I was going through some trading lectures the other day by Christopher Terry (CEO, iMarketLive) and I was amazed at how effective he used the Twin-trading technique to effectively manage trades and reduce risks and he’s making millions using it. The truth is I’ve come across the technique before but I overlooked it because it looked too simple to be effective and this made me realize that success is not about the tools at your disposal but how effective you use them.
This forex trading technique is most likely not new to many of us but it is one thing to have an Arsenal with weapons of mass destruction but it is another thing to actually fight the war with the right weapons, thus the question is how well have you utilized twin-trading. If you are being honest, your answer would be not very much or not at all because majority of traders today don’t use it. Yet the funny thing is that the professional traders use this technique as a major ingredient in their trading.
What is Twin-trading?
Twin-trading is the technique of opening double trades of a single lot size or sharing a single lot size into x-number of trades of the same type. For example let’s say you want to open a Buy trade of 1 Lot size, with Twin-trading, instead of opening just one trade of 1 Lot Size, you will open two Buy trades of 0.5 Lot Size each or three trades of 0.33 lot size each or n trades of 1/n lot size each, where n is the number of trades of the same type that you which to open. The major idea behind this concept is that all trades would have different exit positions thus as market progresses in trade direction, positions with shorter exits are closed out until the final position with the longest exit is closed out.
Why Twin-trading ?
So the question now is, why twin-trading? Why do you have to go through the stress of opening multiple trades summed up to a single lot size when you can just open a single trade of that lot size? The simple answer is uncertainty! The only certainty about the Forex market is that it is uncertain. Smart traders are guided by this fact in any trade decision they make. I mean, haven’t you been in those situation when you just think that the market has made a perfect set up and you dive right in only to get whammed in the opposite direction?. With twin-trading you are able to achieve two things in your trading: 1. Profit Locking 2. Risk Minimization.
Profit Locking
Figure 1 (Screen shot 1) is a simple illustration of twin-trading for n number of trades. Each number line in the figure signifies a trade position and the length of each number line signifies the exit position of these trades. Let us assume that the step for the trades is 10 pips, this means that each position will be exited 10 pips higher than the previous position. This simply means that if the market moves 10 pips and then reverses, then you’ve locked 10 pips profit of one position, if the market moves 20 pips and then reverse, this means you’ve locked 10 pips of the first position and 20 pips of the second position, etc. With this you can simply take small profits on each trade until you get to your target, this makes trading less straining and makes you worry less about losses.
Risk Management
The best part of twin-trading is risk management. When each position is closed out, the profit of the closed position can be used to hedge the losses of the opened positions. What do I mean by this, let’s say you open two trades of 0.5 lots each and exit steps of 10 pips and stop loss of 20 pips. This means that when market moves 10 pips in trade direction, the first position is closed out. The profit of this first trade can then be used to hedge any potential loss of the second trade, thus if the second trade losses at 20 pips stop loss, the actual loss will be 10 pips, considering the 10 pips profit of the first trade.
Let’s consider the following illustration for better understanding:
Let us consider a BUY trade of a total lot size of 0.5 lots, with a stop loss of 100 pips and take profit 100 pips.
Single Trade Scenario:
Now if we open a single 0.5 lot BUY trade, the risk of that trade in dollar ($) would constantly be 0.5*100= $50. This risk would be constant throughout the life span of the trade until the trade hits the take profit . Thus single trade risk is given by :
sRisk = total lot *Stop Loss
where, sRisk= Single trade risk
Multiple Trade Scenarios:
Now if we consider this in a multiple trade scenario, say we open five (5) trades of 0.1 lot each , thus total lots =0.1*5 =0.5 lot. Stop Loss for all trades 100 pips as above. Now we share the take profit equally in 5 steps, thus 100 pips /5 = 20 pips. Thus the first position take profit is 20 pips , second position 40 pips , third position 60 pips, fourth position 80 pips and fifth position 100 pips.
When price goes up 20 pips, the first position is closed out and the new risk for the trades is:
mRisk = total Open lots*Stop Loss – Closed trades profit
where, mRisk= Multiple trade risk , total open lots = total lots of all open orders.
We can see from the table Fig. 2 (Screenshot 2) and Graph Fig. 3 (screenshot 3) that while the risk remains constant for a single order, there is a constant decline in risk for multiple order trading with each position closed.
Partial Close
Partial close is similar to Twin-trading but has a different mode of operation. In partial close, instead of opening multiple orders, a single trade is opened with the required total lot size, and at each interval , when the trade approaches its exit positions, a specific amount of the lot size is closed out at that level and the remaining lot size are allowed to continue trading until the market reaches another trade exit position.
