Written By
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
Updated

The 1-3-2-6 system is a betting strategy in trading for binary outcome-type instruments like binary options.

Traditionally, it’s been a popular betting strategy used in various forms of traditional betting, in games like blackjack and roulette.

This system is designed to help traders manage their risk while potentially maximizing their profits through a structured approach to position sizing.

## Key Takeaways – 1-3-2-6 System in Trading

• Structured risk management
• The system provides an example approach to position sizing, increasing bets after wins and resetting to the base unit after losses.
• This can help limit potential losses and take advantage of winning streaks.
• Limited applicability
• Best suited for binary outcome instruments like binary options.
• Less relevant for continuous profit/loss markets, though it can be adapted to stop-loss placement.
• No inherent edge
• Offers a structured betting approach, but the system doesn’t provide any statistical advantage.
• Traders need to combine it with solid market analysis and a broader trading strategy for potential success.
• A position sizing strategy is one component of risk management, but can’t compensate for an ineffective strategy.

## How the 1-3-2-6 System Works

### The Basic Concept

The 1-3-2-6 system is a positive progression betting strategy.

This means that traders increase their position sizes after winning trades and revert to the initial stake after a loss.

The numbers in the system’s name represent the multiples of the base unit that a trader should bet in a sequence of four winning trades.

### The Betting Sequence

2. If you win, bet 3 units on the next trade
3. If you win again, bet 2 units on the third trade
4. If you win a third time, bet 6 units on the fourth trade
5. If you win all four trades, start the sequence over
6. If you lose at any point, return to betting 1 unit

Let’s say a trader’s base unit is \$100:

1. First trade: \$100 (1 unit)
2. If successful, second trade: \$300 (3 units)
3. If successful, third trade: \$200 (2 units)
4. If successful, fourth trade: \$600 (6 units)

If all four trades are successful, the trader would have turned \$1,200 in total risk into a significant profit, depending on the specific returns of each trade.

## Advantages of the 1-3-2-6 System

### Risk Management

One of the primary benefits of this system is its built-in risk management.

Returning to the base unit after any loss means traders can limit their potential losses and avoid the danger of chasing losses with larger bets.

### Profit Maximization

The system allows traders to take advantage of winning streaks by increasing their position sizes.

### Psychological Benefits

The 1-3-2-6 system provides a clear structure for traders to follow, which can help reduce emotional decision-making.

### Flexibility

Traders can adjust the base unit according to their account size and risk tolerance, which makes the system adaptable to various trading styles and capital levels.

### Dependency on Winning Streaks

The system’s profitability relies heavily on achieving winning streaks.

In reality, trades often alternate between wins and losses, which can limit the system’s effectiveness.

### Potential for Large Losses

The larger bets in the sequence (particularly the 6-unit bet) can lead to large losses if they occur at the wrong time.

### Not Suitable for All Markets

The 1-3-2-6 system may not be appropriate for all trading instruments or markets.

It’s not as relevant to continuous profit/loss markets, though it can be adopted that way – i.e., setting a stop-loss as the given number of units.

### Random

There’s no empirical basis why betting in a 1-3-2-6 unit manner during winning streaks makes sense.

## Implementing the 1-3-2-6 System in Trading

### Choosing the Right Markets

The system is sometimes seen in binary options due to their predictable payouts and losses.

Most trading consists of continuous profit/loss, so it’s less applicable in those cases.

### Determining the Base Unit

Traders should choose a base unit that represents a small percentage of their total trading capital, typically 1-2%

This helps make sure that a string of losses won’t deplete the trading account.

### Combining with Market Analysis

The 1-3-2-6 system should be combined with sound analysis and research to increase the probability of successful trades.

## Variations and Modifications

### The 1-3-2-4 System

Some traders prefer a more conservative approach, using a 1-3-2-4 sequence instead.

This reduces the maximum risk on the final bet of the sequence.

### Extending the Sequence

More aggressive traders might extend the sequence beyond four trades, potentially increasing profits but also amplifying risk.

It’s more likely to work when there’s a clear edge in a market that raises one’s win percentage (without sacrificing expected value).

Some traders adjust the unit sizes based on their account balance, increasing the base unit as their account grows to maintain a consistent level of risk.

## Conclusion

The 1-3-2-6 system is a position sizing strategy in trading, with potential benefits in risk management and profit maximization.

But like all trading strategies, it comes with risks and limitations.