going to act upon it. So our job really is just to follow a strategy, hit a button, buy or sell, and if that doesn’t do what we want it to do, manage that position. And it really is that simple. And I’m gonna show you how to do that throughout today.

So whatever you risk on a trade normally, you will be scaling it right back. You will be making less money per trade or per position, but you will be making money and being profitable. So the difference is, what we’re gonna do, is we’re gonna make less money. We’re not gonna be making 30, 40, 50% profit a month, which is what everybody’s aiming for and everybody’s promised with these guys that are selling the course that will make you buy a Lambo. Clear your debt, get rid of your mortgage in two years. Yeah, not real. Okay. We’re going to be trading and constantly banking profit, but we’re not going to be banking huge amounts of money, but we are going to be doing it on a regular basis.

So let’s start off by looking at lot sizing. So we need to know how to calculate our lot size for position trading, because it’s different to a normal stock loss strategy. And the reason it’s different is because at the moment you calculate your lot sizing based on your stop. So a traditional trade is where you risk X percent with a set pip stock loss or something similar and you calculate what your lot size should be. Okay, so if we wanted to, for example, risk 1% on every trade, if we had a 20 PIP stock loss, we can calculate what our lot sizing should be.

And we adjust our lot sizing based on the risk. Yeah, so 1% risk on a 3000 pound account, for example, is gonna be 30 pounds. So you would calculate what lot size to use with a 30 pound risk on a 20 pip stop, and it would come out at whatever that lot size is. The thing with position training is you don’t have a stop. So you can’t do it that way. So we need another way to calculate our risk. So to keep it really simple to start with, the easiest thing you can do is use 0.01 per two thousand dollars, pounds, euros or whatever your base currency is in your account. Okay um if you want to be more aggressive or if you’re using a smaller account then you can try 0.01 per one thousand dollars or pounds or euros or whatever, rand, whatever your currency is, your base currency that you’re trading in.

Okay. So what this allows us to do is keep it nice and simple across all the pairs that we trade, but it also allows us to scale up. And what I want you to do is get used to position trading without over leveraging, without over risking and see what the benefits are. So by starting with 0.01 per 2000 in your account, you’re going to enter very small positions, okay? And it’s gonna allow us to scale up as we get more confident. So if you’ve got, for example, a 5,000 euro account or $5,000 account, you would trade a 0.02 or a 0.03 per entry.

If you want to be aggressive and go straight in with an aggressive risk profile, then you would go in with 0.05 per entry. So it would be 0.1 per 1,000 in the account. But obviously, the problem with doing this is if you go in large, you can’t scale back. If you go in small, you can always scale up. So if we enter along with a 0.05, and it suddenly goes against this, we need to get into three positions, we might be sitting there going, I’ve got 0.15 on this.

I really wish I didn’t have this much on. If you’d have entered with a smaller position, 0.02 or 0.03, you wouldn’t be feeling uncomfortable if the position pushed against you. And the reason for that, which brings me on to the point at the bottom, is the most important thing you need to remember at this point, okay? We are trying to remove emotion from our trading. We’re trying to remove the attachment to our trades.

Remember the last three days and what I’ve been talking about. The problems with the vast majority of traders is the emotional and psychological part of trading. They find it very difficult to deal with losses and it makes you revenge trade, it makes you angry, it makes you sad, it makes you over leverage, makes you make stupid mistakes, it makes you stop following your system, it makes you start hopping from system to system.

What we’re trying to do is remove that emotion, remove that attachment to the trade. What I want you to do is when you hit that button, I don’t want you to care about what happens to that trade. Yeah. I could go on to any pair now on any timeframe and hit the button by yourself with a 0.01 lot size. And I couldn’t care what happens to it. I’ll leave it for a week. I don’t care. If I come back in a week and it’s gone into drawdown by 30 pounds. So what? Doesn’t bother me, does it? Because it’s such a small amount. But when you hit the button with that 0.01, and it goes sideways for three days, it pushes up against you, and it goes down, and it pushes up, and it goes down, and then it hits your target four days later, what’s just happened?

You made money. Did you care? No. But what happened? You made money. You weren’t worried about hitting your stock loss. You weren’t worried about hitting your TP, you completely removed the emotional attachment to that trade. That’s the goal I want everybody to start off with. When we take our first trade, we’re not going to care what happens.

There’s going to be a 0.01, but what we want to see is what happens. We need to execute the strategy and see it working. So we start tiny, but not so tiny that it’s not going to have any impact on our account. So start with 0.01 per 2,000 in the account. Like I said, start on a demo and start with a 10,000 demo or 5,000 demo, whatever you want it to be. If you want to go straight in live, go straight in live. But keep to this lot sizing to start with, so you can experience what’s happening and see what’s happening. And I would always recommend if you are gonna go demo and you’re gonna use demo trading, try to use a demo account with what you can afford to trade with.

Yeah, don’t go with a $100,000 demo if you can only trade with $1,000 because it’s gonna be completely unrealistic and your view of what’s happening is gonna be completely skewed. So try and keep your demo account realistic for what you’re gonna be able to trade with, right? Okay, so lot sizing covered. Very, very simple. There’s other ways to calculate this and we can discuss this at a later stage.

I might even do a video on it. The EA has another way to calculate lot sizing based on risk. But to start with, what I want everybody to do is just use 0.01 per 2,000 in their account. And if you want to get aggressive from day one, most people do, go with 0.01 per 1,000, right? And let’s see how we get on, right? But see what the impact is when you’re doing that. So that brings me on to the next bit, how to use multiple entries to improve the average price of your position, okay?

So this is the key to position trading is the multiple entries. Okay, this is how we adjust our price that we’ve entered this position in. And there’s things that we need to be aware of when we’re doing it. So when we position trade, our goal is to keep our average entry price as close to the current trading price as possible. Okay, if price moves against our position, we add additional entries, okay?

But they are spaced according to the pair’s average daily range, okay? And this brings the average price of our overall position closer to where price currently is. Yeah, and I’m gonna show you examples of this in a second. So this benefits us in the following ways. First of all, it gradually increases our lot size as the odds of our expected move happening increases. Okay, so when the move plays out for us, we’ll have a nice lot size to make more profit. So if we enter with our initial entry, let’s say it’s a 0.02 and that doesn’t work out that particular entry and it pushes down a little bit further, assuming we’re going long, we enter with another 0.04.

But also, the odds of our entry working have increased as well, because they were high when we got into our initial entry, and now it’s pushed against us. The odds are higher. Think of the RSI as an example. So we’ve got our level here, which is 70, for example. Then we’ve got our level here, which is 80, and a level here, which is 90. So if we decided to get into our initial entry when the RSI was extended at 70 for example, the odds were quite high because we know when it gets down to there we’ve got a high probability of all the sellers that push price down turning into buyers and pushing price back up.

So we take our first trade, and if it decides to push down further below 80, we take a second trade. Now we know that when we get down to 80, that elastic band is stretched even more, we’re more extended in the market, there’s been more sellers coming in than expected. So the odds of that playing out now are much, much higher than they were when we took our first position. And now we’ve got a larger lot size on as well. So when that move actually starts, we’ve got twice as much lot sizing on to take advantage of the move in that direction. So we gradually increase our lot sizing if we need to, when the move goes against us. And that increases, that lot size increase goes along with the odds of the move we’re expecting, the directional move playing out. It also gives us less distance for price to have to travel to give us an out at break even. So if we are over leveraged then you will experience this, you will get over leveraged on a position or you’re worried about a trade because there’s been some fundamental change in a currency. For example the New Zealand dollar rate announcement where they change the rates, okay, things like that will happen and your initial trade idea won’t be as good as you thought it was now, okay. So there are times when you might want to just get out of a trade completely. So by entering these additional positions and bringing our average price down as close as we can, it means that price has got much less distance to travel to get us out of our trade without a loss fairly quickly.

Okay, so as an example here, we’re gonna look at some examples in a minute, but if price has pushed down and we’ve taken a position and then it pushes down, we take another one, we push this down, we take another one. And then there’s a rate announcement, which makes it do that. We may have to take a couple more positions, but our average price, which was started there, moved down to there, then it moved down to there, then it moved down to there, and now it’s down to somewhere like this, maybe, for example, okay?

So the distance price has to travel back in this direction is shortened every time we enter an additional position. So our average price is moving with us as the odds of that move happening increase. Okay, but again we’ll look at that in a second. Our goal should always be to try and keep our average price within around one ADR, one average daily range distance from where price is currently trading. We know price will often push at least one average daily range when it gets momentum in the opposite direction. So we just need one up or down day in our favor to escape the position with a profit. If you look at a daily chart, you will find on a daily chart a lot of times you will see price moving down. And it might have three, four or five days where it moves down and it just continues to push in one direction. the day where you have the candle moving in the other direction will quite often be quite a big candle.

And the reason for that is because all of these sellers have decided at once to jump out of their positions. So you get a big, strong move in the opposite direction. This is quite often at least one ADR, quite often more than that, which is why we have our average daily range indicator, because that allows us to measure how far we expect that big, strong move in the opposite direction to go. Yeah. So if we can keep the average price of our positions within one average daily range, we’ll find that when that move starts, it gives us a really easy opportunity to exit our position.

So we’re just basically gradually getting in, waiting for them to take their profit. And when they do, we’re out. Now, that’s a worst case scenario. A lot of the time you’ll find as they do that, they will do that or that and then that. Okay. So if we get an in long all the way down here, it could well go twice as far as it was when it came down. We don’t know. But the thing we do know is that they will usually at least do that.

So as long as we can keep our average here, worst case scenario, we can get out of break even we lose nothing. Right so let’s have a look at this in action in the strategy tester. So let me just switch over to my charts for a sec. So I’ve got set up here the hourly chart okay on euro US dollar and what we’re going to do is I’m going to let the EA just take some trades. Basically, I’ve got a setup here where it’s trading in both directions. The only thing I’m asking it to do, I think is just ADR is RSI rather. Yeah, so just RSI. So I’m just saying on the Audi chart, when RSI gets extended, when we’ve had a big selling run or a big buying run, I want you to get me in next time we get a reversal. Okay, so that’s really all it’s doing. And I’ve told it basically to either target one ADR move in the opposite direction, or when I get to 10 pound in profit, bank it.

Yeah, and I’ve told it to get in roughly half an ADR apart. Okay, so I’m asking it to space my positions out fairly nice and evenly for me. And I want it just to target an ADR in the opposite direction. All right. So let’s have a look at this and see what it does. So we’ll start it off. And a lot of these are just gonna hit profit. Okay, so what I’m wanting to show you here in this kind of experiment is what happens to your average price when you enter multiple positions and how quickly and easily you can get out of those positions when the move in the opposite direction starts to happen.

So we’ll let this play out. So there’s the first trade it’s taken. So it’s taken a 0.02, all right? This is a 3000 pound account. So it’s just taking fairly small trades. So that’s pretty normal lot sizing that we would expect on a 3K account. That’s moved up, that’s hit TP, okay? So pushed down, the RSI got extended, and then we took an alert and we took a profit, okay?

So you see, we just got a cell. So we just pushed down. So we got extended up here again on RSI. We pushed down, took a cell. Obviously this isn’t taking into account multi-timeframe analysis or anything. This is just demonstrating what happens to your positions when you get multiple positions. Okay, so that one’s rolled down and hit target again. So we’ve just taken another buy, we got extended.

We decided to take a buy on the next reversal alert. That one won as well. Sometimes it’s quite hard to lose money, but we will get one in a minute, I promise. This is where it doesn’t get to plan and it just continuously makes money. So we’ve had a good push down there. So we’ve had a buy order taken there. And we’re pushing down further. So we’re going to take a second buy order there.

So what’s happened now is, I’ll just pause that, we’ve got these two positions on. So this was our original position here. here, okay, and as price pushed down further, it moved more than half an ADR down before we got our next signal here. So it took a second position, all right? So we spaced our positions out nicely. We were already extended when we got into the position after a strong selling run, and now we’re taking our setting at second entry.

So now rather than our entry price being here, our average is here in the middle of the two. So now to exit this position without making a loss, all we’ve got to do is move price to here. And then we could close both of those positions, walk away and go, I haven’t lost any money. If you’d have entered this position and put a stop under the low, as you can see, the stop was there, you’d have been taken out. So as position trading, what we’ve done is we’ve moved our entry price from here down to the here, the average between the two to give ourselves a really easy exit.

But we don’t want to exit a break-even, we want to exit and make money. So let’s let it play out and see where we get to. Okay, so you can see there, price moved up and it would have given us our break even. So if you wanted to get out of that, two hours after the second entry, you could have done, you could have just got out and walked away, right? Let’s let it play out and see what happens.

We may take a third position here, no. So it’s just gone into a consolidation. Now pushed up, we’ve taken profit. So we’ve exited both of those positions with a profit. So we haven’t lost anything and we’ve banked whatever that is, one ADR or 10 pounds, whichever it is. So whatever we’ve set as our target. So we’ll let it carry on. Another short position taken there. It’s just sitting in consolidation, pushed up a little bit there.

Second position. Okay, so now we’ve taken our first position here and our second position there. So our average price is now in between the two. So this is our average. So this is where we need to get to now to be at break even on this trade. Okay, obviously you entered here with a stop here. Your stop’s been taken out already if you’re a stop trader. Let’s see what happens next.

