Quote:
Originally Posted by nzpenny
I am a little confused with this.
Are you down 63 pips with a take profit of 5. Surely one bad trade is going to wipe out your account?
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Hi nzpenny -
The short answer to your question is yes, one "bad" trade will wipe out this account. But.......
Please re-read this thread, as I have addressed this several times. You are correct, right now I have two open trades. One is own 63 pips. I also have, for the month, 40 closed trades that are up a combined $220+. The one that is down 63, at the current pip value and account value, will need to get down to being down almost 700 before it wipes out the account, or back up by 68 to close in profit. Being in the direction of a long-term trend, my money is on it moving up 68 before it goes down 700.
As I've said before, I treat this "account" as one big trade. So, yes, there is a chance that this account will blow up. Probably a MUCH lower chance than someone who uses only one account for ALL of their trades, risks 3% of that account on a single trade, and has one loser (unless that someone has found a system that "wins" 100% of the time).
So, yes, one "bad" trade for me means a "catastrophic" occurrence - a complete meltdown of a pair (literally, losing 500+ points), and, that has to happen when I'm actually in, AND the reversal has to happen within a 5-pip range (because 5-pips is all it takes for me to enter, and then close). Can all of this happen - yes, but it would be a VERY slim chance. Using the system I do, I've so far shown a better than 95% chance that when my entry is triggered, it will take out the 5-pip target. More than 80% of the time, that happens within minutes (even seconds). My entries aim to catch the open during a move, so more often than not, that move takes out the open AND close. Other times, there's a reversal, but by being with the trend, it comes back. So far, only 8 trades out of 300+ (somewhere around 3-4% of them), took more than a day to come back around and take out the target.
On the other hand - maybe someone else's "system" has them in a trade with a 50-pip stop loss which represents 3% of their balance. Their S/L gets taken out, they just lost 3% of their account. In their case, it was 3% of their entire bank, in my case, this whole "account' was only 3% of my entire bank. Both scenarios ended up the same way - a 3% loss of their total bank. With my strategy, the odds are MUCH lower that this would happen. I have to have on MAJOR, catastrophic loss. They have to have just one "normal" loss at their S/L level.
In 40 trades this month (and 300+ since I started this strategy in April) my win % of trades is well above 95%. Entering with the trend is the #1 "key" - unless we do have that "catastrophic" reversal, the trade will, almost always, come back in the right direction.
I agree, that high win % is what needs to make this system for money management work.
Again, this strategy is an experiment. Maybe it will play out that it gets wiped out. Maybe it won't. It definitely isn't for everyone, and it definitely is a very different approach. It is geared toward my style, which is a small-timer, not looking for the "action" of being in dozens of trades at a time, or the "rush" of hitting a 400-pip winner. I can "set and forget" my trades in the evening, and most mornings, I wake up to find the majority of them have entered and closed in profit. Small profit, but the numbers add up very quickly. Stress-free trading which takes up very little of my time, and a 40% return on my investment in 2-weeks (using this month as an example). For my personal style, that's a winning equation.
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