This is an unusual strategy which I was recently directed to from another thread. I’m trialling the strategy at present and it has potential. Not many people will have heard of it before so I’m going to set out the basic principles.
The idea is that if you think price is going to rise you open a long position in the usual way. You also set a TP order above entry, let’s say X pips above.
But instead of a stop-loss, you set a sell order below entry, let’s say Y pips lower. Importantly, the sell order has to be larger than the long position.
If price rises X pips from the long entry to the TP price level, the long is closed for the target profit and the sell order is cancelled.
If price falls Y pips from the long entry, the sell order is triggered. If price continues to fall and drops by another X pips, the short position hits its TP X pips lower and is closed. The long position is also closed at this point. If the ratio of the two position sizes has been correctly calculated, you will exit the market at break-even.
Naturally its possible that price will reverse upwards after the short position has been opened. This also will not have a stop-loss, so you cover it with a buy order at the same price as the first long entry: you set a TP for this at the same TP level as the initial long, X pips above entry. This time you make sure that the two long positions combined will match the size of the short position when the long TP is reached and all three positions will be closed. Again, you will exit the market at break-even.
The process of additional trades can continue, the story isn’t complete, but as far as this point some initial conclusions are possible -
if you’re right about price direction you will make a profit
if you’re wrong about price direction, you won’t lose
if you’re right about price direction but wrong with entry timing, you also won’t lose
This isn’t the answer to all of our dreams, but it might resolve some of our nightmares.
I know the system you’re referring to. I’ve been trying it and have to say that it is very hit and miss. Occasionally, it works well, but I’ve found that many occasions a short term range blow all your profits away. You can get a short term volatility that literally blows everything away in minutes. I know the suggestion will be to make the orders further apart, but you end up making it too far apart to get many good wins if you do that.
Maybe my choice of market is bad, but it was the one that worked best in backtesting. I find that I can have a really good run making profits and then a range appears and it’s all gone and then some. Here’s a chart showing my account balance since I started it. The red line indicates when I went to a different system and managed to recover the losses.
Yes, I too found that getting into an extended series of longs and shorts is a spiral into a big loss. So, I am mulling over what can be done about that -
make the zone not too narrow - I hope to be able to derive the zone width from ATR
devise an exit strategy to escape a series after, say, 4 positions are open - a minor loss at this point might have to be swallowed - nothing to report yet
select a market whose candles are not too spikey - its OK to do this visually, anyway, I can’t find an objective way to gauge this
Not something I’m going to take on, though I do see on-balance volume and other volume indicators. Would you agree that as a working guide for this system volume is in proportion to ATR but volatility is the key?
I like these kinds of threads, exploring non-standard techniques.
My initial reaction is that the trader starts to fixate on the loss, rather than the next best trade.
By saying “exit at break-even”, you are focusing on trying avoid the loss, rather than making the next great trade.
Even if you have to take the mitigating trade, rather than let it go for high multiples, you are planning to bail out after getting to break even.
Is that not, fundamentally, a restrictive mindset?
It is incredibly tough to keep trading after several consecutive losses, but that is, I believe, the path to massive returns.
One alternative method, would be keep taking any trades, Long and Short, and then, after you have several open, start taking pairs off, where there is a profit. And keep the losing trades open until they can be taken care of. But you have to keep losing open trades.
For example, if you had many Longs and Shorts, and you had a new Long trade, you would take any profitable Shorts before opening the new Long. (maybe even leaving a couple of shorts to mitigate some of the Longs)
Every time you got a new Short trade, you would take the Short, but cash in all the Long trades.
I don’t know if this becomes a dynamic grid, but I don’t know if the next trade is going to be a runner or not.
This is something I am trialing on EURUSD and CADJPY.
Yes, the focus is on not losing rather than on winning. Of course, if the first trade goes straight to the TP, then an early re-entry would be the next thing to consider.
Zone recovery is a technique to deal with the times when the market does the less probable thing. The downside is that once you’re committed to zone recovery because the leading trade has initially failed to hit target and you elected not to use a stop-loss, then you’ve got a tiger by the tail. Without one or other target being hit, its hard to get out without a loss and difficult to even calculate what it should be. Still, minimising the loss from a trade is a legitimate aim and this is a way to potentially minimise the loss all the way to zero.
The biggest issue I’m finding with this strategy is certainly a psychological one.
I made great money doing this the first 3-4 weeks, even paid for my EA. But I look back at my journal and all those accumulating, negative numbers leading up to the big positive one that finally closed the trade and now I seem to have lost my nerve. Even when starting with a small position size, after opening 7-8 positions fear/panic starts to set in.
Overall I have found this strategy to work better with indices, using a wider SL/TP as opposed to currencies. I will look at this again this week on my demo account to see if I can somehow come up with a system that allows you to safely exit after only opening 2-3 positions. So far, I have been unable to do this.
The standard r:r on these trades is 1 to 3, i.e. the TP is 3 times further from entry than the width of the buy/sell zone. But in practice it seems two factors are essential to make this strategy work - one is to have a wide zone so that minor levels of volatility do not trigger banks of opposing trades, the other is to make sure price reaches one target or the other before margin is used up.
