Non-hedge Grid Style Trading and Money M (Non-hedge Grid Style Trading and Money M)
Hello everyone, <?xml:namespace prefix = on ns = "urn:schemas-microsoft-com:office:office" /><o></o>
<o> </o>
Lately I've been thinking more about Forex and how to profit from it. I also did some reading and came up with the following forex ideas - <o></o>
<o> </o>
1. The market goes up or down. Simple and clear. There is no third option. You won't lose money if the market goes sideways. You will only lose money if the market goes up when you are short, or when the market goes down when you are long. “But when the market is range-bound, the market moves sideways,” you might say. So how big is the range? What if you are only looking for 10 points and its one-way range is 40 points? Can't you profit from this range? Or, what if your TakeProfit/StopLoss is large enough that the market can move within your TakeProfit/StopLoss zone and not trigger either of them until it breaks out of that range? The market goes up and down, it's that simple. <o></o>
<o> </o>
2. Indicators, trend lines, etc. do not make for a better system. Sometimes they work, sometimes they don't. Only with hindsight can we curve fit an indicator to see what we should have used. Can you tell me why price broke one resistance level but not the next? What are the real 2 points in the ABC123 method? When do we know when to follow MACD or when to diverge? Ultimately, these tools can only really make long or short decisions. Many times they don't, and I find them useless. Because...<o></o>
<o> </o>
3. There are points available anywhere on the chart. You don't need to wait for the MA to cross or the RSI to cross 0 to enter a trade. If you enter a trade randomly anywhere on the chart, there is always a chance that you will win or lose on that trade. Why do we need to wait for indicators to tell us it’s time to trade? As I said, this indicator should only tell us to go long or short. Unfortunately, most indicators are lagging badly or are at levels that do not effectively provide us with buy/sell decisions. <o></o>
<o> </o>
4. Therefore, money management is the most effective tool we can use to build a winning system. You can have a system that is 95% successful, but then lose everything because of the 5% that fail. You can have a 30% successful system and make huge profits. <o></o>
<o> </o>
Therefore, I propose the following system idea. This is a grid type. <o></o>
<o> </o>
Randomly enter trades anywhere, it's up to you. Place your take profit and stop loss levels equidistant from your entry point. Let's say your spread is 3 pips. You can set the TP to 47 and the SL to 50 because when you enter the trade you are already 3 pips closer to the SL. Thus, the price needs to move 47 points to reach TP and 47 points to reach SL. <o></o>
<o> </o>
From this I would say you have a 50/50 chance of winning the trade at this point. Your system is 50% successful at this, but if you go long or short randomly, the spread will slowly eat away at your profits. The next part of the system is making buy/sell decisions based on price action. <o></o>
<o> </o>
Assume your initial entry is a BUY. As the price falls, the stop loss gets hit. You immediately initiate a sell trade from the exact point where the long trade hit your stop, putting you in the right direction of the current trend. Now you do the same thing with this trade, with a stop loss value of 50 and a take profit value of 47. <o></o>
<o> </o>
If the target price of this sell order is reached as the price continues to fall, immediately enter another sell order with the same target price of 47 and stop loss of 50. If stopped, immediately reverse the position to buy at 50 SL and 47 TP. This makes the decision to go long or short easy, and hopefully we've captured enough momentum that the current move will continue to close out another winning trade. <o></o>
<o> </o>
I think the system itself can produce positive results. I can't backtest because I have no EA programming knowledge, but I will say that I believe the system has a success rate of over 50% because we allow price to determine the buy/sell decision. I expect this momentum to be reflected through price levels. <o></o>
<o> </o>
Do not try this system on 47 TP and 50 SL. I'm just giving these numbers as examples. We need to find a Take Profit/Stop Loss area that is small enough to take profits easily and frequently, but large enough to avoid heavy trades in range markets. In this case, as I mentioned before, a range market will fit into the tp/sl zone and nothing will trigger until the trend occurs. I think a combination closer to 20-30 TP/SL will prove to be effective. This would allow us to have a 40-60 pip Take Profit/Stop Loss area and allow for a lot of intraday movement while still only requiring 20-30 pip profit each way. Therefore, it can still take profits during periods of greater volatility. <o></o>
<o> </o>
still! The idea is that the success of the system is based on money management. What strategies can we use to increase our gains and reduce our losses? <o></o>
<o> </o>
Some of my thoughts are: <o></o>
<o> </o>
1. If you have a consecutive winner, please add to your list of winners. This means that if you are going to win on a trade, do not close that trade, just open another trade on top of that trade to increase your position. Continue to increase your position every 20-30 pips. Then, once one of the positions is forced to close, all open positions are closed. This way you can keep your first open trade running for a long time. The problem is that you may not be able to lock in a profit on your first trade. <o></o>
<o> </o>