So we just came straight down, took profit. This one we got a break even on, this one we took a profit on. So you don’t have to take profit on every trade. So in this case, we took a profit on that and we just scratched that. So one winner, one break even, or one slight loss. That’s probably a tiny loss, isn’t it, if you look at it. So let it carry on. See if we get a buy or a sell, we just remove that line, we don’t use that anymore.

So we’re pushing up, we’re extended on the RSI, so we’ve taken a sell order. That’s a profit. Now we’ve got a buy, okay, and we’ve pushed down. So we’re gonna take a second entry in a second. No, we didn’t there because that was too close. So this is set as half an ADR. So the ADR on this pair is gonna be too high. So obviously it’s 98. So that’s too close to the original position.

So we wouldn’t take another entry there because we don’t want to get in too close. We’re gonna cover that in a second as well. Okay, so I’ll just hit profit as well. Okay, so we’ve got another sell order taken. Another profit, another buy order. Please push down so I can demonstrate my point. There we go. Okay, so let’s move down. So now we’re gonna take a second position.

That’s a really strong push to the downside. So we’ve taken our second position here. Now these trades are much further apart than previous entries, because as you saw, when we pushed down here, we didn’t get a reversal alert until here. So when the market is pushing hard against you, you’re not getting any signals that the market started to reverse. You won’t take any extra positions.

And this is why this indicator is so powerful with this strategy. But right now, our average price is gonna be there. Okay, so halfway between these two positions, that’s our new average price, roughly around there. So that’s where we’ve got to get back to now to make our break even. So we let this play out, pushing down further. Okay, so we’ve just taken a third position there because we had another reverse alert.

So there’s another sign of strength coming through. Now, because we’ve taken that third position, we’ve now got a 0.6 long here and a 0.3 long there. So our average price will now be somewhere around there. Okay, so because we’ve entered another position, our average will be pulled down. So that’s now our exit or break even. And then price pushes up and gets us out of the trade there. Okay, so we’ve taken two profits, one profit there, one profit there, and we decided to take a loss on this one.

But overall, that is either one ADR profit or 10 pound, whichever was hit first. That’s the way I’ve got this EA particularly set up at the minute. So, you get the point. As price pushes down, i.e. as more sellers enter the market, we are bringing our price down with those sellers, waiting for those sellers to take their profit. When they take their profit, we take their profit. So we’re riding the wave that the market is creating by scaling into the position as the market is scaling in. When these guys are pulling down here, when they’re pushing the market down, they’re sucking up buy orders. They’re sucking our market orders, our buy orders up along with everybody else. But what we’re not doing is letting them take our money as we go down.

Yeah. What we’re doing is keeping our positions on, waiting for them to take their profits. And we will use exactly the same move as they use to take our profits exactly the same time as they do. Okay? So that is how what we call dollar averaging. It’s in a stock market term, how that works. Okay? So we’re averaging our price, our entry position. We’re moving it down as the market moves with us. So let me just flip back over to slide show. So this is a screenshot of that, what we’ve just seen played out basically. So you can see we’ve got the positions that we took on the screen. So that long there and that long there, the average was here.

That short there, that short there, the average was there. Obviously these were just winners, all of these. And then this long one here, the average was somewhere around there, okay. But this is a typical market cycle that I’ve been explaining about with buyers and sellers. Okay, so lots and lots and lots of sellers enter the market. Those sellers then have to become buyers. Lots and lots and lots of buyers enter the market who have to become sellers.

Sellers enter the market, have to become buyers, have to become sellers, have to become buyers. And that is the market structure. That is what market structure is. It’s a movement up and down at the market. And it’s the zigzag patterns that are created. And all we’re doing is we are riding these along with the big market participants that are making them happen, waiting for their plays to play out.

And sometimes you are gonna be in these trades for a long time. Okay, so we entered here, and this is, these separators are daily, okay? So you can see how many days we’re in this trade. One, two, three, four, five, six, seven, eight days we’re in that trade. Okay? Okay, so that’s basically how that works. Okay, so that’s averaging into the position and that’s how we adjust our average price of our position, adjust our entry price so that it’s closer to the current price and allows us to get out when the market makes the move that we are expecting it to make.

Now, this wasn’t a particularly good example because this is just a single timeframe hedging strategy. We’re not using multi-timeframe analysis here. We’re not using multi-timeframe RSI extensions or anything. This is literally a case of flipping a coin. I’m gonna get in long and short based on a one hour RSI, which is not a good strategy. And you can see obviously how well this works on not a good strategy, right? So here’s another example I’ve got of a trade that I’ve got on currently, okay?

This is a US dollar, yen trade that I currently have on. So I’ve got four positions on this, okay? So I’ve got an entry there, I’ve got an entry there, I’ve got an entry there, and I’ve got an entry there. Okay, you can see this orange line here, this is my average. So you can see how the average price is halfway between the positions. And this is a particularly strong squeeze that we’ve had happening on the US dollar yen recently.

But the point, the reason I wanted to show this slide is because the point is here that we’re trying to get our average within the average daily range, okay? So you can see the ADR lines there on the chart. What we’re waiting for is one strong down day move, which is down in this direction. We had one there. And I actually took a trade there and I exited. But that’s what we’re waiting for, that one strong move in the opposite direction after that move, which is what we had there, that is the basics of entering your positions and how you adjust price.

Okay, so using small lots and we adjust price basically dependent on the market movement so that we’re constantly staying close to where the market is, waiting for them to do those profit take notes. All right, so we’ll move on to how to look at risk differently. Before I do that, I’ll just see some questions are just coming on the chat. So I’ll quickly answer those now while we’re on the subject. But does this work if you’re not using stop loss or need a big stop loss?

OK, we don’t use stops. I’m not sure if you’ve done the first three days of the course or the beginning of this course where I said, we don’t use stops. We don’t use stops. It doesn’t work with stop loss because you get stopped out. If you get stopped out, you haven’t got position, have you? So it doesn’t work with a stop loss. I’m curious to know what the maximum drawdown you have encountered by using cost averaging method is. My maximum drawdown has been up to 20%. But that was on a multiple squeeze event on a big news event. So you will get that, and we’re going to cover squeezes as well. The vast majority of the time, and again, kind of skipping ahead here, but the vast majority of the time, my drawdown is somewhere in the 5% to 10% constantly. But I will also be banking 5% to 10% to 15% a month constantly at the same time. So we will keep on top of our drawdown by using drawdown control, which is again what we’re going to cover in this lesson today. Can you show the settings for the EA.

That’s not a strategy. I just set the EA up to take trades. I’ve no idea if that’s profitable long-term. You can watch back the recording, but I don’t know if I showed you all the settings anyway, but don’t get too caught up in that. That was a process to show you how averaging works and how your average price, your entry price in your position is moved, how you move it.

Yeah, that’s all we’re looking at there. We want to move our price so that when the market moves in the opposite direction, we can take advantage of that. We know it’s gonna happen, the elastic band theory, the buyers, the sellers concept, that is how the market moves. All we’re doing is we’re doing the same as they are. When they are pushing in one direction, we are scaling in with them. We are moving our price with them.

And when they get out, we’re getting out with them. The market participants that move the market, the banks, the institutions, the hedge funds, anybody with a big enough balance and lot size to move that market in a direction, they are doing the same thing. They are entering short positions. They are pushing and pushing and pushing and pushing. So they are in a position in the same way as we are. We are waiting for them to do their profit take.

That’s it. So we just have to move our price with them. Either that, or we can just get stopped out as they come down. Which is what you do at the moment, which is what traders do at the moment. Right, so that’s all that was, it just explains that. We’re gonna come on to those other things you’ve mentioned about drawdown control, everything to do with drawdown in a second, okay?

So that will be coming. So first of all, I wanna look at how to look at risk and drawdown differently, okay? So remember, whenever you take a trade, there are two potential outcomes for your trade. You will either be right or you will be temporarily wrong and get another shot at getting it right. Think back to those slides that I put up earlier. Just flip back. Yeah, these slides, okay?

So this is what I want to happen. Yeah, I wanna get in, I wanna get out. I wanna be right. So either this is gonna happen, or this is gonna happen. Those are the two outcomes. There is no other outcome. I’m either gonna be right and get out of that position, or I’m gonna be wrong, and I’m gonna have to get into more positions until I’m right.

So it’s called, I call it temporarily wrong. So basically I’m wrong on the position temporarily. Because I got my entry wrong, I got the timing wrong. It’s what we always get wrong, isn’t it? Timing, we can’t time it, because we don’t know when the market’s gonna need to stop and reverse and breathe. Okay, so those are the two outcomes you’ve got every time you take a trade. You can be temporarily wrong many times with your entries before you are right and the market moves in your direction.

Okay, you will go into drawdown on your position and this is normal. So we’re gonna look at drawdown and how you should be looking at drawdown now. And this is very important to kind of understand because you need to change your way of looking at drawdown. Drawdown is basically your friend and not your enemy. Okay, when we are trading, we are taking a risk. Okay, so our job is to take a risk on a trade, okay? So what your drawdown is, is your risk. When your account goes into drawdown, that is the risk that you are in right now. So instead of placing a 1% risk, which has got a binary outcome of win or loss, which is how we look at it at the moment, 1% risk on, I’m either gonna make 2% or I’m gonna lose 1%.

When we’re going to draw down by 3%, for example, that is just 3% risk that we have in the foreign exchange market at the moment, or the crypto market, or indices, or futures, whatever it is, it’s just our risk in the market. Drawdown is risk, yeah? It’s not a loss or anything other than a risk we have on at the moment. At any point, we can stop that being our risk by closing our positions and taking a loss, taking a 3% loss, yeah?

And that’s what you do with a stop. You just take your loss when you put your trade on, because when you put your stop in, it virtually always gets taken out, yeah? So drawdown is your friend, not your enemy. Drawdown means you are building a position and putting risk on the table. Without risk, you cannot make money. Our job as a trader is to take and manage risk and protect our capital, okay?

So drawdown is your risk. Do not be afraid of it. That is exactly what your account is there for. If you’ve got a 5,000 pound account, there’s 5,000 pounds worth of risk you are putting into the market. We’re not gonna put it all on at once, obviously. We’re gonna take it very, very slow, but we are risking 5,000. When we enter the market, that’s our risk, okay?

So change the way you look at drawdown so it is less scary. The market moves up and down constantly and your drawdown will also do the same. This is just trading, okay? Professional traders and risk managers, okay, they see their drawdown and their profit going up and down constantly. Think of your pension fund. If you’ve got a pension fund, if you’ve got 50,000 pounds in a pension, okay, you get a letter every year from your pension company saying your pension was worth 50,000, it’s now worth 52,000.

And then the next year, they have a really bad year. Your pension fund was worth 52,000, now it’s worth 51,500. It’s 500 drawdown. Okay, you’re still in profit on it but it’s drawn down. Nothing’s been lost. Okay, so drawdown is literally risk. If your pension fund drops from 50,000 to 45,000 you’re in 5,000 drawdown. That’s all. You haven’t lost anything. Your pension is in drawdown. Okay, that could go up to 10,000. If that hedge fund had dropped down to 45,000 and then stopped that investment, you can’t make that money back, that’s a loss.

Okay, but as long as it’s invested, it’s still there, it’s just drawdown, all right? So that’s a big difference between looking at drawdown on your account as losing five trades in the truck, losing 5% and being in drawdown by 5%, totally different things. So you still have to concentrate on risk. This is still important. This is a trader’s job. Your number one priority as a trader is risk management and capital preservation.

Without capital, you cannot trade. So you need to make this your focus. Don’t lose it, right? It sounds really stupid, but people don’t realize what their job is when they do this. Your job is to protect your capital, because if you don’t have your capital, you don’t have a job. And it really is that simple.

So you’ve got to look after it. And we’re gonna look at ways that when we get into drawdown, we can manage that and manage that risk and use profits against risk. There’s all sorts of ways that we can get around to draw down and do things with it. We’ll come on to that in a minute. So risking one, two or 3% on each position or currency is absolutely fine. You can even risk a little bit more. So try to look at risk as a percentage of your account, not as an amount you put onto a trade.

If you have an individual position that is in 2% drawdown, you haven’t lost anything. You’ve got 2% risk on that position. At the moment, I’ve got 2% risk on KDN. I haven’t lost anything at the moment, but I’ve got a 2% risk on it because I’m in drawdown with 2% on it. So that’s how you should be looking at it, looking at it on your account. So my stop loss or my kind of worry level, if you like, about drawdown tends to kick in when I get to a certain percentage on my account. For me, my whole portfolio, my account, my 5 grand, 10 grand, 30 grand, 50 grand, whatever your account is, for me, when it gets to 10 to 15% in drawdown, it’s time to start looking to cuts and losses. Okay, so for you, it could be 5% or 10%.

Everybody’s different. But at the moment, what most people are doing is risking half a percent to 2% on an individual trade. So think about losing three trades in a row, risking 2%. You’ve lost 6% of your account. Okay, if I went into 5% or 6% risk drawdown, I call it risk, drawdown on my account, I haven’t lost anything, have I? I’ve just got some risk on that position. So it’s a totally different way to look at it. But everybody’s different. So for me, 10 to 15%, I then start to enact aggressive drawdown control and start closing positions out and starting to take some losses. So that’s the only time I’m going to do that. If my account is sitting there constantly for three or four months in a row, somewhere between one to 9% in drawdown, I won’t do anything because I’m comfortable with that because I’m continuously banking five, 10, 15, 20% a month, whatever it is, whatever I bank a month or a day, I’m constantly banking that.

