In this episode, Walter shares some useful techniques to increase your return based on your strategy. According to him, temptations can be avoided by using this method called “Ryan Jones’ Fixed Ratio”. You will also learn about the safest way to diversify your trades and how to stay away from temptations. All these and more in this episode of Truth About FX.
Download (Duration: 03:32 / 8.5 MB)
In This Episode:
00:40 – getting impatient
01:26 – most fruitful area
02:36 – looking at trades by blocks
03:25 – regular fixed fractional ratio
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. What are some ways that I can increase the return of the strategy that already works?
Walter: This is a great question and this usually signals that the trader asking this question has essentially got to the point beyond break-even. Starting to make money and now getting impatient. That’s what it usually means.
So, the temptation is to risk more and go, “ Well, I know it’ll work” and start risking more but really you’re typically going to be better off. There’s a couple of ways to do it. One is to take winning trades and try to make them bigger. There’s a lot of ways doing that like you can get into the whole pyramiding thing or whatever. Or, just in general using a different position sizing algorithm.
But the temptation is always going to be, what I mean by that is like when if you get into Ryan Jones — go here for a free class on this — fixed ratio. There’s any number of different ways of doing it and that’s probably going to be the most fruitful area.
You can certainly expand out into different markets and more markets. although that’s not going to give you the best. It’s not as safe as, for example, adding more strategy. The safest way to diversify is to add more strategies.
Once you start making money, the craziest thing to do is to add more risk per trade because that just mean your valleys are going to be deeper and you’re going to have a freak out sooner or later when you get into a deep drawdown.
But the temptation often is to just risk, trade more timeframes, or more markets — which generally is not going to get you the same diversification the fact that you’ll get if you’ll add more strategy.
The number one best thing to do is to keep doing what you’re doing. Look at different position sizing strategy. That might mean, for example, adding to winning trades suing some sort of pyramiding algorithm or simply adjusting your risk per trade based on like Ryan Jones or one of the ones of…
I’m a big fan of a simply just taking and this is something that I’ve been testing and it’s been going quite well just taking, looking at trades — individual trades — and looking at them in blocks so the risk per trade actually becomes risk per block. Once you have a sequence of winning trades, you’re actually risking that. Those profits in that sequence rather than resetting to zero every time you start a new trade.
There’s a lot of different ways of doing it but usually the big trap is to jump into, “Hey, I’m risking 1%. Imagine what I’ll make when I start risking 2%.” Hopefully that helps but I would encourage you to get into the risk management side of things. Maybe pick up Ryan Jones’ book. That is really good for smaller accounts.
Once your account grows really gets to 100,000 to 200,000, you probably don’t want to use it because you’ll find that it doesn’t grow your account as quickly as using just regular fixed fractional. The fixed ratio Ryan Jones is better for smaller accounts if you’re impatient and want them to grow but that would just be my recommendation.
Hugh: Okay, cool. Thanks, Walter