The SAW (Stop At A Winner) System of Trading

Filed under: Learn Forex Trading |

 

Screen shot 2013-07-26 at 11.37.03For today’s article, I want to explore the SAW (Stop At A Winner) system, which is a system that is often used in betting circles, and one that I have used in the past in sports betting (although it has to be used VERY carefully). To begin with, for the uninitiated, let me talk you though the basics of this system.

 

The idea is to raise your stake on each bet or trade until you have a winner and the money is recovered on any losers, plus a bit more. Once a winner has been achieved, then you go back to your original stake. For example:

 

1) You risk $50 on a trade, with a target of $100, and lose (a 1:2 risk-reward scenario). Your profit/loss is now -$50.

 

2) You risk $75 on a trade, with a target of $150, and lose (a 1:2 risk-reward scenario). Your cumulative profit/loss is now -$125.

 

3) You risk $112.50 on a trade, with a target of $225, and lose (a 1:2 risk-reward scenario). Your cumulative profit/loss is now -$237.50.

 

4) You risk $168.75 on a trade, with a target of $337.50 (a 1:2 risk-reward scenario), and win. You have now recovered your losses, and made a $100 profit as well. You now go back to risking $50 per trade, and repeat the process until you get a winner.

 

Now, with infinite funding, this system would always eventually produce a winner. However, we all have a limited amount of capital, and this is where this system falls down somewhat. Moreover, as the stakes get higher, so too do stress levels and your nerves are tested.

 

In the past couple of years of trading, my biggest string of losers was ten in a row. If this were to happen with this system, I would be risking $1281 on the tenth trade just to cover the losses and make the $100 profit; and if this failed and we stopped here – the total loss would be $3744. With a starting bank of $10,000, it would only take 15 losses on a row to completely wipe out your bank. However, you wouldn’t even make it this far, because you would get a margin call first. With a bank of $100,000, it would take 20 losers in a row to wipe out your funds. So is it worth the risk? Probably not. But there may be a workable system hidden there somewhere.

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