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Winners And Losers Trading System

  • Post #1
  • Quote
  • First Post: Edited 12:38am Mar 22, 2007 12:26am | Edited 12:38am
I have a friend that was making $8000 in forex per day starting out with only 10K in demo account with IBFX.

I questioned him how he did it and his method was quite simple. I wanted to create it as an ea so I wrote out the logic to the program here:

EA Name: Winners and Looses

User adjustable Variables:
A - Lot Size Of Both Trades
B - Minimum Profit Run (In Pips)
C - Trailing Stop (In Pips)
D - Loosing Side Stop Loss (In Pips)

Action Rules:

At the time the EA is activated Do the Following
- Open One Buy Trade Of Lot size "A"
- Open One Sell Trade Of Lot size "A"

- Wait until either the buy or the sell has moved "B" pips in its favor
Example:
for the BUY Side, the price would have to move UP "B" pips
for the SELL Side, the price would have to move DOWN "B" pips

THEN apply a trailing stop loss whose value is "C" to the profitable trade

Let Profits add up until the stop loss is activated.

When the stop loss is activated for the profitable trade modify the loosing trade by adding a trailing stop loss equal to "D"

When the remaining trade stops out then start the cycle over again.

Additional Requirements: None... although It would be good to show values of the open positions in the currency pair chart


Does anyone want to take a crack at this one?
The logic behind this EA is simple... Forex moves... and eventually it will also turn around - especially in volatile markets which everyone else is usually less likely to want to trade in because of the volatility.

This places a perfectly hedged trade so that it does not matter which direction the market heads... up or down...

eventually it will reverse.... take the profits from the profitable side... and then on the reversal - try to reduce the losses on the loosing side of the trade.

end result is a net gain...
I don't see how this would profitable...

When the profitable trade gets stopped out? doesn't that mean that the only thing you'll have is a losing trade? What direction will your stop loss be in?

Furthermore, what guarantee do you have that your profitable trailing stop won't just be hit and then reverse in the positive direction again?

Have you done some testing on this system?

It sounds ok in theory, but in practice, how is this working out? I know you've got a friend of a friend, or whatever, but you know the rules...why don't you trade it on a demo and post your results?
Quoting mrmikal
I don't see how this would profitable...

When the profitable trade gets stopped out? doesn't that mean that the only thing you'll have is a losing trade? What direction will your stop loss be in?

Furthermore, what guarantee do you have that your profitable trailing stop won't just be hit and then reverse in the positive direction again?

Have you done some testing on this system?

It sounds ok in theory, but in practice, how is this working out? I know you've got a friend of a friend, or whatever, but you know the rules...why don't you trade it on a demo and post your results?
Same old, same old.................another Holy Grail....just waiting for the PM to link me to the website for "members only" area.

Always sounds awesome on paper......people who've been around know the market will do whatever it wants, when it wants!!
The stop loss is placed on the remaining trade to reduce the amount that it is negative. By placing a stop loss on the loosing trade as the price reverses you already have the momentum of the price action going for you reducing the loss in your remaining position - In theory all you have to overcome is the bid/ask spread in order to have the net result of this trade profitable.

This system is a poster child for automated trading since you could always enter the trades via the EA more effectively than you can manually. Thereby reducing slippage...

Note - The Trailing Stop Loss is not applied to the loosing trade until the profitable trade has been closed from the trailing stop loss on the profitable side. Price action momentum is already reducing the loss of the remaining pair.
I get it. The only way to lose on the trade is if the price moves "D" pips against you after you close the first position. In which case, the losing hedge cancels your closed trade and net "-D" pips.

If the losing hedge moves for you, and your trailing stop on the loser is breakeven, at worst you break even.

Otherwise, you get profit.
Quoting tdion
I get it. The only way to lose on the trade is if the price moves "D" pips against you after you close the first position. In which case, the losing hedge cancels your closed trade and net "-D" pips.

If the losing hedge moves for you, and your trailing stop on the loser is breakeven, at worst you break even.

Otherwise, you get profit.
So if the profitable side is a long, for example, price is going up, up, up, let's say 120 pips in profit and then price starts to drop and hits are stop loss. Let's say "C" is 40 pip trailing stop. So now, we're at 80 pips in profit in the long side trade and a 80 pip loss on the short side trade. So now we manage the 80 pip loss trade (with D) and "hope" price continues to drop (in this example) for some net profit pips. Do I have this right?

Jim
Indicators show the past. Price Action "Indicates" the future.
Sounds like an interesting strategy. Except the probably rare occasion where the loosing position keep loosing after the winning position is closed. In that case you still lose a fixed amount of pips. Well thought.
Jim that is my understanding. Megaleads can confirm we have it right.