Fig. 4 Is an illustration of partial close trading
Download Our Advanced Trade Management Software with Partial Close functionality. Click Here to download
This forex trading technique is most likely not new to many of us but it is one thing to have an Arsenal with weapons of mass destruction but it is another thing to actually fight the war with the right weapons, thus the question is how well have you utilized twin-trading. If you are being honest, your answer would be not very much or not at all because majority of traders today don’t use it. Yet the funny thing is that the professional traders use this technique as a major ingredient in their trading.
What is Twin-trading?
Twin-trading is the technique of opening double trades of a single lot size or sharing a single lot size into x-number of trades of the same type. For example let’s say you want to open a Buy trade of 1 Lot size, with Twin-trading, instead of opening just one trade of 1 Lot Size, you will open two Buy trades of 0.5 Lot Size each or three trades of 0.33 lot size each or n trades of 1/n lot size each, where n is the number of trades of the same type that you which to open. The major idea behind this concept is that all trades would have different exit positions thus as market progresses in trade direction, positions with shorter exits are closed out until the final position with the longest exit is closed out.
Why Twin-trading ?
So the question now is, why twin-trading? Why do you have to go through the stress of opening multiple trades summed up to a single lot size when you can just open a single trade of that lot size? The simple answer is uncertainty! The only certainty about the Forex market is that it is uncertain. Smart traders are guided by this fact in any trade decision they make. I mean, haven’t you been in those situation when you just think that the market has made a perfect set up and you dive right in only to get whammed in the opposite direction?. With twin-trading you are able to achieve two things in your trading: 1. Profit Locking 2. Risk Minimization.
Profit Locking
Figure 1 (Screen shot 1) is a simple illustration of twin-trading for n number of trades. Each number line in the figure signifies a trade position and the length of each number line signifies the exit position of these trades. Let us assume that the step for the trades is 10 pips, this means that each position will be exited 10 pips higher than the previous position. This simply means that if the market moves 10 pips and then reverses, then you’ve locked 10 pips profit of one position, if the market moves 20 pips and then reverse, this means you’ve locked 10 pips of the first position and 20 pips of the second position, etc. With this you can simply take small profits on each trade until you get to your target, this makes trading less straining and makes you worry less about losses.
Risk Management
The best part of twin-trading is risk management. When each position is closed out, the profit of the closed position can be used to hedge the losses of the opened positions. What do I mean by this, let’s say you open two trades of 0.5 lots each and exit steps of 10 pips and stop loss of 20 pips. This means that when market moves 10 pips in trade direction, the first position is closed out. The profit of this first trade can then be used to hedge any potential loss of the second trade, thus if the second trade losses at 20 pips stop loss, the actual loss will be 10 pips, considering the 10 pips profit of the first trade.
Let’s consider the following illustration for better understanding:
Let us consider a BUY trade of a total lot size of 0.5 lots, with a stop loss of 100 pips and take profit 100 pips.
Single Trade Scenario:
Now if we open a single 0.5 lot BUY trade, the risk of that trade in dollar ($) would constantly be 0.5*100= $50. This risk would be constant throughout the life span of the trade until the trade hits the take profit . Thus single trade risk is given by :
sRisk = total lot *Stop Loss
where, sRisk= Single trade risk
Multiple Trade Scenarios:
Now if we consider this in a multiple trade scenario, say we open five (5) trades of 0.1 lot each , thus total lots =0.1*5 =0.5 lot. Stop Loss for all trades 100 pips as above. Now we share the take profit equally in 5 steps, thus 100 pips /5 = 20 pips. Thus the first position take profit is 20 pips , second position 40 pips , third position 60 pips, fourth position 80 pips and fifth position 100 pips.
When price goes up 20 pips, the first position is closed out and the new risk for the trades is:
mRisk = total Open lots*Stop Loss – Closed trades profit
where, mRisk= Multiple trade risk , total open lots = total lots of all open orders.
We can see from the table Fig. 2 (Screenshot 2) and Graph Fig. 3 (screenshot 3) that while the risk remains constant for a single order, there is a constant decline in risk for multiple order trading with each position closed.
Partial Close
Partial close is similar to Twin-trading but has a different mode of operation. In partial close, instead of opening multiple orders, a single trade is opened with the required total lot size, and at each interval , when the trade approaches its exit positions, a specific amount of the lot size is closed out at that level and the remaining lot size are allowed to continue trading until the market reaches another trade exit position.
Fig. 4 Is an illustration of partial close trading
Download Our Advanced Trade Management Software with Partial Close functionality. Click Here to download
