I was explaining some of the more basic factors to my wife last night, and she stated the following…
“So why don’t you just open a buy order with a stop loss of 5 and a take profit of 8…at the same time, open a sell order with a stop loss of 5 and a take profit of 8…wouldn’t be alot of pips but odds are you would end up winning over 75% of them. Repeat this 10-15 times a day and it would be an OK average.”
I laughed…said “thats funny”…so she asked…“whats wrong with my idea ?”
uhhh…
I can’t give a good answer…somebody help me out here
It’s a valid question and I just don’t have the experiance to give a good answer.
because if you are in a buy and a sell you would be at break even BUT when you factor in the spread you will lose every time. And if you are saying just guess by or sell that is gambling and because of the spread you have less than 50/50 odds and in the long run you will lose. Just ask the casino. The game with the closest odds to even is roulette and even that is not 50/50 coz of the green 0 and 00. If those multi million dollar buildings can thrive Im sure its coz they have better odds of winning even if its slightly better than 50/50.
Actually your wife is kind of on to something. The key idea is to risk less than you take profit for… then whatever you do if you can manage 50% win rates should work out profitably from a macro perspective.
It would have a better chance on a market like the e-mini’s where there is only a 1 pip fixed spread.
Don’t think people don’t do this… they do. another thing to keep in mind is your comission costs.
If i were you i’d try backtesting the system with at least 1:2 risk:reward, ie, 5 risked, 10 won. That way you only need 40% win rates.
The hard part is going to be, when do you get in? Your idea is fine, but do you enter these in downtrends or uptrends, at certain price levels, what? or just randomly every 30 minutes or something?
So…1 says it could work, 2 say it won’t work…sounds like its worth playing with at least
The Plan:
I will open a new Demo account with 3000 USD.
I will open 2 trades (1 buy, 1 sell) on 10 different markets.
No predetermined markets, just the first 10 on my ticker.
Trades will be set up as follows:
All trades will be made around Midnight Mountain Time.
All trades will be made in lot size of .01
As the market is moving, Trades and “Counter Trades” will be entered as quickly as I can.
Buy , Trade will be made with a buy at current market price, T/P of ask price +8, S/L of bid -5
Sell , Trade will be made with a sell at current market price, T/P of Bid -8, S/L of Ask+5
Doing this means for the T/P or S/L will be at a 8 to 5 ratio and we are taking the spread into account.
I will post the results as soon as I can. (I will include screen shot of the account if I can figure how to do it)
Ideal Results - All markets move in 1 direction (up or down) for 8 pips + the spread x 10 markets = +80 pips
Worst Results - All Markets move the other direction for 5 + spread x 10 markets = -50 pips
My opinion…This will end at -20 pips (this is a gut feeling, nothing more.)
It should be very interesting… let us know what the results end up like…
I’m actually very intrigued by this idea. I know there are a lot of ES and ER2 scalpers that do something similar to this and make good money at it. I don’t know exactly at what points they are entering positions, etc… but i do know this, or some variation of it is possible.
How its implemented in the fx markets… ehhh i don’t know. the variable spread makes things iffy.
There are a lot of things wrong with this system,
but also as daedalus has stated a lot of things right.
The main problem is the S/L are too close, whipsaws
or just even a candle which goes long, taking out the short
S/L then, reversing & taking out the long S/L.
But as you are in demo mode these things need to be
learnt.
There are no short cuts to learning how to trade & every
mistake will add to the learning curve.
I tried something like this once when it was going sideways and figured it could go either way. So I placed a couple of pending orders accordingly. Well it went up and triggered the long order, not by much, then it went down and triggered the short order, not by much but enough to hit the stop loss on the long order, then went up again to hit the stop loss on the short order…then went merrily on it’s way…leaving me in the dust with 2 losses …
i would actually test this at 930, when the US market opens. but you will have to adjust your stop. if you trade a normal pair with a 3 pip spread, for example, youre only giving yourself 2 pips on the stop side… you’ll more than likely get stopped more often than not. try different combo’s like 15 pip profit, 10 pip stop, etc…
you should have a catalyst for your initial buy/sell…you know? use some sort of indicator to give you that initial entry… i wouldnt just buy/sell at anytime for any reason.
OK…so I did it wrong and did lots size as .01
ohhh well…here are the results (FYI) 1 lot never trigger a buy or sell, so this is 9 lots…Also, there are 2 SELL EUR/USD for +.10 profit and +2.20 profit…this was me messing around before I remembered I would post these results
…
