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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

How Simple Maths Can Increase Your Average Profit Per Trade 10-Fold

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By in Forex Trading Strategies By Nial Fuller Last updated on | 28 Comments

increaseprofitYou’ve probably read trading articles that talk about how your “winners need to be greater than your losers”, it’s used so much that it’s become cliché. It is NOT as simple as having a series of trades and just keeping your risk at 1r and your average profit objective of 2r, that is never going to be the case in real world trading. There are several situations where maths is applied to trades I personally take that can dramatically increase the risk-reward, which increases the overall risk-reward across a large sample of trades.

I am going to present three ideas on money management involving simple maths that you can apply to your trades right now. After reading today’s lesson, you’re going to walk away with three concepts (One of which you might know and two you probably don’t), that most people rarely talk about or execute in their own trading plan.

Here are the concepts in no particular order: 1. Understanding the risk vs reward profit ratio in your trading. 2. Using winning streaks to ‘reverse martingale or pyramid across trades. 3. Using pyramiding in a single trade position to magnify gains.

This article won’t discuss trade setups in any detail, rather it’s focus is on how simple maths can be applied to your money management. If you don’t have the patience to read and understand this lesson, you certainly are not ready to learn the price action patterns I trade with. Do the work and understand the capital management and position sizing concepts before you start looking for the ‘holy grail trade entry strategy’.

1. The Money Management Cliché We Need to Actually Understand…

Winners need to be bigger than losers.

Sorry to repeat what you already know, but it’s an unavoidable fact that to make money over the long-run, your average winning trade needs to be bigger than your average loser.

In a nutshell, the only way to achieve this is having your risk be small on each trade and your profit objective being larger than your risk, usually two to three times or more. Over time, you will average around 1.5 to 1 and 2 to 1 across a large sample of trades if you’re doing well.

Here is a table that presents 10 hypothetical trades, each with a constant risk of 1r and various targets.

riskrewardtable

Some trades lost and some trades won, the end result shows the average winner at approx. 2 times the average risk.

Easy as an example but in the real world harder to do obviously. For greater understanding, check out the following articles:

Risk reward and money management in trading

A case study of random entry and risk reward

2. Pyramiding in a single trade

The power of snowballing position size inside a single trade..

Pyramiding a trade allows you to ‘snowball’ it into potentially a huge winner by adding to a winning position at predefined intervals. We can turn an initial 1R risk into potentially a huge R profit by adding a new position onto the trade as it moves in our favour, which essentially allows us to trade with the markets money since we are not taking on any new risk. The result is a snowball effect which builds a small trade into a much larger winner if the trade continues in your favour.

For a greater understanding of this, check out this article on pyramiding trades for big profits.

3. Winning trade streaks using ‘reverse martingale’ (something most people never talk about)

Compounding profits across multiple trades…

If you’re in the market long enough you will know when you’re on a winning streak and when a market is ripe for the picking. Yes, that statement is arbitrary to the technical minded and gut feel is definitely applied to this concept.

I am going to discuss this concept at the most basic level to demonstrate the power of applying some fancy yet simple money management maths during winning streaks…

The idea is similar to adding to a winning trade in a single position (as discussed in point 2 above), but in this case, we are doubling and thus compounding our risk per trade across multiple trades. Before I discuss this concept, let me clarify that this is not martingale strategy whereby a trader doubles up on losses, it is in fact, reverse martingale, where a trader uses profits from one trade and re-invests them in the next trade, essentially doubling the position size on the subsequent trade. Basically, we are using the markets money since you are not risking anything over your 1R investment on the first trade.

The idea is simple; we are doing the opposite of standard ‘martingale’ in which a trader would simply continue to double his risk per trade until he wins. Instead, the reverse martingale is a method we apply when we anticipate a streak of wins in optimal market conditions and we then double up our position across multiple trades only if we win the previous trade. This method can supercharge an account, and remember, we are trading with the markets money, not our own!