Quoting jarroo
So if the profitable side is a long, for example, price is going up, up, up, let's say 120 pips in profit and then price starts to drop and hits are stop loss. Let's say "C" is 40 pip trailing stop. So now, we're at 80 pips in profit in the long side trade and a 80 pip loss on the short side trade. So now we manage the 80 pip loss trade (with D) and "hope" price continues to drop (in this example) for some net profit pips. Do I have this right?

Jim
Quoting tdion
Jim that is my understanding. Megaleads can confirm we have it right.
Maybe I am just dense, but it is the D stop that I am have trouble with..

The whole thing hinges on that and I am not so sure. What if the market continues in the direction of the closed trade?

Could someone do an example using numbers for every variable ? It just does not look safe to me...
  • Post #11
  • Quote
  • Edited 6:16am Mar 22, 2007 5:58am | Edited 6:16am
Let’s take a GBP/USD trade today on the FOMC statement for an example (cuz vol was fast and deep).

You enter your trade at 14:00EST. Long and short at 1.9586/84. Let’s use a 100 pip min profit target.

At 14:30 the target is hit. Great! Were up 100 pips on the winner, down 102 on the loser. We set the Winner trailing stop at 30 pips.

At 15:05 the stop is hit at 1.9663. We put the 77 pips in our pocket but were sitting on a 79 pip loss.

As D is described, we then set our losing trade trailing stop at 79 pips. Either that means were going to close it instantly (if it’s from entry) or risk an additional 79 pips (if it’s from current price).

At 05:30 the trade is stopped out with a 147 pip loss. Total return for this trade is -70 pips. The hedge really didn’t gain you anything.

Had the retail sales data at 5:30 come out weak, you could have in theory made a profit but only if price completely reversed and exceeded the 1.9584 entry. That’s a pretty big if as your only potential to make money. Basically the only time you make money is when you can accurately pinpoint the reversal area.

It should also be mentioned that this was examined in hindsight. You have to have the proper B and C values for each pair or your never going to cath a winner.
Scott I think what happens is that the hedge's trailing stop changes the instant the positive trade closes.

You are betting that the momentum will continue in the opposite direction so that the trailing stop can close at above breakeven or positive.

Example)

Hedge opens at 1.3000 EURUSD. Price moves to 1.3100, then back to 1.3080 (close long w/ trailing stop.) The momentum is now negative, and the trailing stop is initiated on the hedged position. If it reverses back to 1.3100, the stoploss triggers and you lose 20 pips on the trade. But if it continues back to 1.300, the trailing stop will follow and you will pick up profit on both sides.

Quoting smjones
Maybe I am just dense, but it is the D stop that I am have trouble with..

The whole thing hinges on that and I am not so sure. What if the market continues in the direction of the closed trade?

Could someone do an example using numbers for every variable ? It just does not look safe to me...
There is another flaw in this system; position size/risk. Your defining A upon entry, but you don't know what your stoploss will be until the first trade closes. At say $10 /pip the trade I outlined would place total poistion risk at $790. If the initial hedge had moved say 100 pips before being stopped out, your total poistion risk would be $1002. Thats a 26% increase in risk with a 26% lower probability of breaking even (due to the larger price correction needed).
Quoting Darkstar
Let’s take a GBP/USD trade today on the FOMC statement for an example (cuz vol was fast and deep).

You enter your trade at 14:00EST. Long and short at 1.9586/84. Let’s use a 100 pip min profit target.

At 14:30 the target is hit. Great! Were up 100 pips on the winner, down 102 on the loser. We set the Winner trailing stop at 30 pips.

At 15:05 the stop is hit at 1.9663. We put the 77 pips in our pocket but were sitting on a 79 pip loss.

As D is described, we then set our losing trade trailing stop at 79 pips. Either that means were going to close it instantly (if it’s from entry) or risk an additional 79 pips (if it’s from current price).

At 05:30 the trade is stopped out with a 147 pip loss. Total return for this trade is -70 pips. The hedge really didn’t gain you anything.

Had the retail sales data at 5:30 come out weak, you could have in theory made a profit but only if price completely reversed and exceeded the 1.9584 entry. That’s a pretty big if as your only potential to make money. Basically the only time you make money is when you can accurately pinpoint the reversal area.

It should also be mentioned that this was examined in hindsight. You have to have the proper B and C values for each pair or your never going to cath a winner.
Good synopsis. One thing, though.

In the original post, I don't think "equal to 'D'" means equal to the 79 pips. I think that stop is up to the trader's discretion, and, following your example, 30 pips would be reasonable.

So, since the price moved up instead of pulling back as it often does after an event, then the total loss would be around 30 pips give or take. If it pulled back, then the system would be working as planned.

I agree, picking the B, C, D values are critical.
Quoting blueruby
Good synopsis. One thing, though.