Remember our job is to bank half a percent a day if we wanna make 10% a month. Yeah, but we’re gonna have to take some risks to do that. That’s what your drawdown is. So if a single position or a single pair is in drawdown by 1% to 3%, that’s fine. You would normally risk this on a single trade anyway, but you’d lose it if it hit your stop. So I have the opportunity to close out part of that trade and reduce my drawdown on it while waiting for it to reverse. So we look how to cut losses and manage drawdown later. But let me just draw an example of this on my chart.

So let me just get the whiteboard up. So I’ve got a nice clean bit to work with. So if price moved down to this level. Okay, I have lost nothing. What’s happened is I’ve taken a risk on this particular currency pair going up because I said here I want it to go up and I said here and here and here I still think this is going to go up because it’s been going down for such a long time these guys have got to take a profit at some point. So I’m in 2% of risk. If it continues to push for any reason, like there’s a fundamental change that means I get into lots of extra positions, and by the time I get down to here, I’m at 4% drawdown, that’s too much risk for me personally.

So what I can do is I can maybe remove that position, half of that position, and that one, and knock this back to 2% again, and I’ll take a 2% loss. It doesn’t matter, because I’ve made 15% this month. So instead of making 15%, I’ll only make 13. All right, but then that happens, and I get out of the rest of that with a 1% gain. So I pop that back into there and make 14%. Okay, so that’s the way you look at risk. It’s not something that is a bad thing.

It’s there for you to use so that you can make a profit. And we’re going to look at drawdown control and how you manage that very shortly. So we know this trading with a stop is painful. You can lose 6% of your account after six trades if you risk 1% a trade? Let me just ask a quick question in the group just to get an idea. If you’re trading with a stop loss right now, what risk do you put on each trade? Be honest. What do you put on a trade?

1%, 1%, 1%. Yeah. So that’s what the vast majority of traders do, max 5%. Wow. So one trade, you could lose 5%. Obviously you can get an awful lot of money if that trade goes your way, but you’re gonna need a pretty high strike rate to maintain that, obviously. But yeah, most people seem to be saying 1%, which is pretty standard.

So if you take five trades, and we looked at this, didn’t we? Do you remember in the strategy tester? Currently using martingales, so not using a stop. You’re gonna love this in a minute, Alistair. So you remember in the strategy tester on day, I can’t remember, one or two, we looked at the difference, it was day two, we looked at the difference between a stop loss trader and a position trader.

And we saw the equity curve of both of those traders. And the equity curve of the stop loss trader went like that. It was like this, wasn’t it? It was like, oh, we’ve had a bad run, bad run, bad run. Oh, we’ve had a brilliant run, brilliant run. Now we’ve had a bad run. And that, it was doing that. It was making money, but it was painful and hard work to do. Whereas the equity curve of the position trader is more like this.

Yeah. Much, much, much, much smoother, but we still have these dips, but these dips are not beating us up like this. Yeah. And remember, if I remember rightly, I think there was a series of, I don’t know, was it four or six losses in a row? So it went something like this. And you actually started down, didn’t it, for a bit.

Then it went up, then it went down, then it went up a bit. And then we had that. And it literally lost five or six in a row. So that trader with his strategy, whatever his strategy was with that stop loss, lost 6%. Okay, and we said, you know, what are you gonna do when you lose 6% of your account? Well, that strategy doesn’t work, I’m just going to find something else. That indicator is rubbish, let’s go and find something else. Yeah, but you missed the next five trades that all worked out and banked you 10% because you gave up. But you give up because you get battered down and this is the difference with position trading. You don’t get battered down as much because you expect to go into drawdown because that is what your risk is and you see the profit landing in your bank every day.

So you’re happy because you’re banking every day. So the mentality changes. So business and traders can go into drawdown by 6% on their account, be temporarily wrong for a few days or even a week and lose nothing, okay? So you shift your focus onto looking at risk and drawdown as part of trading. It’s just normal. You’re gonna be in it, you’ve got to get used to it.

Okay. Your account is there to be used by drawdown. So you can put risk onto your trades. And the only way you can make money as a trader is by risking. Okay. And we’re just risking differently. Okay. So try not to look at drawdown as a loss, which is what you would usually want to do. All right.

Okay. So let’s move on. How to control your amount and rate of drawdown. So there’s three main factors that affect drawdown. Okay, and we’re gonna spend a bit of time on drawdown because it’s important. You’re gonna be living in it if you’re a position trader, because if you’re not in drawdown, you’ve got no risk on. If you’ve got no risk on, you can’t make money, all right? So there’s three main things that will affect drawdown. First is lot sizing.

So keeping it tiny and trading often and using multiple positions is the best way to position trade, okay? So not larger lot sizing. And I’ve kind of covered this in recommended lot size and I can’t drill it home hard enough. If you get in with bigger lots, your drawdown will increase exponentially. And I’m gonna show you what happens in a minute when you increase your lot size by just 0.01 when the market moves against you. So lot sizing will affect your drawdown. Using a 0.01 and a 0.02 is the difference between twice as fast movement on your drawdown. 0.02 to a 0.4 your drawdown will increase twice as fast So the bigger your lot sizing, the faster that negative amount will grow, okay?

And the bigger it will also get. It’s an exponent. Think of it like a nuclear explosion. Yeah, you see those big mushroom clouds that shoot up in the air and they billow out and they get bigger and bigger and bigger and bigger. The bigger your lot size, the bigger that crowd is gonna be and the more negative you’re gonna be in drawdown. Okay, so keep lot size and tiny. The distance between your entries will also affect your rate of drawdown and the amount of drawdown that you go into on that position if it moves against you.

Okay, so keep your entries spaced out. The tighter they are, the faster your drawdown will grow. You will be tempted to get into more positions because you will always be looking at the chart when you’ve got a position in drawdown going, this looks like the turning point. And you’ll think, I’ll just take another one there. That another one there will double the speed of your drawdown. Remember that, okay? So keep your positions spaced evenly. And we’re gonna look at how we’re gonna use ADR to do that in a minute.

Your profit targets will also affect your drawdown. So the smaller your profit target is, or the smaller the amount you want to make per trade, the faster you will be out of that trade, because the market is more likely to get to it quicker. Okay? And if you can get in and out of your trades quickly, you’re going to have less chance of them going into drawdown. All right so control your greed, bank profits often and you will not get into such large drawdowns. Okay so let me give you an example of this last one here, your profit targets.

So if you had a profit target let’s say of one ADR. Okay so the market has to move, let’s say that’s one ADR. All right. Remember what happens with the average daily range when I showed you the indicators. The market exceeds ADR 42% of the time. What that means is 58% of the time, it’s not doing that. Okay, it’s doing this. So if you set a target of one ADR, it’s gonna be much more difficult for the market to get to that than if you set a target of half an ADR.

Yes, you’ll make less money, but you will be out way faster and way more often. What that does is it frees up your capital to take another trade on something else. The more trades we can take, the more profit we can make. If we tie up all of our capital in one trade that goes sideways for a month, we can’t trade it anymore. Okay, and I’m going to talk about exposure and how many trades we should be taking in a minute. But using small profit targets, think of yourself like a scalper. We want to be in and out and in and out as fast as we possibly can. So that frees up our potential to get into more trades. So try not to go for big profit targets. It’s tempting, but you will be needing to sit through those trades for an awful long time sometimes, waiting for it to get to where you want it to go.

Remember what the market does in a trend. Pushes down, pulls back a bit, pushes down, pulls back a bit, pushes down, pulls back a bit, okay? If you are taking long positions, you need to get out on this. So if you’re scaling in here, you need to get out on that. If your target is up there, you’re gonna scale in down there. Your target will then move to there and you’re scaling down there.

With now, instead of having four positions and an exit, we’ve got 12 positions and a massive drawdown. Yes, so targets need to be kept small and I’m gonna demonstrate that again in a second for you. Okay, so let’s have a quick look at some examples of these. So these, I run with the EA, the market reversal at EA, I run back tests to test different theories and strategies, okay, mainly for position training because that’s what I do, obviously.

So I’ve just got some screenshots of some of my backtest spreadsheets here. And these are all taken on a 3000 pound balance account with one year’s worth of data, all tick data. And they’re all just basically trading a strategy, which I’m gonna show you tomorrow, which is an M15 hedging strategy, or M5, you can use any timeframe you like, really. But these were all tested on the Pound US Dollar. Okay, so this gives you another idea of lot sizing and I’ll quickly explain what this spreadsheet is showing you.

So this is basically the strategy that I’m testing. And this is the pair, obviously the entry timeframe, very self-explanatory. A stop loss mode, this is basically my position sizing, you don’t need to worry about that at the moment. RSI extension, so this is basically taking trades on a 14 RSI on a 7030 extension, which we covered the RSI yesterday. Again, don’t get too much into the details of this, but you just need to know what these are because people are going to ask questions of us. Aggressive mode is to do with the indicator, a fixed TP at one ADR. I’m using half an ADR between trades. I’m targeting 10 pound profit.

You can ignore these, don’t need to worry about those. But the important things to look at here are this section here. Okay, so this is the results. This is the outcome of this test, okay? And what I’ve done here is I’ve taken three tests. And in the first test, I used the fixed lot size of 0.02. Okay, so I ended every position with 0.02 lots, and that gave me a drawdown of 6.78% on the account over a year, and it made 1,400 pound profit.

The next test, I used 0.03 lots, so just 0.1 lot higher, okay? It made a little bit more money, made about another 400 pounds over the period of a year. But the drawdown also went up by roundabout a half, just not quite a half, is it? It’s just under a half, maybe say a third. It just went up, yeah? Went up to a 0.04, exactly the same criteria, exactly the same strategy, exactly the same entries with a 0.04.

Drawdown jumped up to 12%, made 2000. So make another 700 pound profit, which is great. But look at the drawdown difference. It’s almost double the drawdown. So this is how lot sizing affects your entries. If you went in with a 0.2 with your entries, you would be half as much in drawdown as if you went in with a 0.4. So they make a massive difference to the drawdown that you could see on your account.

So we need to keep these as small as possible. We will adjust our lot sizing based on our account size using that 0.01 per 2000 method that I showed you at the beginning of this course today. Or if you want to be aggressive, 0.01 per 1000 in your account. So that’s basically how lot sizing will affect your drawdown. So all you need to really take away from this is the bigger the lot size the bigger the drawdown which is fairly obvious because the market is going to move in exactly the same way. Okay you’re going to get into the same positions and go into the same amount of drawdown in movement wise in direction and and pips if you like but if you’ve got a bigger lot size which is what this measures, is bigger. So more lot size means more profit, but on positions that push against you, it also means larger drawdown.

Distance between entries. Okay, so the distance between our trades is the other thing that affects our drawdown. So we’ve got a similar test here. I’m not sure if it’s the same test. It looks like pretty much the same test to me. But this time we are using ADR between trades as our test criteria. So when we’re getting into our positions, so when the market is pushing down and we’re saying we’re going to wait for a long, we’re getting in here, here and here. So the distance between these trades is being adjusted by the average daily range. So the average daily range, I’ve said I want you to take trades a quarter of an ADR apart, half an ADR apart and one ADR apart.

Okay, so you can see that when you take trades a quarter of an ADR apart, the account went into 23% of drawdown in that year. Made 1600 in profit, which is good. When I put them half an ADR apart, each entry, we dropped down to 7%. Massive drop. Okay, so we took our entries twice as far apart, which means we’re taking half as many entries at least. And then that dropped down dramatically.

You see the number of trades here as well. 324 trades taken there with a quarter of an ADR, 245 with a half an ADR, and 157 with one ADR. So obviously the further out we space our trades, the less of them we’re gonna take, waiting for that move to come back into our direction. Same targets, all made a profit. And obviously we made a lot less profit here, but would you rather be profitable with a small drawdown or were very profitable with a big drawdown?

Most people would like to keep their risk and their drawdown low and still make a profit. Bear in mind this is one pair, one timeframe. Multiply that by 28. So how many Forex pairs there are. Okay, but also multiply that by 28. Yeah, that would have blown your account. So we don’t trade 28 pairs at the same time. We trade them all, but we don’t trade them at the same time. We’ll cover that in a minute.

So if price pushed against you by one ADR in a day, quarter of an ADR spacing would see you add four trades to your position. Half an ADR would see you add two trades to your position. One ADR would only see you add a single trade to your position. Remember the market moves in ADR. It will quite often push a certain amount of ADR in one direction and then push back the other way. All right. So by spacing out further, we’re gonna get into less positions as the market squeezes against us. If it does, you saw on the EA there, I mean, a lot of the time it just goes and hits TP anyway, but the ones that don’t, we need to make sure that we’re not getting in too close together.

So that will affect your drawdown as well. Final one is your profit targets. So yeah, Peter’s just said half an ADR spacing is optimal. Yeah, so that’s your happy zone, half an ADR. But again, it all depends on your risk tolerance. My risk tolerance is 10 to 15%. If your risk tolerance is 5%, go with a bigger spacing. It’s gonna take you longer to get out of those positions, you’re gonna take less of them, you’re gonna make less money, but you’re not gonna be in as much risk, yeah?

