THE HAnDbook of TECHnICAl AnAlysIsNow assume that we have two traders, Trader A and Trader B. Trader A risks
1 percent per trade (fixed‐percentage sizing) whereas Trader B trades with one
fixed lot (fixed‐lot sizing). Assume that Trader A is using fixed sizing, meaning that
he is risking 1 percent of the initial capital and not of current capital.
Trader A enters at breakout Point B with a stoploss placed 10 points below the
entry, that is, Stoploss 1 (SL1), as seen in Figure 28.29. Trader A exits at 20 points
above the long entry where a new short is triggered. Since Trader A exited 20 points
above entry, Trader A makes 2 percent (since the stopsize of 10 points represents
a 1 percent risk). Unfortunately, Trader A lost 1 percent when the short exited at
the stoplosses indicated at SL2. Overall, Trader A profited 1 percent from the two
trades. Trader B also enters at the Point B breakout with one lot and a stoploss
placed at exactly the same swing low, SL1. Trader B also exited 20 points above
entry and makes $20 of profit (1 lot × 20 point move). Unfortunately Trader B
lost $40 when the short exited at the stoplosses indicated at SL2. Overall, Trader
B lost $20 from the two trades.
We see two traders trading the same entries and exits, yet the performance
differs drastically! In this example, we also see that entries and exits have nothing
much to do with profitability. Profit or loss depended on the type of tradesizing
method employed. This is shocking news for technical traders. Let us now look at
one more example.
Trader A enters at breakout Point B with a stoploss placed 10 points below the
entry, that is, Stoploss 1 (SL1), as seen in Figure 28.30. Price moves up but reverses
and takes out the SL1 stoploss, causing Trader A to lose 1 percent. A short is initi-
ated at the same price level with a stoploss placed at SL2. Unfortunately, price also
takes out SL2, causing Trader A to lose another 1 percent. Trader A enters a new
long breakout at the SL2 price level with a stoploss placed at SL3 and a take profit
(T/P) placed 50 points above the entry indicated at Take Profit in Figure 28.30.
Trader A finally exits with a profit of 1 percent at the take profit (since the SL3
stopsize of 50 points represents a 1 percent risk). Overall Trader A now loses 1 per-
cent from the three trades. Trader B enters with one fixed lot at breakout Point B
with a stoploss placed 10 points below the entry, that is, at SL1. Price moves up
figure 28.29 Comparing Percentage Sizing with Fixed‐Lot Sizing.