To demonstrate the maths in this concept, we will place three example trades, all with a risk reward profit objective of 2r, however, the risk will be increased on each trade as the streak plays out, as explained below…

Trade #1:

1R risk, to return 2R profit. Trade wins and you earn 2R.

Now you’re in a positive mindset about a trending period in the market and the recent signal that has paid off, so you’re anticipating a streak. You will now do the following…

Trade #2:

Re-invest the previous win (2R) on the next trade. Trade wins, you earn 4R.

Now you retain the same view as the prior trade, you’re in a trending period and the signals are working well, you are prepared to roll all of the previous profits (4R) into the 3rd and final trade of the streak…

Trade #3:

Risk 4R trade wins, you earn 8R.

Total result of streak

————————

Most risked at any time = 1R

Total return = 8R

8 to 1 total risk / reward)

Here’s table showing our example trades and how the returns double each time we re-invest the previous trade’s winnings:

compoundingtable

The above example shows us a brilliant case of using the market’s money and simple maths to trade a small initial risk into a huge return.

Now, I am sure some of you are thinking “How do I know when the streak will occur?” and so on. You don’t know for certain but there are indeed market periods and conditions where the trader with experience knows the likely hood of streaks are higher. Even with a random walk, where you randomly apply this concept of re-investing / compounding profits, you are bound to have some decent wins. This will only improve as your confidence and trading abilities improve over time through proper trading education and experience.

The maths above is incredibly simple, but it’s essential to understand and if understood can literally take your trading results from mediocre to outstanding, very quickly.

In closing…

These are the very same position sizing and money management techniques that I personally apply to each price action trade setup I execute. These are also the same money management techniques that I teach my students to apply to the price action strategies, all of which is contained within my advanced price action trading course.

Trial the ideas on a demo trading account or if your already trading live, trial the ideas on smaller positions until you perfect the concepts.

Good trading, Nial

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. MUNGE GATHURI September 18, 2019 at 1:23 pm

    This is an article that need to be reread as many times upto the point it is engrained the sub- conscious mind thankyou again for the great article.

    Reply
  2. caroline Alegbe September 18, 2019 at 2:25 am

    Thanks for this write up.

    Reply
  3. Yakawonya Rutson September 16, 2019 at 4:44 am

    Always out with a winner post A teacher to cherish Thanks many thanks over

    Reply
  4. eessien edet September 16, 2019 at 1:15 am

    Hi Nial,
    I enjoy reading your wisdom-filled articles on trading the financial markets. I have been trading for some years now, picking up useful trading nuggets along the way. Your latest article is, as usual, content packed.

    Thanks Nial for your awesome trading insights.

    Essien.

    Reply
  5. Nour September 15, 2019 at 11:45 am

    Nial, you are the godfather of the Forex trading.

    Reply
  6. NKAMA September 15, 2019 at 12:55 am

    You are too much sir. By this you have solved most of my problems.

    Reply
    • Ekpebo Edwin September 19, 2019 at 7:36 am

      Thanks for all the vital information on retracement trading- entry signals, stop loss placing and profit taking. You sure opened my mind to new idea.

      Reply
  7. Medi September 14, 2019 at 5:29 pm

    You tha God sent!

    Reply
  8. NGUYEN QUOC THANG September 14, 2019 at 1:28 pm

    Pls support me to explain more about ” Event area ” in the line ” Retrace Entry Back to an Event Area or Prior PA signal.

    Thank you
    THANG

    Reply
  9. Mahmudul Hasan September 14, 2019 at 1:32 am

    Super Nial bro…..

    Reply
  10. Diário de um Poupador March 5, 2018 at 1:32 am

    Hi, i am a brazilian guy who trades for years. I pause my trades during some years, and i came back about 2 months ago. I’ve been trying a strategy with short take, and it has given to me a lot of profits. I am trying to make my mind strong to ignore the market’s movement after i book profit. You have said a very right thing here: the market always makes a retraction.

