Profitable forex strategies with consecutive losses

Profitable forex strategies with consecutive losses

If you are familiar with forex trading you most probably noticed that some strategies have consecutive wins and consecutive losses. That often happens when market conditions changes. E.g. Strategy has many wins in a row when volatility or other factors are beneficial to the strategy and at some point in time it starts to loose. Losses often come in a row as a result of changed market conditions in some period of time.
There are several ways to cope with this problem. The first thing that comes in mind that you should find some indication of changed market conditions and do not trade at this time. However this is easier to say than to do. This leads to the other solution. If strategy has consecutive wins and consecutive losses you can make it more profitable even without knowing the reason why it starts to fail. Money management helps here. More specifically - decrease factor.

What is decrease factor in money management and how it can help you in forex? Decrease factor will decrease your position size after defined number of consecutive losses. E.g. let's say your usual position size is 1 lot and you decrease this size to 0,2 lot after one loss or several consecutive losses. This will minimize drawdown during bad streak. You will go back to normal order sizing after the first win.

In order to understand better how decrease factor helps we can take example when 5 consecutive losses happen and make some calculations. Let's say that your usual position size is 1 lot and you are risking $300 on one position. The total loss in bad streak would be:

Without decrease factor: 1+1+1+1+1 = 5 lots (5 * $300 = $1500 loss);

Decrease to 0,2 after 2 losses: 1+1+0,2+0,2+0,2 = 2,6 (2,6 * $300 = $780 loss);

Decrease to 0,1 after 1 loss: 1+0,1+0,1+0,1+0,1 = 1,4 (1,4 * $300 = $420 loss).

From this example you can see how losses are decreased. Sometimes it can even help to turn unprofitable strategy into profitable one.

Of course it can affect the profit as well so you should find the right combination which works for the strategy. When to decrease and how much to decrease you can find out by testing the strategy.

This will not help strategies with evenly distributed wins and losses, but usually these wins and losses are not evenly distributed during time, so decrease factor can help in those cases.

If you are interested in using decrease factor in expert advisors, you can find a tool with this feature here. You can add decrease factor to any EA created with this online tool.