High Win Ratio System With Large Stops

Trading Systems Free Forex Trading Systems
1

Guys, I’m developing a new system and looking for your help and feedback here. This system is inspired by another system credited to Edward Revy. I’ve just taken it and modified it a bit. This system has a high win ratio. However, the stops will be wide which some people will find scary. My logic is that if you’re winning a really high percentage of your trades, it should not be a problem.

Pair: GBPUSD
Time frame: daily
Indicators: I’m not using any but would welcome your feedback to see if we can make it better. Could maybe use SMA or EMA and only trade in the direction of the trend.

I’ve chosen GBPUSD as it moves around 125 pips a day or more. There are other pairs that can be used as well. When we look at the daily charts on a candlestick set up, you can obviously see the price starts at a certain level, goes up and down a certain level during the day, and ends at a certain level. What if we could capture one or 2 of those moves during the day, potentially both ways? I guess what I’m saying is that on most days a pair goes in both directions. I’m working on a spreadsheet just now looking at the past 2 years, to see on average how much a pair moves in the wrong direction before taking its actual direction for the day, and will post the results here soon. For example if we knew that on average this pair moves 40 pips in the wrong direction, before moving 80 pips in the right direction, we could set up 2 orders at midnight, each night. One order to buy 50 pips away from the current price and one order to sell 50 pips away from the current price. The SL would have to be large in both directions to avoid any whipsaw action during the day, for example 150 pips +. And the TP would be relatively small, for example 20-30 pips. This is to ensure it gets hit in at least one direction each day. If I discover that it does indeed move 40 pips on average in the wrong direction each day before taking its actual direction, we could maybe modify the rules and place a buy order 15 pips away with a TP of 20 pips and a sell order 15 pips away with a TP of 20 pips as well. And again, we would win on most days. Obviously we can adjust these levels as we go. And if you only prefer to trade in the one direction, then just place your orders really far away as previously suggested, to avoid any fake breakouts. 50-60 pips away with a TP of 20 or 30 pips. There will be days when you lose, there will be days when no orders are triggered but I think the days that you walk away with positive pips would far outweigh any losing days simply because you are likely to win a lot more of your trades.

Now I know it does not comply with the standard risk reward methods, it is far from it, but like I said, if you are winning most of your trades, it should not matter. Maybe the SL can be smaller, perhaps 70 pips or 50% of the last candle length. I don’t know which is why I’m asking for opinions.

I’m manually back testing this strategy at the moment and it will take me time to post results here. Is there is simpler way of back testing it? Again, I would welcome your help.

Another pair that moves a lot each day, for example GBPNZD could present even more pips for the taking, however, the stops would have to be even larger which would be worrying. That pair moves around 250 pips per day on average.

Looking for feedback. If you are criticising, don’t just criticise, tell me how we can make it more favourable.

2

Expected Return = (Win % x Avg. Winner) - (Loss % x Avg. Loser)

A high Win % isn’t sufficient - or even necessary - to be profitable. You need to look at your winner/loser ratio as well. If it’s too biased toward the losers then that will wipe out the benefit of a higher win %. Similarly, if your winners are a lot bigger than your losers, you can get away with a lower win %.

3

Thanks for your feedback and I understand what you’re saying. However, I still think there’s definitely some substance in my original post. It would be great to see some actual results.

4

You need to be careful looking at averages. Instead, look at the distribution of the moves you’re tracking. A small number of very large (or small) moves can skew the averages.

For example, you talk about a set up where the market averages a 40 pip counter move before turning around and going 80 pips in the other direction, on average. What if the 40 pip counter average is the result of one or two 120 pips moves and a bunch of 20 pip moves? How does that impact your thinking about the system? In that case you might find it’s better to enter the position at 20 pips down, right?

Or you might find it’s a barbell type of distribution where there are a lot of very small counter moves and a lot of very large ones that basically balance out. That would be a very challenging situation because you’d miss a lot of moves and find yourself with the market going significantly against you in the ones you do enter.