One thing I learned from my Zulutrade experience is to pay attention to amount of profit taken on trades versus the amount of drawdown as represented by the stop-loss value.
Trading with HomerPoet, I was using a 150-pip stop and HomerPoet would routinely take profits at when was up +15 pips. He later increased it to +20 pips. That means that Homer Poet would have to have 8 profitable trades for every one looser to do better than break-even. That wasn't a problem for the most part and at one point he has as many as 19 straight winning trades.
But it go me to thinking - does it make sense to risk $150 to make only $20? It is reasonable to assume you winning trades are going to outnumber you loosers by 8 to 1?
So I started playing around with a HomerPoet like system in my demo account this past week. I would to is pick an entry point in EUR/USD and immediately enter a 40-pip limit and a 120-pip stop. At times, would go both long and short at the same time and enter the same limit to stop ratio and just let it ride.
The results were impressive. It took 14 trades this past week and got stopped out twice with a -120-pip losses but closed out with a profit 12 times for a total of +600 pip profit. Had I used Homer Poet's 20-pip limit, I would have just broke even. Once I spaced out an took 2 100-pip profits because I miscalculated the stop.
I play around with 2 alternatives later in the week:
1) Increasing the limit from 40 pips to 50 pips
2) Entered orders using thing range-based formula. I would do the calculations when I woke up New York time when the EUR had already been active for a few hours:
Basically calculate the daily range by subtracting the low minus the high. Then add 1/2 the range to the current price to get a buy point and subtract 1/2 the range from the current to get a sell point. Do the same except sell when the price is 1/2 the days range above the days high and buy when the price is 1/2 times the range minus the days low.
Note this strategy is completely range agnostic - it pays no attention to the trend, support, resistance or anything like that.
So i'm going to run a similar system in my demo account for a while and see how it makes out. Let me know if you can think of a smarter entry algorithm. Good luck all!
This looks interesting...let us know about your results !
ReplyDeleteThanks Tcxmon, it looks interesting. Still a little confused by the chart, should it read BUY1,SELL1,SELL2,BUY2 in that order?
ReplyDeleteWhat I meant was sell 1 lot above the market at the first price and sell 1 more above the market at the second price. Conversely, we buy 1 lot below the market and 1 more lot even further below the current. If the orders are not hit, cancel them the next morning and start again. Once an order is filled, stick with it until either you close out at the limit or at the stop. So you should see only one of 2 outcomes, limit hit or stop hit. Idea is to avoid small profits which feel good but in the end are a killer because it takes a lot of them to recover from the losses you take when a stop is hit.
ReplyDeleteThis looks pretty interesting. Let us know how it goes. I might try this out on a demo account.
ReplyDelete