2. Alternatively, if you want to close your position to lock in profits, you can still set up a system that increases the lot size as you win more consecutive trades. The problem here is that if you win two trades and increase your lot size on the third trade, but fail, you effectively eliminate all profits from the second trade, and possibly the first winning trade as well. <o></o>
<o> </o>
3. People are going to hate me for saying this, but you can try Martin addition. Since the system is less random, it will depend on our take profit/stop loss levels to determine how many consecutive losing trades we can expect to encounter. The larger our take-profit/stop-loss areas are, the less likely we are to get caught in the swings of a range-bound market. But I'm not sure I like this idea because you can only put so little money into trading if you do have a long losing streak. That means profits are growing very, very slowly. <o></o>
<o> </o>
4. What if there is a profitable streak and you let the first trade continue, but then the positions added are closed periodically? Then, when the first additional position is forced closed, the original trade is closed as well. Again, the risk is losing profits and only breaking even on the first trade. <o></o>
<o> </o>
5. For consecutive trades, look for increasing or decreasing price targets. What if we assume that the trend will slow down as we enter more trades after a winning streak? So maybe after two consecutive winners with 47 TP, we just look for 37 points on the 3rd and 4th trade, then 27 points on the 5th, 17 points on the 6th, and so on. Or we could do the reverse and look for 17 points on the original trade, 27 points on the second trade, 37 points on the third trade, and so on. The problem with increasing TP levels is that by doing so, we may also have to increase our SL to keep our system at 50% success. So when we increase our Take Profit/Stop Loss and place a stop loss on a larger trade, we wipe out the profits from the previous winning trade. I'm not sure what will happen if I keep SL constant. <o></o>
<o> </o>
6. We can combine the increasing and decreasing methods in the fifth strategy. So we can look for 17 points on the first trade, 27 points on the second trade, 37 points on the third trade, and 47 points on the fourth trade. Then, on trade 5, we will move back to 37, on trade 6, to 27, and on trade 7, to 17. This follows the idea that a trend accelerates at the beginning and then loses momentum at the end. Likewise, we run the risk of losing pips on a winning trade because when we raise the Take Profit level, we also raise the Stop Loss.
<o> </o>
7. For example, what happens if we place a trade with TP/SL of 30/30? Then assume our trade moves towards the target price of 20 pips. We then add to the current position by adding another lot in the same direction, but with the same 30/30 TP/SL. This way we can stagger profits. When the first trade is profitable, the second trade will be 10 points above the target price of 30. If the price goes up another 10 points, we enter another trade in the same direction, just like we added a second trade on top of the first trade.
The nice thing about this idea is that we never add to a losing trade. We do not hedge, so do not add to trades that may be stopped out. The advantage of this, though, is that when you enter a second trade, if the market goes against us, it will be stopped out before the original trade was stopped out. Therefore, we can set up a system where once the second trade is stopped out, we will also close the first trade, even if it has not fallen to that level yet. This way, when we enter a new trade in the opposite direction, the losses on both trades will be -30 and -10.
We open just one position and wait again for it to move 20 pips in our favor to add a second position. This way, if it goes against us again, we only lose -30 on one trade, rather than -30 and -10. This is also good because it provides areas where we can allow the market to attack us without wiping out all our profits. What if we trigger two trades, the first one is profitable and the second one is a loss? We would close both trades while positioning ourselves to recognize the shift in momentum early and take advantage of the new countertrend. The problem with this idea is that when a trade reaches its take profit or stop loss price, we may be better off by entering a new trade rather than staggering the trade, as we close the original trade with the second trade instead of allowing it to potentially be successfully closed. We assume this will not be the case as the price has just dropped 30 points for us and momentum will push it further. Again, the amazing benefit is being able to identify a new trend early and being able to ride it longer than waiting for a trade to close. <o></o>
<o> </o>
<o> </o>
I think a simple system like this can be consistently successful if we know how to manage our money. How do we take advantage of 50% of profitable trades? I let the rest of you provide suggestions, advice, tips, EAs, backtest results, etc. I am a member of the KISS Method Club. I don't want to look at 20 indicators, memorize chart patterns and wonder if it works. What if the pattern reads Sell on the 4-hour chart, but Buy on the 30-minute chart? <o></o>
<o> </o>
I don't care about any of this. I'll let price action dictate the decision. All I do with these ideas is hitch a ride on the back of it and get ideas when I can. <o></o>
<o> </o>
I provide possible exit strategies and money management ideas just to keep things moving. I also mention them to show that there are probably hundreds of possible ways to trade such a system based on the exit strategy alone. Please provide any strategies that I haven't mentioned. This is an open discussion because I need your help building this system. Thanks. Matt<o></o>