So it’s all about you and your risk tolerance. And again, we’ll talk about that in a second. Everybody’s got a different comfort level. So same tests, profit targets. So here we have three different profit targets. Now this is very interesting. Same tests, basket target. Basket target is the profit target. I wanna make 10 pounds a trade. So I’m making £10 per trade, £30 per trade and £60 per trade. So with this one, the drawdown was 4.72 by targeting £10 a trade. The reason being is because when I’m getting into my position, my target is only about here. If I was targeting higher, it would be higher and higher Now if the market does that, what’s going to happen?

These two guys are not going to ever get hit. If the market does that, this one will always get hit, which means that I can get into lots of trades and get out of lots of trades fairly quickly and bank profit fairly quickly. So this one was 4.72. If I’d have gone up to a 30 pound target instead of a 10 pound target, my drawdown jumps to 16%. A 60 pound target, which is six times higher than that, my drawdown is 34%. Okay, and you can see how few trades you take. The reason there’s not many trades taken on this one, and we’ve got a massive drawdown, is because the market just can’t get to that target.

It can’t reach it, because that’s what it does 80% of the time. Sits in a range, a wide range. So if your target is outside of that range, outside of the average daily range of the pair, it’s never going to get there. Remember, we looked at setting realistic targets within average daily ranges using one, two, three gaps as targets, using support and resistance as targets. If we’re in a trend, the market’s moving down, it’s going to bounce at support and resistance levels.

If your target is above that resistance level, likelihood is it won’t get there. So keeping your profit targets small and banking often will generate much less drawdown on your account. So just to recap those, lot size, the distance between entries and profit targets are the three main factors that you can use to affect the drawdown on your account. And you can adjust these personally to your risk tolerance. If you are a risky gambler, and a lot of traders are, which is fine, and you would say, I’m happy to have 50% drawdown on my account.

This is money I can afford to lose, and let’s just go for it. Let’s try and bank as much as we can. Get in with a bigger lot size, get in really close together and have big profit targets. If you’re not risk tolerant and you’re scared of drawdown, and until you have been through this process and traded multiple drawdown scenarios and got these positions back to profit and banked them, you probably will be quite risk intolerant and drawdown intolerant.

Keep it as small as you can. Keep your lot sizing tiny. Enter as small as you possibly can on your account. Keep your entries far apart, half an ADR to an ADR minimum. Keep your profit target small. Just try and bank a fiver or a tenner or whatever, half an ADR, yeah? A small amount, just let the market move and let the market oscillate. As we saw on the EA test that we just did, literally all that was doing was saying, when the market’s pushed up, get short. When the market’s pushed down, get long. What did it do? Just bank money all the time because 80% of the time, that is what the market does. It ranges. We take advantage of that. When it trends, we make sure that we’re getting into positions in a way that when they do take a pullback in a trend we can escape. That’s literally all we’re doing. So lot sizing, keep it small.

Distance between entries, keep it large. Profits, small. Okay. Any questions on that before I move on? Because it’s quite an important part. 5 to 8, yeah, that’s fine. Or 15 to 20 pips. Yeah, don’t look at pips, Richard. Richard just said we’re targeting 10 to 15 pips. Don’t look at pips. If I’m targeting 10 to 15 pips on pound New Zealand, I’m never going to get there. Sorry, if I’m targeting 15 to 20 pips on pound New Zealand, I’m going to get there very, very quickly. If I’m targeting 15 to 20 pips on Euro pound, it’s gonna take ages, because the ADR, target ADR. Not sure if you were on day one of the course, very first thing we talked about was how to measure our success.

Forget pips, pips are totally irrelevant. 15 to 20 pips on US dollars are like that, it’s gone. You hit the buy button by the time you’ve made a coffee, you’ll have hit 20 pips. You can’t measure in pips. You measure in the average range of that instrument. If that instrument moves 100 pips a day, that is the range you use. If the instrument moves 500 pips a day, like the S&P 500, you use that range. So S&P 500, if I want to target a quarter of an ADR on the S&P 500, I’ll be going for 150 pips. If I want to target a quarter of an ADR on Pound New Zealand, I’ll be going for around about 30 pips, 40 pips, something like that, okay?

If we have a big account like 100 or 500K, strategy is the same, or just have multiple pairs. Yeah, so strategy is the same. Jarvis has just asked about account size. Again, going back to day one, rewatch that. The reason we use percentage gain on our account and ADR as targets and things like that is because it scales with your account. If I make half a percent a day on my account, I make half a percent a day. If I’ve got a 5k account or a 500k account, half a percent gain is half a percent gain. Five percent risk is five percent risk. The numbers are bigger.

The numbers and the amount you bank are bigger, but you don’t look at those. You look at the gain, the risk, as a percentage of the account, because we are looking to grow as a percentage. I wanna make on my 30K account that I trade, I wanna make 10% a month. I wanna bank three grand a month, yeah? So I need to do half a percent a day. If I can achieve more than half a percent a day, I’m above target.

I don’t look at the numbers. I know that if I bank half a percent a day, I can draw three grand out every month. That’s the way to look at it. If you gave me a 100K account, I’ll be drawing out 10K a month, but I wouldn’t be trading any differently. My lot sizing would be adjusted accordingly, but the results would be the same, okay? What type of market condition is such positional trading suited for all conditions?

So there’s only two market conditions. Range bound or trending. Market can’t do anything else. It’s either going up for a while or it’s going sideways for a while. If it’s going sideways for a while, you buy, we sell high, buy low. Sell high, buy low. If it’s ranging, we sell on the way up and buy on the way out. We sell on the way up, buy on the way out.

Okay? So, and this is why we keep our average within an ADR, in case we go into a situation where we go into a strong trend, because a strong trend still pulls back, yeah? So we use these to escape our positions. We make less money when the market is trending. When the market goes into a trend and we’re not expecting it to, this is less effective, but it will still allow you to get out of those positions.

And we’re going to talk about drawdown control in a minute. The vast majority of my drawdown control is done on trending pairs, because I was not expecting it to trend. Remember I said the problem with breakout trading. A lot of people breakout trade, which means they put a pending order. We’re going off course a little bit here, but it’s a good thing to explain. It’s a good question.

People put pending orders, waiting for breakouts to happen. Okay, the problem is with breakouts, when you get a breakout, they’re usually fake. And they’ll do that. They’ll break out and then they’ll come back. They’ll break out and they’ll come back. And this is the market just gathering orders. Okay, so as position traders, what we’ll be doing is getting in there, getting out here, getting in there, getting out here.

So we’ll be getting in and out on this range. When this does finally break, we’ll have gone short there. So that we’ll be going, whoops, we need to get in and wait for the pullback. When it pulls back, we get out. Yeah, the times when we get into trouble as position traders, and we need to do aggressive drawdown control, or we need to do more drawdown control than normal is when a pair goes parabolic. Okay and we’re going to look at the US dollar yen shortly because that’s a pair that has just done this and I’ve got an example of that. Okay but it will work in all market conditions. 80% of the time you will find that the market ranges which suits position trading much better. So you’re better off using a strategy that is more suited to the majority market conditions than the minority.

And there’s a video on YouTube I’ve done about which is the best to trade, mean reversion or trend. The market mean reverts 80% of the time. It trends 20% of the time. So do you want to be a mean reversion trader or a trend trader? Where’s the more opportunity? Mean reversion. Okay, good questions. And we’ll come on to more at the end, I’m sure, but let me crack on with this now.

So exposure and the two currency rule. So this is to do with limiting your exposure to risk. All right, so we looked at some examples a minute ago of some backtesting with the EA and it gave us some drawdowns. Yeah, so that pound US dollar, when we had it nicely optimized was working about four and a half percent drawdown over a period of a year. So the worst case scenario is it got into four and a half percent of drawdown.

It’s not too bad, is it? If we’d have traded 10 pairs and they all did that at the same time, we’d have got into 45% drawdown. That is if they all did that at the same time and a couple of them didn’t go crazy and went up to 15%. In that case, we’re in big trouble, aren’t we? So we’ve got to find a way to limit the number of pairs that we trade. Or we need to use a strategy that means we don’t worry about which pairs we get into. Okay, so we’ve got to be able to control that risk and control that drawdown by picking our pairs.

A lot of the time, our pairs are going to be picked for us by market condition indicators. So when we’re looking for entries, going back to yesterday, we’re looking for a market condition indicator to tell us that there is an opportunity arising for a particular pair or instrument that we want to trade. And then we look for a signal to enter on that market condition. RSI is an example.

When the RSI is extended above a particular level, we look for a signal indicator to tell us to go short. So when we get that we will get in, okay, but we’ve got to make sure that we don’t get in on all of those, right. So this is what the exposure in the two currency rule will help us to do. So currency limitations in the two currency rule. To be comfortable in drawdown you need to limit the speed at which it builds, okay. So we’ve got to make sure that we don’t get in too fast and too hard and too aggressive that the drawdown just builds very, very, very, very quickly. Okay, so one way to do this is to ensure that you are not over leveraged in one currency. So just to explain for any of you, those of you that don’t know, when you take a trade, you are actually taking two positions in the market. So if you were to trade pound cad long, you are longing the pound and shorting the cad. Okay. So it’s an important concept to understand. This is kind of Forex 101, baby pips stuff, but a lot of people bypass baby pips. I did to start with. I have been back through it. But the basics of trading is when you hit that buy button on pound CAD, you’re shorting the CAD, all right?

So if you’re long pound CAD, and you take a short on CAD Yen, you are actually short on the CAD twice, because you’ve gone long pound CAD, which means you’re long the pound, short the CAD, and you’ve gone short CAD Yen, which means you’re short the CAD and long the Yen. So there’s two CAD shorts. If the CAD decides to get really, really strong, you will go into draw down on those two instruments, those two positions at the same time.

What that does is it doubles your drawdown rate, okay? So if you’ve got a 0.01 on both of those and the CAD goes crazy to the upside, you’re gonna go into drawdown on 0.02 lots. Yeah, important concept to understand. So this will increase the rate of the speed of drawdown by by two you will get more uncomfortable in your drawdown much much faster. Imagine if you were to take four trades on CAD and it goes against you yeah it’s going to go four times as quickly against you. Imagine if you had three positions on each of those CADs that rate of drawdown would be exponentially increased so you have to limit the pairs that you’re trading at any one time.

So if you want to, you can go into more trades, but you’re going to need to drop your lot size. The problem with dropping lot size is we want to get in as small as we can. So if you get in with a 0.01, you can’t halve it. If your lot size, your normal lot size is a 0.02, you could get into four, but getting with 0.01s on them. So you keep your risk low if you’re gonna get into more positions. But the problem you will find is the more positions you have to manage, the more complex drawdown control becomes and over time, it just gets too difficult. So limiting yourself is much easier, is an easier way to trade like this.

So if you can, try to only take one trade on a currency to start with. So for example, if you take a pound-cad trade, you are now banned from all pound and cad pairs. You can’t take any more. Yeah, you go long pound-cad and you see the setup of the century on pound US dollar, you don’t trade it. Cause you’re already on the pound and you’re already on the CAD. You’ve got a long on the pound and a short on the CAD. When you are more comfortable, you can take more positions. But if you limit it to one trade on a currency, it makes life really simple.

I personally limit myself to two, which is why I call it the two currency rule. So I will only take a position on two currencies. So if I’m at the moment, I’ve got a New Zealand CAD on and a CAD Yen on, I will not trade any more CAD. That’s it, I’m full, I’m full of CAD. I can’t take any more. I’ve got two Yens on at the minute. If the best Yen trade comes up today, I’m not touching it because I’ve got Yen on already.

So you limit yourself to two positions. There’s a screenshot at the bottom here of what I call exposure. This is taken from my trade manager dashboard. The trade manager dashboard is available on MQL5 and I use it to monitor all my positions, my profit, my exposure, everything. So this gives you an example really of what I’m talking about. This is a screenshot from whenever, I don’t know where this is from, but there’s two longs on Euro, there’s two shorts on CAD, there’s a long on New Zealand and a short on Swiss. So if I’m using the two currency rule at the moment, I can trade another long on the New Zealand and another short on the Swiss if it comes about.

Here, I’m hedged on the US dollar. I’ve got a long on it and a short on it. We’re going to cover that in a second. But you need a way to monitor your exposure. And you can do this manually, obviously. You can look at your P&L in MC4, or you could look at Forex Factory if you’ve got a trade explorer on there, and it will probably tell you what trades that you’re in. So you can manually look at it, but I like to use something that I can instantly look at.

So if I get an alert from my condition or my signal indicator to say, Euro, go long on it. I look at this and I go, I can’t, I’m already long on it. That’s it, done. Don’t look at it anymore. So again, it’s another way of cutting down the time you spend trading. This thing tells me I can or I cannot trade something. That’s it. If this thing says, if I get a New Zealand dollar Swiss trade now, for example, I can take that because I’m long New Zealand, short Swiss.

So I could take a New Zealand Swiss long. Yeah. Okay, so that’s exposure. So when you’re comfortable with exposure, trade two pairs, but try not to trade more than two. It will be really tempting. One of the problems you’re gonna find, and that is gonna try to tempt you into more trades is when a currency pushes. So for example, let’s say the New Zealand dollar rate announcement that came out, yeah?

