Ben’s Capital Split method is a method, where you start with a fixed lot size (e.g., 5% of your total capital) and split it into multiple parts (e.g., 3, 4, or 5) when entering a trade.
You place the first part immediately upon seeing a signal (like an inside bar), and the remaining parts as the price moves against your trade until a common stop-loss level is reached.
Algorithm 1: Position Size Adjustment in Case of a Positive Price Movement (Capital Split)
When the price moves straight in the positive direction, you’ll want to maximize potential profits while ensuring that you protect your gains. Here’s a possible algorithm:
- Calculate your initial position size (1/X of your total desired position size) and place it immediately upon the signal.
- As the price moves positively, you can either:
- Place the remaining parts at predefined target levels based on your analysis, taking into account support/resistance, technical indicators, or other relevant factors.
- Use a trailing stop strategy to follow the price higher. This means adjusting your stop-loss level upwards as the price moves in your favor, locking in profits.
- Continuously monitor the trade and adjust your stop-loss and take-profit levels based on your analysis and risk tolerance.
Algorithm 2: Breakeven and Maximizing Potential Moves (Capital Split)
To achieve breakeven and maximize potential moves, you need to manage the remaining parts of your position carefully. Here’s a possible algorithm:
- Calculate your initial position size (1/X of your total desired position size) and place it immediately upon the signal.
- As the price moves against your trade initially, place the remaining parts at predefined levels that allow you to achieve breakeven on the entire position.
- These levels should be strategically chosen based on your analysis and risk tolerance.
- Once you’ve achieved breakeven on the entire position, start trailing your stop-loss to lock in profits while giving the trade room to breathe.
- You can use various trailing stop methods like ATR-based trailing stops or percentage-based trailing stops.
- Continuously monitor the trade, adjusting your stop-loss and take-profit levels as the price continues to move in your favor.
- The goal is to maximize profits while minimizing the risk of a significant reversal.
Remember that these algorithms are just guidelines, and the specific implementation may vary based on your trading strategy, risk tolerance, and the assets you’re trading.
It’s essential to backtest and thoroughly understand the dynamics of your chosen markets before applying these algorithms in live trading.
Additionally, always use proper risk management techniques to protect your capital.
POSTED IN: Online Trading for Beginners