The mathematical model below describes how loss can be minimized while trading in the forex market. Assuming we trade USD/EURO and give an order to sell hoping that there would be an increase of 10 pips. However, if the there is an unexpected decrease in pips, open up the 1 minute chart. Having studied the one minute chart carefully, I believe there is always a chance that there will be a 10 pip increase during a fall of 80 pips or less. In some cases there is a fall of more than 80 pips without a change in the graph pattern. However, those can ignored as unexpected anomalies. So, our goal is to make up for the lost money in the 10 pip increase in the middle of a sharp fall.
Lots | Pips | Profit/Loss | Money Spent | Sum of Pips | Sum of Lots | Lots to Equalize(+10 Pips) |
1 | -20 | $ (20.00) | $ 75.00 | -20 | 1 | 1 |
2 | -20 | $ (80.00) | $ 225.00 | -40 | 3 | 5 |
5 | -20 | $ (240.00) | $ 600.00 | -60 | 8 | 16 |
16 | -20 | $ (720.00) | $ 1,800.00 | -80 | 24 | 48 |
48 | -20 | $ (2,160.00) | $ 5,400.00 | -100 | 72 | 144 |
144 | -20 | $ (6,480.00) | $ 16,200.00 | -120 | 216 | 432 |
432 | 10 | $ - | $ 48,600.00 | -110 | 648 | -648 |
In this model, we buy 1 lot assuming that there would be a 10 pip increase. However, there is a sharp fall. We wait for a 20 pip decrease and then sell another lot hoping that a 10 pip increase would neutralize our loss. Similarly, when there is another 20 pip fall, we sell another 2 lots hoping that a 10 pip increase would neutralize our loss. The process continues and it is highly unlikely that there is never a 10 pip increase across a fall of 120 pips. Hence, even if things don't go as planned, there is always a way to get your money back!
Lots | Pips | Profit/Loss | Money Spent | Sum of Pips | Sum of Lots | Lots to Equalize(+10 Pips) |
1 | -20 | =SUM(B1,B2) | =(F2*75) | =SUM(B2) | =SUM(A2) | =-(C2/10)-F2 |
2 | -20 | =((F3*B3)+C2) | =(F3*75) | =SUM(E2,B3) | =SUM(F2,A3) | =-(C3/10)-F3 |
5 | -20 | =((F4*B4)+C3) | =(F4*75) | =SUM(E3,B4) | =SUM(F3,A4) | =-(C4/10)-F4 |
16 | -20 | =((F5*B5)+C4) | =(F5*75) | =SUM(E4,B5) | =SUM(F4,A5) | =-(C5/10)-F5 |
48 | -20 | =((F6*B6)+C5) | =(F6*75) | =SUM(E5,B6) | =SUM(F5,A6) | =-(C6/10)-F6 |
144 | -20 | =((F7*B7)+C6) | =(F7*75) | =SUM(E6,B7) | =SUM(F6,A7) | =-(C7/10)-F7 |
432 | 10 | =((F8*B8)+C7) | =(F8*75) | =SUM(E7,B8) | =SUM(F7,A8) | =-(C8/10)-F8 |
COLUMN NAME | EXPLANATION |
Lots | Number of Lots purchased each time |
Pips | Number of Pips increased/decreased after purchasing lots |
Total Profit/Loss | Total profit or loss incurred after the most recent purchase (amount within brackets indicate loss) |
Money Spent | Amount spent to purchase the Lots each time |
Pips Inc/Dec | Difference in Pip count since we started buying |
Sum of Lots | Total number of Lots purchased so far |
Lots Req. to Equalize(+10 Pips) | Number of Lots that are to be purchased to neutralize loss if we expect an increase of 10 pips |
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