It pushed the New Zealand dollar pairs hard in one direction. So the New Zealand dollar comes crashing down. What do you think happens to the RSI on all the New Zealand dollar pairs? So New Zealand dollar Swiss, New Zealand dollar CAD, New Zealand dollar Yen, New Zealand dollar US dollar. What happens to the New Zealand dollar RSI on all of those? It hits the bottom. You get an alert from every single New Zealand dollar pair going, long it, long it, long it.

You can’t long them all. Because if you long them all and the New Zealand dollar continues to crash, your drawdown is gonna go through the roof. So you pick the best trades, the ones that you think are the best, okay? So that is the two currency rule and currency limitations. Having said that, there is an exception, whether you hedge or not. Now, hedging is another opportunity that we have as position traders, because we can use it to our advantage and make money on one trade while another trade goes into drawdown for us.

So looking at our exposure here, or my exposure at this time, whenever this was, the US dollar, I was long and short on it, which means I’d taken a position like US dollar Swiss short, for example, or maybe New Zealand dollar, US dollar, I’d probably taken a long on that. So I’d be long New Zealand, short US, and I’ve probably taken a long US, short Swiss. So US dollar Swiss, I’d gone long on. So what that means is I’m long and short on this at the same time. So regardless of what the US dollar does next, I’m gonna make money. Because if the US dollar pushes, this trade is gonna be a winner. This trade is gonna be a loser. So what will happen is I’ll have to manage that position and scale in while I’m waiting for them to come back and do another move while taking profits on this one.

When this one’s closed, I’m just short US. Okay, so that’s what hedging is. So we’re gonna look into hedging a little bit more in detail. So yeah, I’ve got up here, but forget the last slide if you want to hedge. So let’s look at it. So having just said that, that you should limit your positions to no more than two on a single currency in the same direction, there is an alternative that you may also want to use.

Again, this is a personal choice and there’s pluses and minuses for hedging. And you need to decide if you want to do this. But again, once you’ve got all the facts, you’ll have everything you need there. But if you wanna keep it simple to start with, I would recommend don’t look at hedging at the moment. But people will want to do it because you will get conflicting signals on currency pairs where one is telling you to go long and the other one is telling you to go short.

There’s not really a problem in taking both of those because one of them is going to work, isn’t it? So all hedging means is that you can expose yourself to both directions on the same currency at the same time. And there are two ways to do this. Now, a little caveat with this, if you live in the US and your account is in the US, you have hedging rules, which means you cannot hedge a lot of the time in some of those accounts.

So you’ll have to look into whether you can even do this with your particular broker. But the first way of doing it is you can trade in both directions on the same instrument, okay? So what that means is, and as we saw on the EA demonstration that I did earlier, that EA was taking longs and it was taking shorts, okay? So it was just basically whatever the market was doing, it was doing the same thing. So it would get in down there, if it hadn’t hit its TP and it got a signal there, it’d get in there.

So we’d had a long on and a short on at the same time. One of those will hit TP, yeah? So that’s hedging the same instrument. So you can go long and short on the same currency pair at the same time. The other way is that you can trade one currency pair in one direction and another in the opposite direction. So let’s have a quick look at both of those in a little bit more detail. So hedging on the same currency pair, this is simply taking a trade in both directions with specific, when specific conditions are met.

So for example, we may want to hedge on the M5 timeframe when we’re gonna get an alert from the market reversal alert indicator, wherever your signal indicator is, and the hourly timeframe on the RSI is extended, okay? So this is the multi-timeframe analysis that we use. The higher timeframe tells us that it’s a good time to get in, the lower timeframe gives us a signal to enter, right? So we may get periods of consolidation where the market goes flat and we’re unable to exit our initial position that we took.

If price then pushes our way without letting us out and gets extended the other way, it will give us an alert in the opposite direction. So we can take that one as well. In the knowledge that one of those is gonna hit target and one of those isn’t, we just deal with the one that doesn’t. Okay, so at some point one will hit target and we deal with the other one. So think about a range.

Yeah, goes like that. It’s obviously not that stable, obviously, most of the time. But if we got into a trade long here and our target was here, and then it moved up and it gave us a signal to go short here and our target was here, what will happen is we will miss that target, come back to break even on this trade, but this one will be a profit. So there’s no problem in doing that, is there?

Because one of them is gonna work. And if the market then pushes up again and hits our target here, we get out of that one. And then we wait for a short signal and we get out of that one. So you’re just playing the waves in the market. And whichever way the market gets extended, you jump in, regardless of what’s happened to the previous trade. Yeah, a little bit like what we just saw the EA doing. It was just taking longs and shorts when it got a signal to do so based on a specific condition.

So if the market, for example, was to do that for a while and then it was to take off on a trend, what you would find is that that last short you took that didn’t quite hit the target would go into drawdown and then you would start to get into that position. So you would start moving your entry on that position, waiting for the market to take profit and escape. But whatever long you had last taken would have hit his TP in that direction. So you let one trade hit target, you let the other trade go into drawdown and you deal with that trade in the same way as you would as any other position.

If you’ve got a prop firm or a broker that doesn’t allow hedging, you can’t do it. Simple as that. Okay? FIFO rules in America, you just can’t do it. So it may not be an option for you, but if it is an option for you, obviously you can. Hedging using different pairs should be allowed with virtually any broker, because what you’re doing is you’re taking a long on one currency pair and you’re short on another currency pair. So I don’t know quite what the regulations are because we don’t have these regulations in the UK. But hedging on different currency pairs is kind of what I’ve already explained. We can go long on the pound cad and we can go short on the pound New Zealand. OK, in the case above, if the pound pushes hard in one direction, we are guaranteed to have one of the trades hit our target and bank us money. deal with the other one by adding positions to scale out when the pullback or the reversal happens.

Okay. Now, obviously the caveat on this, all hedging is you need to have a valid setup to take these trades. So you don’t hedge just because you can. You hedge because you get a signal from your signal indicator when your condition indicator tells you it’s a time to start getting into the market. Okay, so if the market pushes in one direction, we get in and then it pushes in the other direction, but we don’t manage to get out of our trade for whatever reason, and we get a reversal signal, we can take it, but we won’t hedge because we can.

We don’t just do it. We hedge when there’s a reason to hedge. We need the odds to be in our favor, the edge to be playing in our favor. Okay, so, sorry, you can probably hear my dog barking in the background, somebody’s just come to do a delivery. So you need a valid setup to take a trade, and often you will find this does not present itself as if one, if the pound pushes in one direction, you will likely not get a signal to go in the other direction, but you will, you will if it consolidates. So this is really for when market is consolidating. Okay, so those are the two different types of hedges you can take. Now there’s advantages and disadvantages to both of these approaches. So the two currency rule, employing this will limit the number of pairs you can trade and therefore your drawdown rate. Okay, so if you can only trade two currencies at a time, it’s unlikely you would ever get into more than six pairs at a time, six positions at a time.

Because once you’ve used up those two longs on the US dollar, you’re locked out from all US dollar trades. So it’s difficult to get into more than six positions at once. This automatically limits your drawdown rate because you can’t take any more trades, okay? So this is good as it keeps you more comfortable, but you will find that you may go into drawdown on two pairs at the same time at the same speed. So if the US dollar for example, you’ve got two longs on it and it starts to go down, both of your US dollar longs are going to go into drawdown at the same time. Okay, so the other thing you need to bear in mind with the two currency rule as well, you are trading two currencies in each pair.

So if you’ve got two longs on a US dollar, okay, and you’re against the Swiss franc and the pound, for example, with those, you might find that the US dollar goes neutral and sits sideways. So it doesn’t move very much for a while, but the pound goes crazy. And you’ll find that your pound US dollar will go either into drawdown quickly or it will hit target quickly, but your US dollar Swiss or whatever else you had on won’t do much.

So one of them will play out in one direction or the other and the other one won’t. So it’s not always the case that you go into drawdown on both of them at the same time. But you may well at some point have to do drawdown control on both of them if that currency decides to go into a squeeze, i.e. there’s a fundamental news announcement that comes out that is not as expected and the thing just goes crazy for three or four days on the truck. And it happens, but we’ll show you how to deal with that.

Hedging in both directions, you will bank more often as regardless of the direction, one of your trades will play out nicely. Okay, so it doesn’t matter which way you’re trading, does it? If you’re long and short, one of them is going to go and hit target at some point. So this leads you just to manage the drawdown if necessary on one pair. So I have people that I’ve taught this strategy to that limit their pairs to no more than sort of five or six pairs. Quite often they will pick the majors because they’ve got the most liquidity in them and they tend to be quite tight movers.

Problem with that, obviously, though, is most of them are US dollar crosses. So you don’t want to get too much US dollar on at the same time. But they hedge. They only hedge. So they will take market reversal alerts on in both directions on things like RSI extensions and ADR extensions. That’s all they do. They limit their pairs and they only hedge, which means that they are constantly banking every single day, which is brilliant. But the ones that are going to draw down, you have to deal with those ones, okay?

So that has also obviously got its advantages. The other advantage is if you’re in a very tight range bound pair when you’re hedging, you will quite often find you will get long, short, long, short, long, short, win, win, win, win, win constantly because the market is just moving up and down like an oscillator, okay, which is a massive bonus. You will also though have a lot more trades on. So you may well have multiple lots on in both directions on multiple pairs. So that’s the only thing really you need to be aware of of that. But whichever you choose it’s vital you know in an instant what your exposure is so that you can prepare for news and see what you need to worry about if a currency starts to push hard in one direction. So always be aware of the news and what you are in. So if you’re in US dollar long twice, so just going back to that slide with the exposure from my dash that I use, if there’s Euro news coming out, for example, you need to be aware you’ve got two Euro longs on.

So if that is negative news for the Euro and the Euro comes down, you need to be aware of it. All right, so just make sure you know what your exposure is at all times, which is very, very important. Okay, so that’s hedging and the two currency rule and exposure. So we know now how we can limit the pairs that we’re going to trade so that we don’t overexpose ourself and we reduce the speed and rate of drawdown on our entire account by limiting the number of pairs we take based on that two currency rule. So drawdown control and how to deal with positions that go against you. So this is quite a big part. There are three main ways to take a loss on positions that are not working out. So when we get into drawdown, at points we may well have to close some of these positions out.

Yeah. So if, for example, we get into a position here, here, here, and here long, okay. And the market just keeps doing this and it just doesn’t do a profit take. If this has got to a point where it’s made us uncomfortable, we’re gonna need to start closing some of these positions out. We can’t let this go on forever. We’ve no idea how long it’s going to go on. So you can’t just never get out of your positions. And it’s not often that you’re going to get into that sort of scenario where it goes that hard and that fast against you, but you will at some point. So you need to have a way to get out of these positions.

So the first way is to set a loss limit in money. So if you were going to take a few trades in one direction, long for example, okay, so if you’re going to take a long on this one and you’ve taken five positions, if this particular trade here got to say £30 in drawdown or whatever it would be, you can say if it gets to that I’m going to start doing drawdown control on that position. Okay, so I’ve got an example here. When I hit X pounds, I will close out part of that trade. Okay, so let’s say for example this is a 0.02. Okay, I can say when it gets down, when it gets up to 30 pounds in drawdown, I will close out half of that and make it a 0.01. Right, so that’s the first way you can do drawdown control. We’re going to look at examples in a minute. You can set a level that price moves against you as a trigger to start taking a loss.

This is usually best done with a multiplier of ADR. Okay, so when we’ve taken our position long, we’ve got into five trades, okay. If this is two ADR, okay, so if market has moved two ADR against me since I took my first position when I was expecting some kind of up movement, I will then say, now I’m going to start doing drawdown control. So you could say, I’m going to use ADR as my gauge, which is this has moved twice as far against me as I thought it was going to.

So I know I’m a bit more wrong than I thought I was. Let me start getting out of this. So you take a little bit of a loss. So that’s another way you can do it, by movement. So it’s either by money or by movement or by percentage amount in drawdown. So when a position or a pair hits 3% in drawdown, I will close out part of that position. So the same scenario, we’ve got multiple trades on. My trade manager dashboard, if you’re using it, says that this position is negative 3%.

Okay, and if that’s the case, this entire position, that trade rather, this entire position is probably in something like four to 5%. So you actually, a bit too much in drawdown than you should be. But let’s say for example, this is 3% drawdown. That is when I’m gonna start removing some of that. What you would normally do, as which I’ve put here, is when a position, a pair, not an individual trade, is 3% in drawdown.

Okay, so when this whole position here, yeah, this whole position that we’ve got on is 3% in drawdown, can’t draw properly, then we will start to do drawdown control on parts of the position. So we could close out that bit and that bit maybe and take a bit of loss on that. That leaves us with these, which removes our drawdown, makes it like 2%, or maybe 1%, I don’t know, whatever it is. Okay. But those are the three ways that you can enact drawdown control. You’re going to need to do it at some point. But notice we close out part of our position or trade only, not the whole trade or the whole position.

This is scaling out of our position in the same way as we scaled in. So we’re assuming we’re still right on direction, but we’re just a little more wrong on the timing than we’d like. Remember the sellers and the buyers, everybody that sells needs to at some point become a buyer. Sometimes it just goes a lot further than we expect it to before that cycle starts. And if that starts to get uncomfortable, that is when we start to do our drawdown control.