I’m starting to wonder whether 1 x ATR(14) is too narrow for the zone and 3 x the zone distance to the TP is just too ambitious.
Trader’s are always looking for ways to beat the market, afraid of losing money. Just listen to the information the market is giving, the market speaks, we just don’t listen. You’ll never fly if you don’t know the name of the wind.
Hi,
I took this to the extreme, and decided to trade since mid 2021 with 0% leverage. I can tell you that about half my trades still held are down by up to 50%, but they are more than offset by the number of trades that doubled or more and part of my plan is to take off 1/3 or 1/2 if and when trade values double. It probably helps that my stretch goal is about 25% per year profit for the whole bank.
Looking back to this strategy. I ran in at a very small scale last week (starting at 0.2 units) for 3 days on the US RUSS only, since indices seem to work best. Here are those results:
I’ve calculated 25 trades, but realistically I think worst case scenario would be 12-15 max.
As you can see, by using a smaller multiplier you don’t have margin issues at all. However, after the 4th trade on x1 multiplier you start to see a loss.
Another thing with using a smaller multiplier is you would have to let the trade run to the full 60 pip TP to get these results. Anything less results in less gain/further loss.
Since most trades run no more than 4-7 positions, I will be trying this next week using a smaller multiplier, but I haven’t decided which one yet. Possibly x1.10
Still running my zone recovery trial and slowly building profits.
I have worked out I will only have a losing trade (or series of trades on the same market) if either I make a cock-up with my maths or order positioning, or I let the series run into a sequence of multiple opposing trades.
I can deal with the personal errors: its not a simple strategy but more care and practice will resolve these.
But an extended series of positions is very probably a route to a big loss, especially if you let the series run so that you use up all free margin. Two answers - 1) don’t open a position in a sluggish market; 2) if a nicely trending market turns sluggish, get out early; three positions are enough - I’m aiming to not even let the fourth one open - a fourth position indicates energy is gone out of this for now.
GBP/JPY and EUR/JPY are energetic pairs, they’re most active in the London market morning session. AUD/USD is worth a look. GBP/USD moves well. EUR/USD and USD/CHF might be options if there’s no other choice.
Some other Australasian pairs are highly volatile, good in this context, but they eat up margin (at least under UK FCA limits).
EUR/CHF, EUR/GBP, AUD/NZD, AUD/CAD, USD/CAD feature currencies that are just too highly correlated to make for energetic movements so they should be discounted from this strategy.
I have no worries with spreads on the majors (including AUD/USD). I am sure the bigger problem I find with the Minors and Australasians, although they do have wide spreads, is the margin requirements. Unless starting with minimum-sized allowed positions these are quickly going to become prohibitive. Spreads are a real problem around market closes/opens.
I’m actually just now finding 1:2 ratio is good enough. The pro is you get a profit and get out quickly enough to have an option for more trades in the same initial direction on the same market. The con is the hedging positions need to be that much bigger, so the margin requirement makes it almost impossible to run two sets in parallel. Though running two zones in parallel quickly becomes frantic. For the first time I can see why people using a strategy want to use an EA to run it.
Overall I have few losing days and it looks like I will on average be profitable over any periods of more than 6 trading days.
This is where any strategy converges.
You still have to apply some reasoning to be in the market, or to stay out.
Some analysis is being applied to determine entries with a probability of a winning outcome, this is where you and all traders meet, whether classical take a trade and win/lose, or to take a trade and win/hedge.
As a guess, do you trade your system at a breakout of range?
The initial position follows the prevailing trend on the m30 chart, but for me I want it backed up by D1 trend. I also check that the comparative strengths of the two currencies are correctly aligned and that there hasn’t been an ominous D1 candle such as a counter-trend outside key reversal bar.
So far it looks like about 50% of the initial trades go straight to TP without the opposing trade being triggered - one position. About half the remainder hit the initial trade TP after triggering the counter-trend trade and a second trend-following trade - 3 positions. The remainder are split between those that hit the counter-trend TP - 2 positions - and a smaller number, maybe 15%, that trigger both counter-trend and second with-trend orders but then meander between the two TP’s.
But what you say is right, the trader really ought to take a view on the market, not just enter randomly and let the hedging sort it out.
Monday saw a great bullish run by GBP/JPY during the London morning session. This allowed me to run 3 consecutive single-shot longs which hit their TP’s without their hedging shorts being triggered.
This was a very pleasing way to start the week but I think what I’d like to do in the future is after the first win, run the second bullish trade without a TP. So after I’ve made my target net gain for the day in one shot and price is still pushing forward along the trend, take the brakes off the second one and let it run. Maybe use a trailing stop. Maybe add to it with a pyramid. This is how trend-following trading really makes money.
In this particular case, letting the second winner run / pyramiding it wouldn’t have worked very well. Price reversed early in the session and fell consistently until later afternoon. But the tactic is good.