In the original post, I don't think "equal to 'D'" means equal to the 79 pips. I think that stop is up to the trader's discretion, and, following your example, 30 pips would be reasonable.

So, since the price moved up instead of pulling back as it often does after an event, then the total loss would be around 30 pips give or take. If it pulled back, then the system would be working as planned.

I agree, picking the B, C, D values are critical.
So if I understand, the D variable is a hard stop from the take profit point of the profitable trade and and then also becomes a trailing stop, if the unprofitable side starts to move in the correct direction... Is that the idea?
Quoting smjones
So if I understand, the D variable is a hard stop from the take profit point of the profitable trade and and then also becomes a trailing stop, if the unprofitable side starts to move in the correct direction... Is that the idea?
That's the way I understand it.
Quoting blueruby
In the original post, I don't think "equal to 'D'" means equal to the 79 pips. I think that stop is up to the trader's discretion, and, following your example, 30 pips would be reasonable.

So, since the price moved up instead of pulling back as it often does after an event, then the total loss would be around 30 pips give or take. If it pulled back, then the system would be working as planned.

I agree, picking the B, C, D values are critical.
That would make the system even worse. Don't forget that the second trade starts out down 79 pips. With a 30 pip stop it needs to move in your favor 80 pips to make 1 but only 30 against to lose 109. Thats a massive loss bias hurdle to overcome.

The system would be much better if you just avoided the initial hedge criteria all together. Use the rules to establish entry criteria and you can get in at exactly the same place at lower cost...
The idea is to take advantage of the retracement without having the ability to predict the direction of the market in the next hour.

Therefore C - the trailing stop loss and D the stop loss on the loosing side should both be fairly small numbers and fairly close to each other in value.

The idea is to look at the currency pair that you are trading and determine what a substantial move in that market is... For example we may look at EUR/USD and determine that most 30 or 40 pip movements in one direction is followed by a fair retracement...

In this case I would Set "B" to 30 pips. That way the trailing stop loss is not activated until one of the trades in profitable by 30 pips.

If for example the stop loss was set to 5 or 10 pips... as the price retraced and gained momentum against the winning side / in favor of the loosing side you switch modes from "gaining profit mode" to "reduce loss mode"

AT THAT POINT IN TIME:
#1 - Take your profits from the winning trade
#2 - Set a trailing stop loss on the loosing side...

*** NOTE *** to expand on point #2 above... the trailing stop loss is activated at the same point in time that the winning trade is closed... it is not retroactive from the point that the loosing trade was opened. Therefore the trailing stop can be a very small number 5 or 10 pips.... and therefore it will likely stop out only after the retracement is complete.

It is like cracking the whip - use the momentum to gain profits and just use the markets volatile retracement to reduce the losses....

Also - take note that there is no need for a total account stop loss because it is predefined in the function of the Expert Adviser. At first the pair is perfectly hedged. no stop loss needed - then when profit side is closed a small stop loss is entered on the loosing trade.
  • Post #19
  • Quote
  • Edited 12:01pm Mar 22, 2007 12:00pm | Edited 12:01pm
Quoting Darkstar
The system would be much better if you just avoided the initial hedge criteria all together. Use the rules to establish entry criteria and you can get in at exactly the same place at lower cost...
If you do not hedge to start out with you do not have the equity banked. remember your looking for a way take advantage of the breakouts and the volatility - bank those profits - set them aside and then use the markets retracement to reduce the losses. The better your settings of B C & D are to the market you are trading the wider your gains and losses position can become.

Wider is better
Quoting Darkstar
There is another flaw in this system; position size/risk. Your defining A upon entry, but you don't know what your stoploss will be until the first trade closes. At say $10 /pip the trade I outlined would place total poistion risk at $790. If the initial hedge had moved say 100 pips before being stopped out, your total poistion risk would be $1002. Thats a 26% increase in risk with a 26% lower probability of breaking even (due to the larger price correction needed).
All positions are known up front

A = Lot size = 1.0 lots
B = Range in pips = 30 pips
C = STOP LOSS ONCE B HAS BEEN ACHIEVED = 5 pips
D = Stop loss applied to the hedge side after gain side closes = 5 pips

Net Result
Pair Starts out at 1.3000 - what happens next? Goes Down 55 pips to 1.2945 and then retraces to 1.2985

The Sop loss of 5 pips is activated on the SHORT side as the pair falls below 1.2970

then the stop loss is activated on the SHORT as the pair reverses at 1.2950

at 1.2950 the trailing stop loss is entered for the LONG side. When the Long Side hits 1.2985 then retraces back 5 pips down to 1.2980 the LONG side is closed

TOTAL GAIN = 1 lot Gain of 30 pips = Net Profit @ 100:1 = $300

This can happen a few times a day not to mention several times a week.. it can happen a few times back to back during news.
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