<o> </o>
Lately I've been thinking more about Forex and how to profit from it. I also did some reading and came up with the following forex ideas - <o></o>
<o> </o>
1. The market goes up or down. Simple and clear. There is no third option. You won't lose money if the market goes sideways. You will only lose money if the market goes up when you are short, or when the market goes down when you are long. “But when the market is range-bound, the market moves sideways,” you might say. So how big is the range? What if you are only looking for 10 points and its one-way range is 40 points? Can't you profit from this range? Or, what if your TakeProfit/StopLoss is large enough that the market can move within your TakeProfit/StopLoss zone and not trigger either of them until it breaks out of that range? The market goes up and down, it's that simple. <o></o>
<o> </o>
2. Indicators, trend lines, etc. do not make for a better system. Sometimes they work, sometimes they don't. Only with hindsight can we curve fit an indicator to see what we should have used. Can you tell me why price broke one resistance level but not the next? What are the real 2 points in the ABC123 method? When do we know when to follow MACD or when to diverge? Ultimately, these tools can only really make long or short decisions. Many times they don't, and I find them useless. Because...<o></o>
<o> </o>
3. There are points available anywhere on the chart. You don't need to wait for the MA to cross or the RSI to cross 0 to enter a trade. If you enter a trade randomly anywhere on the chart, there is always a chance that you will win or lose on that trade. Why do we need to wait for indicators to tell us it’s time to trade? As I said, this indicator should only tell us to go long or short. Unfortunately, most indicators are lagging badly or are at levels that do not effectively provide us with buy/sell decisions. <o></o>
<o> </o>
4. Therefore, money management is the most effective tool we can use to build a winning system. You can have a system that is 95% successful, but then lose everything because of the 5% that fail. You can have a 30% successful system and make huge profits. <o></o>
<o> </o>
Therefore, I propose the following system idea. This is a grid type. <o></o>
<o> </o>
Randomly enter trades anywhere, it's up to you. Place your take profit and stop loss levels equidistant from your entry point. Let's say your spread is 3 pips. You can set the TP to 47 and the SL to 50 because when you enter the trade you are already 3 pips closer to the SL. Thus, the price needs to move 47 points to reach TP and 47 points to reach SL. <o></o>
<o> </o>
From this I would say you have a 50/50 chance of winning the trade at this point. Your system is 50% successful at this, but if you go long or short randomly, the spread will slowly eat away at your profits. The next part of the system is making buy/sell decisions based on price action. <o></o>
<o> </o>
Assume your initial entry is a BUY. As the price falls, the stop loss gets hit. You immediately initiate a sell trade from the exact point where the long trade hit your stop, putting you in the right direction of the current trend. Now you do the same thing with this trade, with a stop loss value of 50 and a take profit value of 47. <o></o>
<o> </o>
If the target price of this sell order is reached as the price continues to fall, immediately enter another sell order with the same target price of 47 and stop loss of 50. If stopped, immediately reverse the position to buy at 50 SL and 47 TP. This makes the decision to go long or short easy, and hopefully we've captured enough momentum that the current move will continue to close out another winning trade. <o></o>
<o> </o>
I think the system itself can produce positive results. I can't backtest because I have no EA programming knowledge, but I will say that I believe the system has a success rate of over 50% because we allow price to determine the buy/sell decision. I expect this momentum to be reflected through price levels. <o></o>
<o> </o>
Do not try this system on 47 TP and 50 SL. I'm just giving these numbers as examples. We need to find a Take Profit/Stop Loss area that is small enough to take profits easily and frequently, but large enough to avoid heavy trades in range markets. In this case, as I mentioned before, a range market will fit into the tp/sl zone and nothing will trigger until the trend occurs. I think a combination closer to 20-30 TP/SL will prove to be effective. This would allow us to have a 40-60 pip Take Profit/Stop Loss area and allow for a lot of intraday movement while still only requiring 20-30 pip profit each way. Therefore, it can still take profits during periods of greater volatility. <o></o>
<o> </o>
still! The idea is that the success of the system is based on money management. What strategies can we use to increase our gains and reduce our losses? <o></o>
<o> </o>
Some of my thoughts are: <o></o>
<o> </o>
1. If you have a consecutive winner, please add to your list of winners. This means that if you are going to win on a trade, do not close that trade, just open another trade on top of that trade to increase your position. Continue to increase your position every 20-30 pips. Then, once one of the positions is forced to close, all open positions are closed. This way you can keep your first open trade running for a long time. The problem is that you may not be able to lock in a profit on your first trade. <o></o>
<o> </o>