But if we’re 3% in drawdown, why take a 3% loss? Why not take a 1% loss and keep 2% of it on? Because we still think it’s gonna go in our way, don’t we? We still think it’s going in our direction. Yeah. So we’ll have a look at this in a bit more detail. You’ll be in drawdown most of the time. It’s your risk. We’ve covered this. My open trades P&L, basically, which you can see on the right over here, this is an example of the P&L in my trade manager dash. So my open trades P&L is in drawdown virtually all the time. Sorry, this is my open trades P&L. This is my banked P&L. This is my open trades P&L down here. Okay. So this is in drawdown virtually all the time. And as I said, anything under 10% is just risk. This is just risk on the table at the moment. Okay. So my daily P and L, as you can see here is really red because I’m constantly banking profit out of my open trades position and moving these into here. And my goal is to make half a percent a day or more. Yeah. Okay. So I made 11 and a half percent this particular month on this account. So your new job as a trader is to bank profit and reduce your drawdown every day. So it’s about keeping this under control and putting green into here. Okay. That is your job. The trades that work like these ones here. Yeah. So all these ones which are in profit, we don’t care about, we never look at them.

Not interested. If this is green, it’s green, it’s working, it’s a trade. It’s gonna either hit its TP, or it’s gonna come back and I’m gonna need to deal with it. But right now, I forget this. So on my open trades, this stuff is not even on my radar. I’m not looking at it at all. This one here as well, this top one, this US dollar yen. Not looking at it, not interested. I’m only interested in the stuff that isn’t working.

Okay, so when drawdown becomes uncomfortable, i.e. this figure here gets to whatever your drawdown threshold is, however uncomfortable you feel. For me, it’s 10 to 15%. For you, it might be 5%, 10%, 20, 30, I don’t know. You’ll need to find this out when you start trading. But mine is 10 to 15%. So when it gets to that, okay, one of these things has happened on your account.

First off, you’re in too many pairs, two currency rule, that’s on you, okay? Look how many pairs I’m in here, okay? This is an EA test, so this is just, this isn’t as realistic as real life, but this is an EA test to demonstrate the point. If you’re in too much drawdown, look at how many pairs you’re in. If you’re in more than six pairs, that’s probably your fault, isn’t it? You’ve taken too many positions on one currency. Therefore, you need to figure that out. You need to sort it out. Learn from it, close one of those positions down, move on. Second thing is you’ve got too much lot size on.

Again, that’s on you. Did you plan your trade properly? If you’re hedging, are you over leveraged? Okay, so if you’ve got a three grand account, are you getting in with 0.05 lot sizing? Yeah, because that’s gonna make this go up twice as fast as it should be. Yeah, it’s your fault, that’s on you. We can’t control this, only you can control this. Third thing, this is the bit we can control. You are completely wrong, not temporarily wrong with your entries or your direction.

That’s just trading, we get it wrong. This is a business, you’re gonna make business decisions that lose you money, okay? But we can deal with that using drawdown control, all right? So we’re gonna look at how we can reduce our pain. So your level of pain is different to mine. I don’t know what it is and only you can feel it. You need a mechanism or a rule set to trigger to tell you that you are in pain and you need to take some losses.

So how do we do this? We use the profits gained every day to reduce the pain on the pairs that we were wrong about. Okay, so this is, as I just said, this is a business. You’re gonna make business decisions. You’re gonna make trades which are not right. Some of them will be wrong and they’re gonna cost you money. We’re not gonna win every trade, okay? As much as you see my P&L green all the time, there are days when it’s red, okay?

They’re very few and far between, but sometimes it happens. Taking losses is required to reduce the speed of drawdown. And this helps us sleep better at night. I don’t know if any of you guys have ever been in situations where you’ve got way too much leverage on the table. You’ve got P&L with some big positions. You’re trying to claw back some losses. You go to bed at night thinking, I’m going to wake up with a margin call. How many people have gone to bed thinking that? It happens to everybody. It’s happened to me in the past, okay? So sometimes it just gets to a point where you want to be comfortable.

You don’t want to go to bed with 15% drawdown on your account just in case overnight, the yen goes crazy and it takes you up to 18% the next day. So let’s reduce the drawdown. Let’s do something about it. So the options we’ve got are full or partial closing, okay? So we have a bank of cash built up. Some of our trades that we take every day are gonna be profitable. And this is gonna be happening.

We’re gonna aim to bank half a percent a day. So you’re gonna take lots of positions and you’re gonna bank profit constantly. Because remember we’re targeting small amounts of money very regularly with very small positions. And it’s gonna build a bank up for us every single day because we’re only banking profit. Okay, the positions that don’t work for us straight away, we’re adding to those, moving our entry level, waiting for the market to move in our favor and waiting for them to do their profit takes that we can join with them, okay?

So we’ve got this bank of cash built up. We’ve got a number of trades in the red that are hurting us. Okay, can you spot the position that needs to draw down control here? Yeah. There’s only one, and it’s Euro New Zealand. So we use the profit to reduce the loss, but not fully remove it, because we’re only temporarily wrong. Remember, this Euro New Zealand short we’ve got on, the Euro is pushing at the moment, but we’re short on it.

Now we’re expecting it to come down, because it’s been going up for two days, and these guys have got to take a profit soon, right? So we’re still temporarily wrong on it, but it’s gone a bit further than we wanted to. It could be because we’ve got too much lot size on. It could be because there was a news event that made a five ADR move in one day. I don’t know. It doesn’t matter what the reason is. This is why we concentrate on percentage, okay?

When this hits our trigger, that’s when we start to act. So price will likely at some point come back and let us out, but for now it’s too much pain for us to bear. So we’ve got options. The main options are we can either close one full position or we can close part of a position. So we can either decide to shut this Euro New Zealand and say, right, I’ll take a 3.17% loss. Yeah, or not. Okay. So look at your profit today, this week, this month.

Okay, so look at what you’ve made right now, this week, this month. And then look at this pain. This pain is 3%. This profit is 11.64%. Okay, so we’ve got way more profit banks than we have drawdown on this particular position. So we could use up to half of this if we wanted to, to shut this position out and still have a load of profit. Okay, so whatever it will take to make you personally comfortable.

So let’s look at an example of how we can do it. So we’ve got our current P&L at the top and our open positions at the bottom, as we’ve already established and the current drawdown on our account. So for this account size, this is a thousand pound account that I was doing an EA test on. This 45 pound drawdown is not uncomfortable. It’s just over 4% drawdown. So it’s not, and I’m not really worried about it based on what is actually being banked.

When it gets to 10 to 15%, I’d be looking to close some of these positions, but let’s assume 5% is when you get uncomfortable and we’re getting very close to it now. So your threshold is 5%. So you’re now going, right, I need to close some of this down. So you can reduce that drawdown by using your profit. And this week so far, we have banked 8.15%. Okay. So this week, we’ve banked just over 8%. You’ve got two things you can do now with this Euro New Zealand trade. Okay. You can either just close the lot and say we were wrong and we can take this loss.

Say, right, I’m not gonna get on this anymore. Euro, they’ve just had some quantitative easing announcement and the Euro is gonna completely fly for the next year. I’m definitely wanting to get out of this position right now, close it. So you will just take a 5% profit this week. Sounds good, yeah? So we’re just gonna get rid of that trade and go, right, I’ll just take 5%. Wouldn’t it be nice if you make 5% a week? Or the better option is to close 50% of that position. Okay. So take a 1.6% loss and make 6.55% profit this week. Okay. Even better.

And that Euro New Zealand trade was extended when we got in for a reason. And that reason is now probably even more likely to happen. So remember when we’re adding positions, we’re adding lot size as the odds of that move increase because it was already likely when we were here. Now it’s really likely to happen, okay? So we can reduce half of it by just shutting either 0.02 off, or we could go 0.01 or 0.03. We just close partial, half of it. And then hopefully that year in New Zealand will then come back down and we’ll get out the rest of it with a bit of a profit.

We could even make back the loss that we made on it. But our goal is basically just to reduce the pain. Right now we’re in pain, and that’s what we need to get rid of. So what happens when we are really wrong? The big squeeze, it will happen. So squeezes will create losses and this is where you get a pair that trends for a while and it’s unexpected and it depends on the time frame you’re trading. So a trend, a strong trend on M5 could last for two days. A strong trend on the daily chart could last for weeks. Yeah, but it’s just a push in one direction that goes so fast and so hard that you don’t have any time to do anything about it.

Okay, and they do happen. So you can’t control when this will happen or predict it. So every now and again, you will get squeezed really hard. And this is typically due to fundamental news. It’s fundamental reasons that tend to do this. So it just makes price accelerate away hard and it doesn’t look back. It will reverse at some point, but for now your positions are negative and they’re getting more negative by the day.

So you need to do something about it now, okay? It will hurt you and you’ll see no way out, but you treat them the same as any other position going against you. You take a loss on them, okay? And it could wipe out a whole day’s worth of profit. But if it wipes out one day’s worth of profit, you’ve still got four left. But you want to keep on top of the drawdown. That is the most important thing.

That drawdown is what is gonna cause us pain. And if we don’t keep on top of it early, it can get faster and faster and snowball out of proportion. So we need to deal with it. You will be okay though, because you’ve bagged so much money along the way, okay? That you will have the bank to deal with it. Yeah, we just looked at that. This is what we do on a daily basis. And it will vary, you’ll have days like this, yeah?

Where you will have lots of pies in the oven. There’ll be lots of positions, which are in drawdown and you’re waiting for moves. And all of a sudden there’ll be a fundamental news event and the whole lot will go in one day and you’ll bank the lot. So your 5% drawdown will vanish and it will turn into 5% profit. You can’t control it. The market will do what it wants when it wants to do it. We just play the edge that we have. So it will happen more if you’re over leveraged. So if you use too large a lot size for your account, you’re going to get into these squeezes more often. Because a squeeze is only a squeeze when the drawdown becomes uncomfortable.

If something squeezes five days in a row against you, and you’ve taken 0.01s, and you’ve only got three positions on it, you’re probably looking at it going, well, I’m in 2% drawdown, I don’t feel uncomfortable. Then you’re not in a squeeze. You’re in a squeeze when the market’s moved hard against you and you’ve got too much on, all right? So let’s look at a quick squeeze now. There’s one happening right now on USDL.

Okay, so let me just go out to the hourly chart. You can see it on the four hour as well. So this is what I class as a squeeze. Price moves up, okay, out of this range we’ve had and normally what you would expect to happen is it would start to trend and when it trends it would tend to pull back support and resistance and then move up and then pull back and then move up. Occasionally it will just go parabolic yeah and it’s been parabolic since the 22nd of September we’re now on the 7th of October so it’s been running for weeks. This is an example of a squeeze. There is no exit for you here. So it depends on how many positions you have on.

I haven’t got many positions on it, and I’m quite comfortable in it. If I’d have got in here, though, I would probably have a few more in there, in which case I might start to get uncomfortable up here. And that is when you start to do drawdown control. So these squeezes will happen at some point, but we know what’s gonna happen, don’t we? We know these buyers have got to hit the sell button, okay? But right now, there’s potential for the US dollar to start trending.

There’s also potential for the US dollar to put in an A-shaped recovery. We don’t know, no one knows. But we have to make sure that our average is within reaching distance, okay, of where we want to get out, okay? So we keep our average price within the average daily range so that when we get a big move in our direction, we’ve got our out, right?

So that’s an example of a squeeze, okay? So that’s what I mean by a squeeze. And that’s when you’re gonna need to enact more drawdown control. That’s really the only time that you need to do that. Aggressive drawdown control. So there are times when drawdown control will be difficult, will not be enough. And we have what’s called aggressive drawdown control. And this is a way of accelerating your exits from bad positions using a stop loss. So aggressive drawdown It will be enacted when there is an opportunity, when you see an opportunity for the trade or the position that you’re in to be moving in your direction.

Okay, so sometimes you’ll have an opportunity to take larger positions and it allows you to get out of the trades faster. Now, aggressive drawdown control is a last resort trade. Now, I tend to use these when we are in a squeeze like that US dollar yen, and the squeeze has been going on for usually two to three ADR above what I would expect it to be, because you will find there is a point where the market literally cannot continue.

Think of it like a stalling plane. When a plane is flying up high and higher and higher and higher it will get to a point where there’s not enough oxygen left to power those engines and the thing will stall. It’s the same with the market. The market cannot continue to go parabolic forever because the people that have made it go like this have got to do what? Take profit. And that is when that will start to happen. So there is a point where you get to here and you expect the market would normally move and then it goes a bit further and you think, right, this is it. Then it gets to a point where you look at it and go, there is just no way this can go any further. There’s nowhere else for it to go. And that is the point where you would put advanced drawdown control into place. And typically you will have a trigger for advanced drawdown control. So the options are that 3% on a position that we talked about, okay, when you get to 3% you start doing drawdown control, you could say that when I get to 3% I’m gonna enact aggressive drawdown control, I’m gonna get in harder, okay.

