Gui Lin Li’s Aggressive Position Sizing Strategy Pushes Him to the Top Spot

Week two of September for Stage 4 of the Trading Cup has begun, following a steady Non-farm Payroll (NFP) result on Friday.

As highlighted by the graph from Jeroen Blokland below, the US economy added 1.37 million jobs in August.

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As the NFP result led into the US Labor Day weekend, with Monday a public holiday, we didn’t see the usual volatility and wild market swings.

We are inspired to see the Top Ten leaderboard off to a cracking start, with Gui Lin Li leading the charge and holding a commanding lead over the rest of the field.

Like the Formula One result over the weekend, many of our previous superstar performers are missing from the podium, which is unusual, to say the least.

Perhaps it was due to Gold’s ongoing sideways movement, which has seen the precious metal trade in a narrow $65 range over the 3.5 weeks.

Here’s a snapshot of the current leaderboard as of Monday the 7th of September.

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Gold shines bright for Gui Lin Li

You will notice a recurring theme among our Trading Cup Top Ten traders, and that is their interest in trading Gold.

And once again, a new entrant to the top of the table is focusing his trading strategy exclusively on Gold.

Congratulations to Gui Lin Li, who is our leader after the first full week of trading.

Gui Lin Li is an incredibly accurate trader, managing to win on 90% of their trades.

You can see they have placed 258 trades (all on Gold) with what may be considered a martingale trading strategy.

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How does Martingale position sizing strategies work, and is Mr. Li using them?

Martingale is where you add to your losing positions as they move against you.

So you take a long position, and if Gold were to move lower, you would add another long position and continue until Gold hopefully turns around the other way.

On top of that, you then tend to lock in small gains relative to the average size of your loss, favouring a high win percentage.

Also, you will notice the higher average loss of $54 relative to the average win size of just $11.65.

This is often characteristic of a martingale strategy that is smart enough to cut the loss off short instead of letting it run and continually adding when a position starts to get out of hand.

When the pain of a loss gets too high – You must cut the position

Potentially, Gui Lin Li is willing to average into losing trades using smart money management, and if and when a position gets to a certain point, a stop loss is implemented and the position closed when the pain level gets too high.

At least this allows them to ‘live to fight another day’ and continue trading in this fashion.

What is also interesting is the immediate bounce back following the significant losses.

Potentially, the position was moving against them, they continued adding to the position, only to have to eventually lock in a loss on those initial positions.

Then, as the market got stretched too far in one direction, the mindset behind the strategy is the position will bounce back to the average, and so positions in relative size were added, resulting in the strongest winning period.

Aggressive position sizing rules see the biggest losses immediately followed by the biggest wins

You can see in the screenshot below how aggressive and close to nailing the bottom of the market Gui Lin Li was.

The initial position was wrong, but that didn’t stop them from adding to the position.

But through their particularly aggressive money management strategy, they continued adding to their initial long positions, closing some and then adding new long positions at the bottom of the market.

Fortunately, this proved quite fruitful in the end.

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Having said that, by the end of all that trading activity, their account wasn’t back above where it started (look at the equity curve chart above).

So was all that aggressive adding to losing positions necessary? Maybe, maybe not. Please keep in mind that trading leveraged products is risky, and you can lose more than your starting capital.

Is it worth trailing a martingale position sizing strategy?

Now you have two questions to ponder.

Is it worth adding to losing positions, and the heightened stress this concept could potentially put you under?

Or is it better to close off the losing position and wait for a better entry point as your system identifies it?

Have you put your trading systems to the test and see how they perform relative to your trading peers around the globe?

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Ashley Jessen // Author of CFDs Made Simple, Head of Marketing at ACY Securities

Ashley Jessen is the author of CFDs Made Simple and Head of Marketing at ACY Securities. He has been in the financial services industry since the year 2000 and worked for some of the leading companies in the CFD, Forex and Online Trading space.