I've been thinking of a new system...

[akshay]

Hello Friends,

I've been thinking of a new system. Kind of simple, and it would seem to be able to generate profits all the time, regardless of the positions you take, whether it's a buy or sell. Only caveat is one would need a good amount of equity to handle the potentially large unrealised losses. I'm not even sure if such a system would work, just looking to get some input from you guys.

As we know, a currency pair such as Eur/Usd will not freefall 1000 pips either way without a correction of some sort. I've never seen something that insane happen. I think it would cause a heck of a lot of problems to businesses etc if something like that happened.

As an example, let's say for the Eur/Usd that it's 1.21 now..

Let's say you place a BUY with a limit at 1.22 with NO STOP LOSS, with intent on re-buying every dip of 100 pips. Scenario C assumes you already did Scenario B and Scenario D assumed you already did B and C.

Scenario A: It goes to 1.22. You take profit. 100 pip gain.

Scenario B: It goes to 1.20. You re-buy with a limit at 1.21 and change the limit of the first trade to 1.21. You're now able to break even if it goes to 1.2050 and if it hits 1.21, both trades are closed and you end up with 100 pip gain.

Scenario C: It goes to 1.19. You re-buy with a limit at 1.2050 and change limits of both other trades to 1.2050. You're now able to break even if it goes to 1.20 and if it hits 1.2050, all 3 trades are closed with 150 pip gain.

(Or the limit could be 1.2033 and all 3 trades close with 100 pip gain.)

Scenario D: It goes to 1.18. You re-buy with a limit at 1.20 and change limits of the three other trades to 1.20. You're now able to break even if it goes to 1.1950 and if it hits 1.20, all 4 trades are closed with 200 pip gain.

(Or the limit could be 1.1975 and all 4 trades close with 100 pip gain.)

And so on... for every 100 pip loss, another re-buy until it reverses and if you notice, with every 100 pip loss, the limit can go lower for all the trades if the aim is just 100 pip gain overall. So for every loss it seems all it has to do is correct 50% to break even or 60% for the trades can be closed with overall 100 pip profit.

It may take quite some time for the trades to close out, but it seems like a sure win strategy, assuming you have enough money that you won't get margin called. Such a system could be best suited for the large invester. I don't think any pair would be allowed to free fall to hell with no pullbacks at all.

And of course, with such a small target of 100 pips, I think maybe 5 lots should be traded based on this, so the 100 pip eventual profit is $5,000. An account of minimum $100,000 may be required.

Is such a system viable. I think with such simple set rules, maybe someone here could invent an automatic robot that trades based on these rules and see if it turns out profitable?

Akshay

[akshay]

Or maybe the strategy could be limit at 50 pips profit and re-buy with every 50 pip dip. That may be easier to reach.

Akshay

[Smurf]

Hello akshay

This is a version of the Martingale rationale. In its truest form you would double every time instead of merely opening one extra position. It only works in theory.

For instance, your breakeven point gets further and further away. If the pair breaks 500 points against you without ever hitting your magical number on retracements, you're down $15.000 (5000 + 4000 + 3000 + 2000 + 1000) hoping to earn $1000. While I agree with you that nothing ever goes up or down 1000 pips without retracing along the way, a 100 pip retracement could be in between your targets. In your scenario it could trigger 1.1800 where you would enter yet a new trade, then retrace all the way up to 1.999 before sinking again.

Doing Martingale things requires insane amounts of cash and if you have that kind of money, why risk them all this way? One rare event will wipe out the achievements of a lifetime.

Cheers, Smurf

[Mr 50%]

Hello Friends,

Hi
I think the mistake your making is that your ignoring the fact that the more it falls the larger the rally will need to be to cover your loss to just break-even

I.e. say it went to 1.1500 (loss 2100 pips) - To break-even it would need to rally by 300 pips

So its not necessary that the market may move in a straight 1000pip move against you but that you will need an ever larger rally against the trend to just break-even, never mind make a profit !

[akshay]

You guys are right. The risk would far outweigh the reward. However, there may be something there if such a system was used in tangent with chart movements and current trends. Or maybe not.

Akshay

NOTE: After backtesting like crazy, I retract this post. The risk seems manageable and rewards easy to reach with some time and patience. You just need to work smartly and not be too emotionally attached to the trades.

[jasperforex]

I use a system similar in theory, but it only lets me begin buying after very big falls or selling after very big rallies. If I don't make my profit target on any day, I add to the trade but only if it hits the entry level for that day and so on day after day until the target is reached. The longest I have had to add and hold is about a week in the aususd, the others have been no more than a couple of days. The system is based on market exhaustion, rather than just looking at the amount it has risen or fallen because it could be taken out of context. Even though I have had no losses with this, it's not something for the beginner as you need capital to cover drawdown plus have the guts to hold on in the face of the market sometimes going against you.

[akshay]

>Even though I have had no losses with this

Exactly, that's why I was thinking of it as a viable strategy. Add some trader discretion into it and follow the trends, and it should be a good system to work with.

One just needs to have the "balls" to withstand large unrealised losses, but that's only if the trade goes against you. The markets always swing.

Another reason I recommended it, is cuz the price doesn't need to reach the same high the more it falls, in order to breakeven it just has to correct 50% anything more is profit. If it rises, you make profits, if it falls you buy again yet it doesn't even need to reach the original level for you to make profits.

Currently, when most people buy and it goes up, you make money, but if it goes down, you either stop out and take a loss or wait and pray it reaches entry so you at least break even. With this system it goes up, you make money, if it goes down, all you need is 50% correction.

In reality, I don't think a currency would go up or down 500 or more pips without at least 60% correction. And that's in the worst case scenario.

Akshay

[akshay]

Care to share the specifics on your system jasper?

I've been backtesting this like crazy, and it so far seems to make profits everytime for all the majors, just sometimes it happens in a day, sometimes a few days, sometimes a week, and sometimes a month. It's almost foolproof I've not found an entry price so far for any pair that's not given a 100 pip profit at the end of a month or sooner.

Obviously, one should not have the cow sense to buy when strong and sell when weak, buying should be done after falls or weakness and selling when a currency is strong.

Akshay