I don’t think there are any hard and fast rules, but this is how I do it and it seems to work ok.
I will generally trade one pair at a time. I sometimes have small holding positions which I sit on but usually I will only actively trade one pair at a time. Firstly I take a view. Looking at recent times, my view is that the AUD/USD will fall back towards .9500 sometime in the next few months. I started building a short position. For argument sake and to keep it simple, lets say my maximum position is 10 lots, my minimum position is 1 lot, and I’m willing to risk $5k on this strategy. My view is that 1.0850 should be ‘toppy’ but I’m sort of flexible on this and am willing to stretch to 1.1100.
I sell 1 lot at 1.0720 and 2 more lots at 1.0820; with a s/l for 2 lots at 1.0885 therefore risking around $3.5k on my initial entry gambit
I buy 1 lot at 1.0720, buy 1 lot at 1.0665, sell 1 lot at 1.0720 and sell 2 lots at 1.0750. I am now 4 lots short at around 1.0800 on average with a stop-loss for 3 lots at 1.0860, therefore risking around $3k still but my position size and entry level has improved.
I can continue now in the same vein, buying small lots on dips into the 1.06’s and selling on rallies into high 1.07’s, all the time increasing the size of my position incrementally whilst hopefully also increasing my average.
In a best case scenario, I will build my position into a 10 lot short with an average entry level above 1.0850 ie more or less break-even, and if the market breaks lower in my favour then I could potentially pick up 1,000 pips on the trade. Now that’s good risk-reward!!
Of course this won’t work out very often but 3 or 4 good trades a year is all I need and the entry risk on all strategies is relatively small
In fact it’s often worse if the market suddenly breaks in my direction right from the start but I’ve only got the minimum position on, as happened me last year in AUD/CHF (but who’s dwelling
