Developing a system #7 (Simple trading any time)
Submitted by User on November 3, 2008 - 16:32.
Submitted by trader.
I have been trading a fairly simple strategy which is the result of my frustration with indicators, progressive systems and marginally profitable ideas that turn negative due to dealer spreads.
My general "dilemma" in forex is that most strategies work well in either trending or ranging markets but not the opposite. Also, I do not have the patience and stamina to sit and stare at the screen all day, so I was looking for a strategy that I can enter at any time and that has pre-defined exit points for either profit or loss, so I can enter into a trade and walk away.
Here is my idea: The market rarely moves in a straight line. Most trends show pulllbacks and ranging markets are nothing but a constant back and forth. To me this means that there is profit in betting on a small move in either direction. If a stop is set at twice the distance from the current price as the limit, the limit is twice as likely to be hit as the stop is. This is mathematical theory only and would result in a "balanced" result since we win 2 small amounts and lose one big one.
However, in Forex I have found that small pullbacks happen not twice as often as a "big moves" but up to three times. Therefore my simple strategy looks like this: I buy or sell a currency and set stop loss at twice the distance as my limit. This in itself has generated 1311 positive and 599 negative trades over the last month for me. I entered completely randomly without regard for trend or currency movement. I traded with a 3 pip spread which I ignored in my limit and stop (meaning I started with a disadvantage). My net gain therefore is (1311- 599*2) 112 times the limit. I set my limits at 10, loss at 20, so I earned 1120 pips. It is important to use currencies with a low spread.
I am sure the strategy would be even better if we didn't enter randomly (coin flip) but with an existing trend to increase our chances of the limit being hit instead of the stop.
Any thoughts, tests or opinions would be highly appreciated. I like trading this way because my losses are limited, I needn't worry about sticking around the computer all day but can just set new positions whenever I have a second, and the rest just works by itself. Give it a try!