So when you feel uncomfortable in a trade that you have taken, you can either enact normal drawdown control or you can dig your way out, as I call it. You can dig your way out quickly. With the added bonus as well, which is also another nice thing, of making more money along the way. So aggressive drawdown control uses a stop. Remember those things I said we don’t use anymore? Well, they do still have a use. So as an example, let’s say we have an initial trade we took when the RSI was extended, okay, below 30. Yep, so the RSI’s got low. We entered using a point 0.5, so we took a long position, okay, and it’s basically come down and come down and come down and we’ve got five positions on. So that’s 0.25 in total, because these are all 0.5 lots.

The RSI is now sitting at 15. Yeah, so it’s massively, massively embedded to the downside. And we know it’s due to pop. It’s got to because these guys have got to start taking profit. If they don’t, they’re going to start losing money, okay? So aggressive drawdown control is now a very viable option at this point. As every reversal alert has a very high probability of being the one that is gonna reverse or pull back.

All right? So aggressive drawdown control uses a stop below the low. Okay, a traditional trade we’re taking here, but our position that is 0.25 lots in drawdown at the moment is now too uncomfortable for us. So we enter our trade now, position number six, with roughly a half or a third of our total lot size. So in this case, where we have a 0.25 on, we would be entering with a 0.12 in the same direction. So we’ve got our trades on at the moment, our five trades.

We’ve got so extended and we’ve just received a reversal alert and we think this looks like the one because it’s also just bounced at support or something else, there’s another reason. We just look at it and go, this is the one I wanna take. So we enter with half the lot size we’ve got on at the moment. And what that does is it brings our average from here down to here. So now we need a very small move to be able to exit that position.

So this is kind of like your parachute, your escape vector. OK, we need to get out of this trade. It’s wrong. For some reason, this market is squeezing against us and we don’t know why. We need to get out of it. So what we can do is use advanced drawdown control by using a higher lot size to escape that position. But what we will do is put a stop under the low in the same way as we would normally. And if that gets taken out, we will just take a loss on that aggressive drawdown control position. And then we wait for the next one.

So there’s three outcomes when you take an aggressive drawdown control position. The first is the market will reverse as we expect and we exit with no loss, okay? So we let the move happen and we’ll be back to break even very quickly because we’ve just moved our entry price down dramatically, remember. So when we had these positions, these five, our average was here.

By entering this sixth one, which is bigger than the rest, we brought our average down dramatically. So instead of it coming down to somewhere around here with a normal position, it’s come down a lot further. So it’s much easier for us to reach it. So the first thing that will happen is it will reverse as we expect, and we just exit the position. We get out, we go, right, that was wrong. Nevermind, didn’t lose anything. Been banking on all the other stuff.

That one was just a bad trade. Okay. The second thing that can happen is the market reverses and we bank with a nice profit. Okay. So we let the move happen that we were expecting to happen. And we’ll be back to break even very fast. But instead of exiting that trade, we take a profit on our larger position and we use half of that to do normal drawdown control. Okay, so we’ve turned a bad trade into a profitable one, reducing our pain and we have the option for the move to continue and make us more money. So here’s our five positions. Here’s our aggressive position, which brings our average down to somewhere around here.

What happens when we get to break even is instead of exiting the trade and going, phew, I’m out. We close this and bank a load of profit. We close this maybe and bank more profit. We close that one and that one. And we use all the profit from here, half of this profit to pay these two off. So we’re banking money and we’re closing positions to reduce our drawdown.

That leaves us with two positions here, and we’re roughly one break even, one drawdown. So now what we can do is, if the move plays out, we bank these. If the move continues to the downside, we carry on bringing our average down, waiting for that big strong move to happen. So we turn a bad trade into a good trade using one advanced drawdown control position. So what it does is it banks profit, it allows us to reduce our lot size by closing other positions down.

And then we’ve got less drawdown. And if it moves against us further, our drawdown rate is reduced dramatically. Okay, which of those two above you choose, of course, is gonna be based on confidence and experience. So aggressive drawdown control is a last resort. And as I say, you can trigger it on any of your signals that you want to trigger drawdown control on. So it could be one of the trades is 30 pounds in drawdown. It could be my entire position is 3% in drawdown. It could be my entire portfolio of positions is 15% in drawdown. Whatever the reason you decide to trigger it, you can either use normal drawdown control and start taking losses, or you can attempt an aggressive drawdown control to dig your way out of that position. You’ll be amazed how many times aggressive drawdown control, your instincts will be right, that this is way beyond what we would normally expect.

And therefore it tends to be the case. They do then put their profit take move in. And that aggressive drawdown control makes you a really good amount of money because you’re entering with half of an entire position. Yeah, so instead of your 0.01s and twos you’re getting with, you’re entering with a 0.12, or 0.05s you’re entering with a 0.12, or 0.05, you enter with a 0.12. So you just enter in with bigger positions. But only you can decide.

So that decision is also going to be based on how well your month is going. So if you’re having a really good month, a really good week, a really good day, you’ll probably want to do aggressive drawdown control. If you’re having a really bad one, you probably won’t want to risk it. You might want to just take a loss. But you won’t know until you try to do it. So this is another thing you can do.

The other last thing that can happen before we look at an example of this is the market can continue against you. So what happens there is we take a small loss of the aggressive drawdown control position. So we just take a little hit, we take a red in our P&L, but we can repeat this process. And again, multiple times, remember there’s going to be a reversal soon. We know this, we’ve proven it time and again.

If we try three times to do aggressive drawdown control, we lose two of them, but a third one works. That third one will still more than pay for those two that we stopped out on, and it will still allow us to make profit and do drawdown control, okay? So those are the three things that can happen. Let’s have a quick look at US dollar yen trade that I was in, the one that I’ve got in drawdown at the moment, and we’re gonna look at where and how aggressive drawdown control could have been actioned on this one.

Okay, so let’s switch back over to the charts. So we’ve got this big strong push. Let’s switch down to the M15 chart. So here’s my positions, okay? And let’s say I’m in a position now where I’m not happy and I want to enact advanced drawdown control. Okay, so the market consolidated there after I took this position and then we pushed up one more time, right?

And then I saw it consolidate, it put in a new high here. What did it do here? Yesterday’s high. Yeah, took out the liquidity there because that’s what the market does is it pushes up and down and takes people’s pending orders and people’s stop orders. And then we got a reversal alert. Okay, so the reversal alert would have been somewhere around there.

So I’ve got 0.4, 0.3, 0.3, and 0.2. So I’ve got a total of 12, 0.12 on there. So what I could have done here is ended with a 0.06, and that would have brought my average from here up to around about there. And as the market came down, I then had a decision to make here at break even as to whether I close that, close that, maybe close that one and leave these two in place. Okay, so that’s how you would enact aggressive drawdown control.

Okay, I’ve got a slide as well to show you that happening as it plays out. So there’s your current average position right now. The reversal alert would have been here because it made a new high and then as it came down you would have got an alert from the reversal alert indicator there on the M15 chart. Total lot size currently 0.12. Aggressive drawdown control would have been roughly 0.6 or a third. So you could have gotten with a 0.04 there if you wanted to. The new average would have jumped up to somewhere around here, okay?

And then as it came down, you had the option to either escape the entire position with a profit if you held it, or get out with half of it and deal with the rest with drawdown control, yeah. So that’s aggressive drawdown control. The next thing we’re gonna talk about, and we are obviously, we’re two and a half hours in now, so I’m conscious of time, is Martingale, all right? Now this is the last section, this Martingale section.

All right, so before I go into this, anybody got any questions on drawdown control? You may need to re-watch this one, because there’s an awful lot of information in here. And you’re going to need to put this into practice to fully understand it. And you’re going to need to experience it. But is there any questions or anything that didn’t make sense initially? Johnny, can this be done via the EA, or we need to manually intercept?

Right, so normal drawdown control can be done with the EA, yes. So the EA, let me just quickly flick over. I don’t know what that’s been doing. That’s been sitting there doing something. We’ve got drawdown control in the EA here. Where’s it gone? There. OK, so you can enable drawdown control and drawdown control can be done either on a per trade or per position or basket perspective.

And you can do it when you hit an amount of drawdown, a number of pips or a percentage of ADR and you decide how much percent you want to close. So what I would tend to do here is I will have when my trades get to 30 pounds in drawdown, okay, I want you to close out one third of my position. Individual trade. So one trade, when a trade gets to 30 pounds in drawdown, close out a third per position or per basket. Sorry, per position, i.e. per basket or per trade. So it does do that for you. But you can also do it manually. though. All right. Aggressive drawdown control, if you’re using the EA to trade, to do all of the trading for you, or I’m saying all of it, 90% of the trading for you, if you get to a point where you want to enact aggressive drawdown control, that’s manual. But then you can manually close positions out within the EA that the EA has taken after that has worked for you.

Right, right, Martingale. You will be tempted to do this, so let’s address it. Somebody’s already mentioned it, Alastair, wasn’t it? I think it was, let me just look back in the chat. Can’t find it, but yeah, I think it was Alastair, wasn’t it, yeah. Right, Martingale. What is Martingale? It’s a bit dangerous. That’s what it is. Okay, we’ve already alluded to this. The traditional Martingale sizing technique is the process of doubling your lot size to try and recover your losses faster. It’s a little bit like aggressive drawdown control, but you start it immediately. Okay, so it’s an alternative method of averaging, of dollar averaging, but most people execute it badly and it ends up being pure gambling. If you look up Martingale in Wikipedia, it relates to gambling, tossing a coin, casino roulette, red and black. It relates to binary outcomes. Yeah, so Martingale works fairly well with something that has a binary outcome, a 1 or an 0, a yes or a no, a win or a loss.

Position trading doesn’t have a win or a loss. Position trading has an entry, another entry, another entry, another entry, a pullback and a profit. Lots of stuff. It could be any combination of entries, profits, all sorts of stuff, isn’t it? So it’s dangerous in most trading strategies, Martingale, all right? But saying that there is a way to use it and the new version of the EA that I’ve just brought out, I’ve been doing some testing and Martingale is actually proving better for drawdown and profit. But but it will be dangerous, okay? If you get a squeeze on multiple pairs at the same time and you are using Martingale, you will blow your account.

Okay? So just be careful with it. And if you’re gonna use it, test it to death. Ideally, get the EA and test it with the EA, all right? But this is how it works. So let’s say you start with 0.02 for your initial position on a 4,000 pound account. Okay, so nice and conservative, all right? Not over leveraging, we’re taking small lots. Let’s assume a squeeze hits like that US dollar yen, all right?

And you need to get into eight positions, not like that US dollar yen actually, bigger than that US dollar yen, right? If you need to get into eight positions, that’s a big squeeze. So you need to get into eight positions before the market moves in your favor and you can exit. Assuming you’re not doing any kind of drawdown control here, okay? So we are just getting in and doubling and doubling and doubling and waiting for a pullback that gets us out, okay?

So at eight trades using Martingale, starting with a 0.02 lot size, you will be trading 5.1, 5.1 lots on one pair. If your broker will let you get there without a margin call, right? So that’s six pounds a pip if the price pushes further against you. You’re getting me in real trouble, yeah? Pound New Zealand is gonna move, what, 150 pips or something in a day, yeah?

150 times six. I’m not even gonna do the math, but on that account, you’re in massive, massive problem, aren’t you? So this is how it works. Position one is a 0.2. Position two is a 0.4. Position three is an eight. 16, 32, 64, 128, 256. Eight positions starting with an 0.02.

Suddenly you’re entering two and a half lots in the market. You can see where the problem can possibly lie. This is one pair. If you’re trading six pairs with Martingale, just hold on to your pants. So I wouldn’t advise it unless you’re going to trade one pair. Now this is what I’m finding is if you were to trade an individual currency, like if you were just going to trade gold, there’s potential for this to work, but you’re still going to need a big, big, big account. Okay. All right. So as Alice has just said, unless you don’t double the lots.

So what you can look at is a hybrid recovery strategy. Okay. So the EA developed to automate my strategies does have a lot size multiplier function. Okay. So what it allows you to do is enact a Martingale style strategy. But the, I was asked to put it into the EA because people wanted to position trade, but they wanted to rather than doing drawdown control, they wanted to scale into positions slightly higher rather than doing aggressive drawdown control. what they wanted to do was gradually increase the lot sizing, but ever so slightly, not going crazy with Martingale. So it has produced very, very, very good results working this way, rather than entering with the same lot size over and over again.

And the advantage of it is it obviously brings your average down much closer to price, much faster, unless you’re going into a big squeeze, in which case then it can still be dangerous. But try aggressive drawdown control first and see what you prefer. Personally I find aggressive drawdown control a more comfortable way to trade than any type of lot size multiplier. But let’s look at a couple of hybrid lot size examples and look at the benefits of doing it this way instead. So I call it the Martingale where you double your lot size, you would employ a much more conservative lot size multiplier, like 1.3 times the size or 1.5 times. Okay, so using the same analogy we had on the previous slide, okay, of our trade where we enter with a 0.02 and it goes eight positions against us, where we were trading 5.1 lots.

With a hybrid recovery using a 1.3 multiplier, we are only trading 0.58 lots in total after eight positions. Now that is still significantly bigger than the 0.16 we should be trading if we’d taken eight positions at 0.02, right? But it’s way, way, way less aggressive and dangerous than Martingale. And it also allows you to get your average entry, your position entry much closer to price, much faster. A 1.5 multiplier will obviously be more dangerous.