    This article was very good, thanks. Keep it that way. God bless you.

    Reply
  11. Solomon Olusegun Oyeniyi December 13, 2017 at 9:24 am

    Thank you for this article.

    Reply
    • Liton khan September 16, 2019 at 12:14 am

      Very nice Boos.ok go forawd.

      Reply
  12. GANDUS December 4, 2017 at 6:10 am

    Great always to hear you big brooother Nail. God bless you. timely article for me. love

    Reply
  13. Noor Azman Abd Aziz November 26, 2017 at 2:10 am

    Nice and very interesting. This article answer the questions why i always close trades with losses while actually I have been profitting during the trading session.

    Reply
  14. Sboniso Malambule November 24, 2017 at 6:22 pm

    ive bee reading your lessons im impressed

    Reply
  15. Azmi Yusoff October 17, 2017 at 2:52 pm

    Interesting article. This happen everytime. The idea of wanting to wait a little more time may cause us to lose what is supposed to be a profit instead.

    Reply
  16. Ayanda Mabuza September 18, 2017 at 10:56 am

    reading such artecles really opens my mind.Thanks Nail

    Reply
  17. Roy Peters September 1, 2017 at 2:39 am

    This happened to me recently on Eurgbp. Up 200 pips and thought it’d go higher. Next day market came down and I booked only 40pips!
    I learn a big lesson.

    Reply
  18. Rafari July 31, 2017 at 1:29 am

    ok, its been almost 2 years since I start to learn how the market move. I can say most of your articles give me a vision about how to, what to do and don’t. It’s cool because I start move to learn draw some major snr, I got stuck on making it, but your articles show me some clever way to draw “a key level” and some short term. I’ll try my best to practice it everyday !!!

    Thanks Nial, You’re Awesome !

    Reply
  19. kgothatso July 28, 2017 at 6:00 pm

    U ar really a genus.sir u teached me that i should take a risk than to lose the chance **#great things come to those who hustle (lovely)$$$$$

    Reply
  20. Alan Gillanders June 25, 2017 at 3:25 am

    Hi Nial,
    Thanks for the lesson. This has been my problem for some time. Greed. Always waiting to take more with a small investment. My profits evaporate and majority of times end in a loss.
    In the last 6 weeks I have been taking the small profits. 100 – 200 points instead of trying to get 500-1000 points. seems to be working ok. Thanks again

    Reply
  21. oluwatosn Matthew June 23, 2017 at 5:50 pm

    That’s a good trading guide. Thanks nial.

    Reply
  22. Ages Justice June 22, 2017 at 5:40 am

    Keep it up Mentor. God bless you more!

    Reply
  23. Louis June 21, 2017 at 11:43 am

    This is exactly what was missing from my trading. Realistic exit plans. Thank you Nial.

    Reply
  24. endurance oki June 21, 2017 at 8:05 am

    thank you sir for your well prepared article. Im a victim of this very situation , i’ve almost hit my profit target then i said i should let the profit run but to my very face , the profits were evaporating until i closed the trade .

    Reply
  25. DAVID SHUBE June 20, 2017 at 7:48 pm

    Thanks Nial, booking profits on-time is right, cos too much emotional traits is involved when one realized that the trade is going to retrace unexpectedly.

    Reply
  26. PEERALLY June 20, 2017 at 6:21 pm

    Thank you, Nial.

    Reply
  27. Kate M June 20, 2017 at 6:49 am

    Thanks Nial, way to go. You keep writing evolving lessons like these, Ill always have something to learn. And again an opportune time to write this particular article, I think you are the Yoda of trading:)

    Reply
  28. Lucas Obiora June 19, 2017 at 9:07 am

    Thanks Nial, that’s an eye opener to me, I have that problem of letting profits run into losses, thank you very much for the article.