2. Alternatively, if you want to close your position to lock in profits, you can still set up a system that increases the lot size as you win more consecutive trades. The problem here is that if you win two trades and increase your lot size on the third trade, but fail, you effectively eliminate all profits from the second trade, and possibly the first winning trade as well. <o></o>
<o> </o>
3. People are going to hate me for saying this, but you can try Martin addition. Since the system is less random, it will depend on our take profit/stop loss levels to determine how many consecutive losing trades we can expect to encounter. The larger our take-profit/stop-loss areas are, the less likely we are to get caught in the swings of a range-bound market. But I'm not sure I like this idea because you can only put so little money into trading if you do have a long losing streak. That means profits are growing very, very slowly. <o></o>
<o> </o>
4. What if there is a profitable streak and you let the first trade continue, but then the positions added are closed periodically? Then, when the first additional position is forced closed, the original trade is closed as well. Again, the risk is losing profits and only breaking even on the first trade. <o></o>
<o> </o>
5. For consecutive trades, look for increasing or decreasing price targets. What if we assume that the trend will slow down as we enter more trades after a winning streak? So maybe after two consecutive winners with 47 TP, we just look for 37 points on the 3rd and 4th trade, then 27 points on the 5th, 17 points on the 6th, and so on. Or we could do the reverse and look for 17 points on the original trade, 27 points on the second trade, 37 points on the third trade, and so on. The problem with increasing TP levels is that by doing so, we may also have to increase our SL to keep our system at 50% success. So when we increase our Take Profit/Stop Loss and place a stop loss on a larger trade, we wipe out the profits from the previous winning trade. I'm not sure what will happen if I keep SL constant. <o></o>
<o> </o>
6. We can combine the increasing and decreasing methods in the fifth strategy. So we can look for 17 points on the first trade, 27 points on the second trade, 37 points on the third trade, and 47 points on the fourth trade. Then, on trade 5, we will move back to 37, on trade 6, to 27, and on trade 7, to 17. This follows the idea that a trend accelerates at the beginning and then loses momentum at the end. Likewise, we run the risk of losing pips on a winning trade because when we raise the Take Profit level, we also raise the Stop Loss.
<o> </o>
7. For example, what happens if we place a trade with TP/SL of 30/30? Then assume our trade moves towards the target price of 20 pips. We then add to the current position by adding another lot in the same direction, but with the same 30/30 TP/SL. This way we can stagger profits. When the first trade is profitable, the second trade will be 10 points above the target price of 30. If the price goes up another 10 points, we enter another trade in the same direction, just like we added a second trade on top of the first trade.
The nice thing about this idea is that we never add to a losing trade. We do not hedge, so do not add to trades that may be stopped out. The advantage of this, though, is that when you enter a second trade, if the market goes against us, it will be stopped out before the original trade was stopped out. Therefore, we can set up a system where once the second trade is stopped out, we will also close the first trade, even if it has not fallen to that level yet. This way, when we enter a new trade in the opposite direction, the losses on both trades will be -30 and -10.
We open just one position and wait again for it to move 20 pips in our favor to add a second position. This way, if it goes against us again, we only lose -30 on one trade, rather than -30 and -10. This is also good because it provides areas where we can allow the market to attack us without wiping out all our profits. What if we trigger two trades, the first one is profitable and the second one is a loss? We would close both trades while positioning ourselves to recognize the shift in momentum early and take advantage of the new countertrend. The problem with this idea is that when a trade reaches its take profit or stop loss price, we may be better off by entering a new trade rather than staggering the trade, as we close the original trade with the second trade instead of allowing it to potentially be successfully closed. We assume this will not be the case as the price has just dropped 30 points for us and momentum will push it further. Again, the amazing benefit is being able to identify a new trend early and being able to ride it longer than waiting for a trade to close. <o></o>
<o> </o>
<o> </o>
I think a simple system like this can be consistently successful if we know how to manage our money. How do we take advantage of 50% of profitable trades? I let the rest of you provide suggestions, advice, tips, EAs, backtest results, etc. I am a member of the KISS Method Club. I don't want to look at 20 indicators, memorize chart patterns and wonder if it works. What if the pattern reads Sell on the 4-hour chart, but Buy on the 30-minute chart? <o></o>
<o> </o>
I don't care about any of this. I'll let price action dictate the decision. All I do with these ideas is hitch a ride on the back of it and get ideas when I can. <o></o>
<o> </o>
I provide possible exit strategies and money management ideas just to keep things moving. I also mention them to show that there are probably hundreds of possible ways to trade such a system based on the exit strategy alone. Please provide any strategies that I haven't mentioned. This is an open discussion because I need your help building this system. Thanks. Matt<o></o>
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