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“Doubling-Up” on winners

The standard Martingale system closes winners and doubles exposure on losing trades. While it has some highly desirable properties, the downside with it is that it can cause losses to run up exponentially.

The reverse Martingale does the exact opposite. It closes losing trades, and doubles winners. The idea is to cut losses quickly and let profits run.

The table below shows how a “double up” sequence works in practice. I’ve set a virtual take profit, and stop loss target of 20 pips. The price starts at 1.3500. I start by placing a buy to open order. The price then moves up 20 pips to 1.3520. Following the strategy, I now double the size of my position. I add 1 lot at the new rate of 1.3520.

I continue doubling-up the exposure for each 20 pip increment. At tick 6, the price then drops by 20 pips. Following the reverse strategy, I now have to close the last position. So I place a sell to close order at tick 6. The effect of this is to half my position size, or exposure. I now hold 8 lots instead of 16.

Notice that the last losing trade wiped out all of the profit on the existing open trades, and left me with a net loss of -$2. The net loss of the entire sequence is equal to my stop