    Reply
  29. Kay June 19, 2017 at 8:49 am

    Thank you Nial, well explained and organized article. Definitively help me to prepare my Profit plan. Regards

    Reply
  30. smg June 19, 2017 at 3:17 am

    Thank you

    Reply
  31. richadi36 June 19, 2017 at 2:07 am

    Thanks Nial. I really got immense knowledge about booking profits.

    Reply
  32. Suleiman Bhadmus June 18, 2017 at 11:14 pm

    Amazing,am definitely going to include all this point in my trading plan. Though am still on demo, but what have learned from this article in very key to a successful trading.
    Thanks a lot Mr.Nail Fuller.

    Reply
  33. Matt June 18, 2017 at 5:25 pm

    This happened to me last week. Was up 700 proffit and closed with 700 loss because i had such an attachment to what i thought was a fullproof longterm move in one direction so i wanted to ride the waves but it looks like it wasnt the long term move in that direction i thouht it was.

    Reply
  34. akhtar butt June 18, 2017 at 4:44 pm

    Hi, Dear Nial Fuller, , excellent, well-explained with reality and experience. Thank, cheer

    Reply
    • Bebe April 30, 2019 at 7:57 pm

      Excellent article,Thanks Nail

      Reply
  35. Akpos June 17, 2017 at 6:46 pm

    Nice….this has been my bane in trading. Not booking profit….

    Reply
  36. John Promise June 17, 2017 at 6:02 pm

    Thanks Nial. My mentor.
    Remain blessed.

    Reply
  37. Thendo June 17, 2017 at 4:58 pm

    Thanks Nial.. great advise. Am looking forward to not closing or closing when the trade goes against you but hasn’t hit your stop loss…

    Reply
  38. Luis June 17, 2017 at 12:20 pm

    Thanks so much Neil as always, great article!, mm please i have a question, what about the case that all the other trading books and gurus says about let profits run until at least 1:2 Risk reward ratio? , because they say if i close before that 1:2 im cutting my profits and that can damage me in the long run! , but in the real life im bored to wait sometimes for a 1:2 and when im at 90% to achieve that profit target the markets turns down eliminating all my profits and making a loss for me, but when i book the profits i see my account growing, what you can reccomend me about that?.

    Reply
  39. Bruno June 17, 2017 at 10:48 am

    Before reading the whole article, I’m writing this! Just the header alone struck the cord. Toy, Nial, are a mind reading mentor! I’m at that stage in my trading where my edge is consistently delivering profits! But, yes, most times, these profits evaporate. Alot is happening around the political and business world and price is fluctuating between these events. Yes, price still does was it’ll do, but the whipsawing is alarming! I can’t say enough how soothing this article is to me because I make sizeable % of my Acct only to watch some diminish or disappear, even into losers.

    Thank you for this article.

    Reply
  40. Mavhungu Lufuno June 17, 2017 at 9:14 am

    Amen

    Reply
  41. Elpadrino June 17, 2017 at 4:54 am

    Thanks Nial #Legendary

    Reply
  42. Alin June 17, 2017 at 4:20 am

    I am one of those loosers who do not book much profits on the trades, because I’m setting
    way too large TPs. Thanks for the posting!

    Reply
  43. Shankara Motay June 17, 2017 at 3:59 am

    Thank you very much

    Reply
  44. Rongsquare June 17, 2017 at 12:44 am

    Amazing thank you Nail

    Reply
  45. Mike Coe June 16, 2017 at 11:27 pm

    Your articles just keep getting better and better, Nial! Great stuff! Thank you very much.

    Reply
  46. Siyabonga Mkhize June 16, 2017 at 11:10 pm

    Powerful thank you sir

    Reply
  47. KRISTOFA OKENTA June 16, 2017 at 9:37 pm

    Good Teaching As Always.
    Thank you For Sharing Your
    Heart With Us.

    Reply

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