But if you look at the lot size with a 1.5 multiplier compared to a 2, it’s only one lot after eight positions instead of 5.1. So I wouldn’t ever recommend going above that if you wanted to use it. So you’re still getting into larger lot sizing with 1 and 1 as a multiplier, but 1.3 is much more manageable and works very well in testing. Okay, so if you’re going to do this, the one word of caution I would give is use it with limited pairs. Okay, so one trade per direction per currency. Yeah, so remember our two currency pair rule.

Okay, one currency pair. If you’re getting US dollar yen and you want to employ a hybrid recovery strategy, you don’t trade any more US or any more yen in any direction. You are locked out of US dollar yen. Best set up in the world on pound US dollar presents itself. Pound US dollar pushes to 80 on RSI and you think this thing’s going to collapse. You don’t take it because you’re already in a US pair. Because if it doesn’t collapse, you’re gonna be in trouble. Because if you’re getting into hybrid recovery strategy on another pair that goes against you at the same time, that 0.16 that you should have on two positions is now 1.6.

Yeah, 10 times the size of normal drawdown. Yeah, you see the danger, okay? But if you just want to trade one pair on US and one pair on Yen and use this, you will get out of your trades quicker, okay? We’re gonna look at some examples of it quickly. Advantages and disadvantages of hybrid Martindale. Introducing this technique will obviously help you keep your average price much closer to the current price of the pair you’re trading, giving you a faster exit and potentially a lot more profit when price reverses and pushes you away. Don’t forget with this as well, we are also getting in with a much bigger position. So when price does go our direction, as it will do, you’ve got a hell of a bigger size on that than you would normally have. That 0.16 you’d normally have is now a 0.58.

That’s a large lot size going in your direction. When that thing goes above break even, you’re going to be putting some serious money in that P&L before you hit that close button. So the main disadvantage, of course, is that your rate of drawdown will be much quicker, much, much faster. And you may have to enact advanced drawdown control much quicker. Also, your advanced drawdown control is going to be much larger.

Let’s say we’ve got eight positions on that 0.58. Going back to our example, our aggressive drawdown control position is going to be something like a 0.3. Much bigger. So everything is much, much, much more enlarged using this method. So you have to make sure that you’re not over leveraging if you’re gonna try it. So I’ve done the same example with the EA that I did with those others I showed you earlier.

So with lot sizing, with ADR, distance between trades and with your profit targets. Those are the three main things that are affecting drawdown control. Done the same experiment with a lot, I’ve got a lot multiplier basically in the EA. So I’ve used a two multiplier, a 1.5 multiplier and a 1.2 multiplier. Now this is where the interesting statistics come in, okay? With a 1.2 multiplier, we got into 7.18 go down, okay?

We took 186 trades. You’ll see the number of trades taken is the same, pretty much, okay. The profit factor is not that much different. And the profit is actually better with Martingale than it is with the others. With 1.5, it goes up to 9% in drawdown, all right. So this is using a scalping strategy as well. That has to be said, not a standard strategy. This is scalping hedging.

With Martingale, we got 5.17% drawdown and we banked more money. So the drawdown actually was reduced. And the reason for that is because we got out of our trades much faster because our average was so much closer and we were only targeting a tiny little 10 pound target. So you will get out very, very quickly. But the problem with this is if you get into a big squeeze, you have the potential danger of getting into some big, big, big trouble.

So with that said, there are ways that you can control this better. And I’ve been using the EA to test a lot of strategies. And the ways that you can enact a Martingale-style approach rather than using aggressive drawdown control, is first of all to start with the smallest lot size that you can. Secondly, is to get into A plus setups only. So if you are, we’ll look at strategy tomorrow, obviously. I’m talking about things we haven’t learned here.

But if you were to get into mean reversion strategy using RSI extensions, for example, instead of getting in at 70, when RSI is extended above the 70 level, yeah, we get in at 80 only. So we are taking A plus setups. So this and this, the difference between those two is a B and an A, maybe an A plus. Yeah, so we take the best possible entries. The further we get into mean reversion trades, the further extended they are, the higher the probability of that trade playing out quicker is for us.

So therefore a Martingale strategy would mean that we would not need to get into too many positions. And the testing that I’ve done over a few years on a few pairs with 80 extensions on RSI, for example, the EA didn’t take more than four trades in any position. So looking at our lot size multipliers, we never got past this level here before the reversal happened and got us out of our positions. But that’s because we are taking much, much, much better quality trades, quality over quantity.

Or if you’re gonna use ADR as an entry criteria, again, we’ll look at these strategies tomorrow, 150% extensions of ADR rather than 100% extensions. Okay, so we’ll look at strategies in more detail tomorrow. But if you’re gonna look at this as an alternative, make sure that you’re getting into those ones where the trades have got the highest possible probability. Okay. So if you use any form of it, you must also enact drawdown control regularly, regardless of what profit you have banked.

So it can work, but you have to take your losses and you must have a set of rules to work with. So use drawdown control with this still, because that rate of drawdown is gonna go up very, very quickly. So you wanna be doing drawdown control as fast as you can, okay? But you will do drawdown control a lot less because these trades tend to work out a lot faster and get to the point where you necessarily don’t need to do drawdown control.

But give yourself a better chance of escape faster with less positions and limit the number of currency pairs you trade to stop you getting over leveraged. So as I’ve said, just hammering home, US dollar, yen, no more US, no more yen. If you’re gonna use any kind of Martingale strategy. So final slide here. Who wants to see Martingale in action? Of course you do. Everybody wants to see Martingale in action.

It’s exciting to watch. It’s also scary. So somebody pick a pair. Any pair. GJ. Okay. This is Martingale in action using drawdown control on M15. Now this is the one where it’s just going to go into a range and it’s never ever going to take multiple positions but we’ll see what happens. You’ve just picked this pair at random yeah so I’ll just show you what happens but okay so the EA is set up literally to trade M15 RSI extension and it’s hedging.

So it will be trading in both directions when we get a reversal alert, but it’s using a two times lot size multiplier and it is also using drawdown control. Okay, so we’re using drawdown control when we get to a certain ADR level, I think it’s two ADR. When we move two ADR against ourselves, we are going to take a partial loss or a full loss, depending on the loss size.

Obviously this is taking 0.01s, okay. So we’ve also got TPs. So we’re using a hedging strategy here. So we’re looking to take profits. So you can see that our short position, we took a profit on, our long position, we’re now looking to enter a new trade on that one. You can see the next one is going to be a 0.02. We’ve taken that. Now we’re going to take a 0.04. I can’t see the averages, which is really annoying on this, but your average is obviously going to be somewhere around this level here on the buy positions at the moment.

See if we can push down again, get us into another buy trade. We’re just in another consolidation period at the moment. Oh, it’s typical, isn’t it? The longest consolidation in the world. Right, okay, he’s taken another trade. So now the next one is going to 0.8. So we’ve got three trades now on the buy. We’ve got a one, a two, and a four. Now we’ve also got position on there as well. Okay, so we’ve just done some drawdown control and we’ve taken a sell win as well. So the drawdown control is done at the same time as that sell profit comes in. This is the beauty of hedging.

You can hedge one against the other and then you don’t basically lose as much money because the hedge is making profit while you’re taking drawdown control as well. But we’re in a 0.8 now, look at our drawdown. We’re in nearly 3% drawdown on this account. This is a, I think it’s a 3K account. And I haven’t run this before, obviously I’m seeing this for the first time with you guys because you just picked this pair at random.

So I’ve no idea what it’s gonna do. But we’ve taken four positions. I’m just gonna see if this actually does move up and take profit, there we go. So we’ve closed out. So we closed out those with Marticale. So we needed four positions down to get out there. I might have taken five actually, because we probably closed one out, didn’t we? So we’ve got a buy and a sell on.

That buy has just taken a profit. We’ve taken our second sell with a 0.02 up there. I didn’t see what the drawdown got up to, but we’re up in the three to 4%, weren’t we? Yeah, with four positions, five positions, something like that. You can see how much the market consolidates. Yeah, this is what we have to sit through as position traders, unfortunately. The market doesn’t move that hard and that fast that often. So we’re waiting for those news catalysts to come in. Something like this. This here would have been a news catalyst.

Okay, so we took three positions there, all out. You see how short that was. So with Martingale, when we’re increasing our lot size, we only needed to move a total of 114 pips from our last position. And the ADR is 136. So that average price was well within our ADR levels, wasn’t it? So another sell there, taking profit, another buy. So it’s not actually needing to take too many Martingale positions, but there was only three positions we needed to take there, but that trade took one two three four five six days six seven days in total to play out one uh trade there straight up into profit so we’re on our second short here so the next lot size we’re going to enter is going to be a 0.04 if it pushes further against us which it didn’t need to so just got out of that one both of those in profit and alone.

Okay, so that kind of demonstrates Martingale. If we run this same simulation using standard lot sizing, what you would find is we would just be in these positions for a little bit longer because we are not able to get out of them as quickly because our average price is further away. So that’s all that the Martingale style entry does is it just means that you need to take less positions to get out faster. But if you’re using fixed lot sizing like 0.02s or 0.01s on your positions, you would typically enact aggressive drawdown control or normal drawdown control at some point. But this means you have to do less drawdown control. But when you do need to do it, it needs to be more aggressive.

So let this one play out, this is a 0.04. Next one’s gonna be a 0.08. Let’s see if we can get up to anything higher than a 0.08. No, there you go. So three positions out. Yeah. Market’s pushed up. All these buyers turn into sellers. All these sellers now turn into buyers.

Yeah, the cycle continues. This is the market movement. This is a brilliant way to give yourself confidence in position trading strategy. Get in the simulator and just use anything to watch the market fly past. And just think to yourself, I’d have taken a short there. I’d have taken a short there, I’d have taken a short there, I’d have got out there. You don’t have to be exact.

Yeah, it pushed up really hard. RSI got extended. I probably would have got in up there, pulled down, pushed in and pushed hard up there, probably would have got in there, it pulled down. Down here, I probably would have got in because it was extended, it pushed up. Yes, use the simulator to give yourself confidence in position trading. And just look at the charts and look at the market movement, how it moves up and down and up and down all the time. And there’s very few times you’re not going to get an opportunity to get out of all of your positions in a profit. Okay, so that’s Martingale. That’s all I wanted to cover on that. I wasn’t even going to put Martingale in because I’ve never been a fan of it personally, but a lot of people have bent my arm with the EA to put that lot size multiplier in there and a lot of people DM me their P&Ls and what they’re doing with the EA and it does actually have a benefit, but I’m not a fan of two times lot sizing.

So I would much rather use a lower Martingale, but that’s not the way I trade manually at the moment. I trade with standard lot sizing most of the time and aggressive drawdown control if and when I need it. So it’s there as an option, but I would encourage you to experiment. Yeah, make this your own, go out there and use and test these strategies. If you’ve got the EA or you want to buy the EA, the EA will do all of this for you. It will automate your testing for you. You can set up all sorts of conditions and you can test them. See what would have happened. See what the drawdown is. See what the profit is. What would you be happy or comfortable with? And then if you want to, you can let the EA trade 90% of your entries for you.

It will trade every strategy that I trade and more. But that is it, part four over. Tomorrow we are gonna cover strategies, finally. Okay, so tomorrow we’re gonna look at the exact strategies that I personally use. And these are not the be all and end all. You can adapt these, you can add to these, you can come up with your own. But these are the strategies that I use and I find work well with position trading techniques.

My exact entry criteria and how I automate everything. So I’m gonna take you through the processes and you’ve probably kind of guessed. Yeah, I use the RSI dash, I use the ADR dash, I use the market reversal indicator, I use EA. I don’t need to use any of these, but I automate 90% of my trading so that I just don’t have to do much. Cause I just want to make money as simply as possible like everybody.

And there are tools to cut down your chart time. But saying that chart time is very important. You do need to see and watch the market playing out. So any questions on what we have covered so far or what we have covered in today. It’s been a long one today, we’re up to three hours. Tomorrow is not going to be this long, okay. This was the this was the meat today, so you’re going to need to watch it a few times, okay, and feel free to ask questions, yeah, but anybody got any burning questions now? I’ve got everything over there that I want to get over with that. So, if there’s anything I’ve missed out, anything that you don’t understand, anything you’re struggling with, you can, yeah, ask in the Telegram group.

Yeah, the Telegram group is there, and you can ask questions, you know, fire away, and it’s no problem at all. But everything you need to know is in the videos. So re-watch them and try, use it. But tomorrow is strategy day. So after tomorrow, you will have all of my entry criteria, exit criteria, how I use everything. And from there, it’s a case of going and doing. And if you want to have more support, the live room is there. Yeah, so I’m in the live room and I’m doing this analysis on a daily basis. Yeah, and the analysis doesn’t take long. I’m sitting there waiting for alerts to ping and I’m developing strategies.

So it doesn’t take long to go through what you need to go through to make these entries, but you’ve just got to keep on top of stuff. So, all right, so tomorrow, position trading bootcamp, day five, okay. We’re gonna cover everything to do with strategy, all right. So thanks for turning up today, guys. I hope you have a good afternoon, evening, or night, wherever you are based. And I will be back tomorrow, one o’clock, and we’ll get this final day put to bed, and then you’ll have everything you need.

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