It is my belief that everything should be kept as simple as possible. Most people view simplicity as a handicap or a sign that something is incomplete. Not necessarily true. Some of the best theories are the most simple.
Anyways, enough of that crap. I was thinking of a very simple trading strategy that will never lose, in theory.
A simple question: Why do we lose trades?
Obviously, the trade moves against us and does the opposite of what we originally thought it would do. But the trade is not lost until one of two things happen:
- We hit our S/L and the trade is closed automatically.
- The trade turns against us so much that we use up all our available margin and the trade is closed out for us.
If neither of these two things happen, the trade is simply in limbo and we have an unrealized loss (of course).
At this point, the trade can either do one of two things:
- It can either turn around and move in our favor.
- It can continue on its current path until either our margin is used up or we hit our S/L.
Essentially, if we never hit our S/L or use up our margin, the trade can always turn around in our favor. It just has to have enough cushion to do so and it has to be given the chance to do so.
Theoretically, to never lose a trade, we would simply have to prevent our S/L from being hit (by not using one!) and be sure to have plenty of margin available so that if the trade takes an enormous swing against us, we will be covered.
This may sound impossible, but it’s actually very easy to do. We simply have to trade without a S/L and always leave an enormous amount of margin available.
Of course, margin levels depend on your account size and lot size. A large account size warrants a larger contract.
I’m not a number cruncher. I’ll leave that up to anyone else who is interested and would like to post such information.
Watch only the Daily chart. Find out what the daily trend looks like recently. There are a number of indicators you could use for this, including parabolic SARs, moving averages, etc. It does not have to be anything fancy. Is the price moving up or down over the past few days?
Always trade with the daily trend. Place your order accordingly (maybe at the beginning of each day, but this is not vital).
Your lot size should be based solely on margin calculations. Leave a lot of margin available. You’ll just have to experiment with your own account size and which lot size works best for you. The goal should be to have enough cushion available so that you can withstand a very big swing the other way (in the ballpark of one hundred pips or more).
Do not set any S/L. Set a conservative T/P. For the daily chart, this could be in the ballpark of 50 pips.
I know that many of you are probably thinking: Sure, this method will work, but it’s not going to provide hardly any profit!!
50 pips a day with a small lot value can certainly add up, but it won’t be extremely impressive.
The trick is to find the golden ratio. This will be that magical formula where you can have multiple pairs being traded every day with an appropriate lot size to provide enough cushion, all with a T/P of 50 pips or so.
This could provide you with around 200 pips every day or every other day (if they all move against you and it takes awhile to hit your T/P).
If you are trading simply .1 lots, that is still 200 bucks a day, and 4000 dollars extra per month. If you are trading .3 lots, that works out to be 600 bucks a day and 12,000 bucks / month.
Of course, if you have to trade very small lots (like .01), that’s OK, too. You could set up another trading account, use this strategy with very small lots, and use all your profits to pay your bills each month. Even just 400 bucks / month could be used to pay for food!
Another possibility would be to start with a small amount of money and use very small lots. Fund the account continuously every other week just like a savings account. As your account balance grows, you can start using bigger and bigger lots.
Eventually, you could be trading with standard contracts and more, reaping in over 1000+ per day.
If a skilled number cruncher wants to work out all the details, please feel free. It may turn out that this system is too slow to generate any real income. But, I don’t believe so. I think if you have a high volume of conservative trades based on the daily charts with lots of cushioning to support bad trades, you should win every trade!
Thanks for reading,