DislikedTo WizardTrade, I got a little confused because your first post said "tear this strategy down", which I thought you meant "it's bad" lol. Anyways interesting write-up. I did demo this and then traded it live in 0.01 lot sizes. The amount lost was small to be honest largely because most of my buy sell trades cancelled each other out. I'd say the issue I have is : 1. Unhedging my trades My buy stops hedges are just above previous high, where price quite often will hit and revert back (so I bought at its very top). That's very difficult and time consuming...Ignored
Role of Chart Structure and Un-hedging your Trades: The Secret Ingredient
I don't see any problem with your buy stops but the main problem is the market structure. If the price keeps falling and you sell and buy on each continuation and retracement then soon your equity will become insufficient to fuel the engine. So in this case you MUST use lot sizing schedule to overcome this challenge. If I were in your place I would look for alternatives. Do I need to open direct hedges, I mean 1:1 lot sizes for each buy and sell? or Do I need to open percentage hedges? In this case where charts show huge moves to one side of the market with retracements, ofcourse (often confusing you) then you may get stuck with 1:1 lot sizing problem. The very reason is that if you are buying 1 lot and then selling 1 lot you are completely hedged and there is no room to make money in this hedge in this scenario. So you need to think out of the box here. What you can do is that you can change the lot sizing assumption here i.e., fixed lots. Come up with percentage hedge and it will cover all market conditions.
Let's take an example from your chart. If you buy 1 lot on support then sell 1 lot on support break then you buy again on support etc. If you see you are adding up lots but in the longer run if the markets doesn't come back you will consume the equity and one day you may not be able to open the next trade as there will be no margin left.
Conversely, if you open percentage hedge here. Let's take an example for this. You buy 1 lot on support then it breaks you sell 2 lots, now you are opening cumulatively 1 lot to the sell side, if the market never returns you are making pips instead of locking them. Now continuing with the same philosophy you are adding up the lots on each SR level which will also consume your equity and if the market is in a strong trend to the either side you will again get caught.
There is a need to evade this situation as well. Think about it what can be done to evade such a situation. I had been there so I can tell you that percentage hedge is NOT the ONLY thing which ensures success. You need to experience it first on DEMO. So that you know what I am talking about.
Hint: It has something to do with recurrent position opening. If you can handle that and come up with a counter offensive then Voila, you are there. Also, risk to reward ratio is of utmost importance. Keep that in mind too.
Money Management
For money management, you need to do the drill in spreadsheet and examine all scenarios using lot sizing and cumulative losses which you will face if for example 10 trades are open at a time. For this you will need to develop a schedule based on percentage hedge. But before this part you need to test everything on DEMO and then look for lot size you will use on the first lot based on your balance or equity. How much are you willing to sacrifice on each trade will decide the lot size. Then create a schedule around that. When you are demoing this thing, do your diligence on the hint I provided in the previous section. It WILL WORK in any market if you cracked that thing and will also make you a fortune in the years to come as it is a holy grail thing.
Moreover, the other thing is DRAWDOWN, this strategy is inherently dependent on drawdowns so in any case you will have to understand that you may have a floating loss ranging from 10% to 50% based on your lot size you will be using. If it makes you carried away then you may have to reduce your initial lot size. Also if midway you think that you have made a mistake then there is no room for you to rethink in LIVE environment so better to test all the scenarios on demo and then come to live.
Demoing Rules:
Always use the same balance with which you will be playing in the live account to experience the same drawdowns as you would in real.
Stick to the plan.
REMEMBER! It's an iterative process, so you need to revisit your spreadsheet quite often to get your strategy rectified on each mistake. There is no shortcut to success but once it is there, no one can stop you from reaching the top.
WARNING: This post warps space and time in its vicinity.
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