AUTO LOT
Auto-lot, similar to the concept of compound interest, adjusts the lot number for each trading day based on the balance of an order.
When the balance increases due to a profitable trading day or off/in payments, the lot number for the next trading day changes, constantly adapting to the balance amount and creating a compound interest effect. This dynamic adjustment of the lot number can lead to greater long-term profits compared to using a fixed lot number. Additionally, it serves as a crucial protection against potential losses, making it one of the most important risk management measures in trading. The concept of compound interest is relevant to the given text as it involves the idea of constant adjustment and its impact on long-term outcomes. Compound interest refers to the process where interest is calculated on the initial principal and also on the accumulated interest from previous periods. This results in exponential growth of the investment over time5. The analogy drawn in the original text between auto-lot adjustment and compound interest is apt in highlighting the dynamic nature of the lot number and its potential for long-term impact.
Compound interest is the eighth wonder of the world. Whoever understands it makes money from it, everyone else pays for it.
Albert Einstein
Every time a cycle starts, the possible lot number is calculated from the amount of free equity for an order.
If the equity balance increases or decreases due to previous trading, or there is a change in the equity balance due to an off/in payment, the lot number for the next trading cycle changes.
What is the difference between a fixed lot number and an automatic lot number adjustment?
The difference between a fixed lot number and an automatic lot number adjustment is as follows:
Fixed Lot Number: A fixed lot number remains constant for each trade and is not adjusted based on the balance or trading activity. Traders using a fixed lot number will trade the same number of units or shares for each trade, regardless of changes in account balance or market conditions.
Automatic Lot Number Adjustment: In contrast, an automatic lot number adjustment dynamically changes the lot number for each trade based on the account balance or trading activity. If the account balance increases, the lot size may increase, and if the balance decreases, the lot size may decrease. This dynamic adjustment is often based on a predefined risk management strategy and aims to adapt to the changing account equity and market conditions.
Automatic lot number adjustment is often associated with risk management and is believed to offer potential long-term benefits compared to using a fixed lot number1. This approach aims to align position sizes with account equity and risk tolerance, potentially allowing for more consistent risk management across varying market conditions
What are the advantages of using an automatic lot number adjustment in trading?
The advantages of using an automatic lot number adjustment in trading include:
Minimizing Emotions: Automated systems minimize emotions throughout the trading process, helping traders stick to their plan and avoid making impulsive decisions based on fear or greed.
Consistency and Risk Management: By automatically adjusting the lot size based on account balance and predefined risk parameters, traders can achieve more consistent risk management and adapt to changing market conditions.
Improved Order Entry Speed: Automated systems can generate orders as soon as trade criteria are met, potentially allowing traders to enter or exit a trade more quickly, which can be crucial in fast-moving markets.
Long-Term Profit Potential: The dynamic adjustment of lot sizes based on account balance can lead to greater long-term profits compared to using a fixed lot number