First things first, I didn’t invent this method. I read it somewhere sometime back and am writing from memory an actual example from the place I read it which I think is accurate to the letter. I have been using it to great effects.
This isn’t a trading system per say but more of a way to quantify your losses to a fixed low amount if and when trades go wrong as much as royally that is as possible. In other words, here is a method to fix your losses to just $42 even if you were long a 10000 units on EUR/USD when it tanked 150 pips or visa versa.
Lets take the above scenario itself for an example. Lets assume you take losses every 10 pip move against you. So for a total of a 150 pip move against you with a loss of $42 thats $3 per 10 pips is what we are aiming for. (42/(150/10)=3) So, for every 10 pip move against you, sell off (by putting a offsetting order in Oanda) a [B][I][U]diminishing[/U][/I][/B] (important word) amount of UNITS THAT ONLY MAKES YOU [B][I][U]REALISE[/U][/I][/B] (important word) A LOSS OF $3 AND ONLY $3. Yes, you will be ending up with a residual of currency that you don’t want but don’t complain since your loss was effectively made $42.
You can create a fixed loss quantity arbitrarily. It doesn’t have to be $42. So, if you have large accounts, set it higher and visa versa.
One good thing about this system is that it allows you to watch as your trades go bad without stress as you know that you losses aren’t unlimited.