daily range Strategy

Well there is always risk involved in trading. I think the risks are somewhat reduced since we're waiting on the sidelines for such a long time.

I'm doing the study and analysis now. Once I get the balls to say it's good the way it is then it'll only take me 2-3 minutes to look at each day. I won't mind that. What should be noted is the 24 hours of mental anxiety watching as pips come and go. Some trades do take many hours to complete once triggered. Who's got the marbles to handle it? Matt

I have found over the past few months that something will help here.

DON'T Watch it!

Once you have used your method to decide on your trade, set it in motion and DON'T Watch! I know. Easier said than done, but this has really helped me over the last few weeks.

I think these breakout trades could end up being less stressful and more profitable than many other styles of trading.

Yea, I know watching it can be a pain in the butt and very nerve racking. It's what prevents a lot of people from going pro with trading. They just can't handle themselves.

I've done some more backtesting. I assumed that the periods I was previously testing on were prime conditions for the system. (Even though we all know they weren't really.)

So I tried to break the system. I set my chart to daily and backed it off so I could get the big picture of the last 2 years of trading. From what I saw, the period from February 1, 2006 to about April 15th, 2006 would be the absolute worst case scenerio for this trending/breakout system. It was ranging in between 1.7230 and 1.7630 at the extremes and included many smaller oscillations in between. There are other periods of ranging, such as from late August 2004 to mid-october 2004, but they wouldn't be as bad as the period I tested. You can clearly see in the 2004 period that it did have a pursuasion to the upside even while ranging.


Anyways, what are the results for 2/1/2006-4/15/2006? It was rough. VERY ROUGH. You'll need some massive guts to be able to trade this system people.

There were 16 trades made. 9 were winners and 7 were losers. Thats not the rough part. The rough part is that there was a losing streak of 3.

This is why I want to explain my preference for doubling up on losing trades. If I had simply accepted the losses for losses and not doubled up my profits would be:

50 X 9 = 450.

My losses would be:

-100 X 7 = -700.

So 450 + (-700) = -250.

Now what happens when I double up on my trades after losses to overcome them?

Well since I had consecutive losses, one win on the next trade after the 3 would make up for all 3 losses. So it wouldn't leave me with only 2 of the 9 trades profiting. The problem is we're risking quite a bit.

Say we risk 2% of our account on a typical trade.

We lose the first and double up on the second. Second loses and double up on the third. Third loses and double up on the fourth. Fourth wins. HOORAY. THANK YOU GOD!

You would have risked the following amounts of your account on the trades. 2% - 4% - 8% - 16%. You can see whats happening. Do you have the guts to do that?

What does this do for our profits though? Well because we're only doubling up and are trying to breakeven on the losses it doesn't add any profits when we finally win after the losses. It does get rid of the -250 pip loss though. I'm happy about that.

So if you had doubled up after each loss, including the consecutive losses, you would have made 200 pips in profit for the 2.5 months. Theres a big difference between +200 and -250, wouldn't you say?

This just gives me more confidence in trading this type of system. This was obviously a terrible situation for the system, but through wise money management you can easily turn a bad situation into a good one. I would not expect this system to have more than 4 consecutive losses in a row. Even if the system had 2 sets of 3 consecutive losses in a month it would be able to survive them so long as there was a win in between them to bring your account back to even.

Anyways, I thought I'd post all of that for you to show that this system can perhaps survive even the toughest trading scenerios. I didnt want to be looking through rose colored glasses considering the great trading gbp/usd has been having this last month or two.

Please, I encourage you all to manually backtest this and demo forward test before trying it live. I would really appreciate as much criticism, opinions, or tips. I'll be testing more periods to see if I was wrong in thinking I had found the worst case scenerio. Matt

Backtest results for period 11/24/2004 - 1/6/-2005.

11 trades. 9 wins - 2 losses.

Doubling up after losers would have given you a total profit of 350 pips on the strategy.

Not doubling up would have profited 250. Matt

Ok, my post about averaging I was really being sarcastic I suppose. Maybe I am not understanding you. How are you backtesting without a set time to begin for the wait? Not having a begin time is the only issue I have, so what time did you use in backtesting?

Just a simple thought.

It might help if you just used historic S/R horizontals of the daily & weekly charts & don't overlook the previous weeks high & low as these also represent S/R.


BabeFX

When you say "time to beging for the wait," do you mean when do I know where to look for the 200 pip move?

Simple. To trade this method I'm looking at a 2 hour chart. This way I can see all the intraday movement and would know if my trade would have gotten stopped out. Finding the points to base the triggers off of is easy. Simply find the peaks and valleys. If you look at the chart I posted it should be clear.

Take a look at the first set of green arrows. This was a new low formed on the chart. You only base buy triggers off of lows and you only base sell triggers off of highs. Then just follow the price adjusting the triggers as new highs and lows are formed.

Again, I'm looking at a 2 hour chart. Hope this helps. Matt

Not sure what you mean. How would you use the previous weeks highs/lows? Would you not make some trades because of it? The problem I have with using S/R from past periods is we get caught up trying to figure out how far back do we go?

Besides, the method already has incorporated those levels in previous trades. If the previous low was in fact a substantial low that price bounced off of then a trade was probably triggered from it as price rose 200 pips from it.

Would you mind giving an example of how your idea would play out in a trade so I can understand you better? Matt

Hello all,

I've done more backtesting. Turns out I didn't find the worst case scenerio.

The period for this backtesting is from 11/1/2005 - 1/31/2006, about 3 months.

There were 20 trades. Although after looking at the period I have come up with a new rule. One of the trades I would have entered was a trend continuation where there was a severe drop to close one of the trades in profit. There was then a spinning top candle and then another severe drop in price in the next candle. I took the high off the spinning top to base my 200 pip sell trigger off of. It ended in a losing trade. In my opinion this could have been avoided if I had waited for there to be more of a retrace and some base formed after the first significant drop. The drop could be said to still be too quick to say a high was formed to base the trigger off of.

That doesn't affect the results though since my results are using a doubling down strategy after losers. It would have mattered if the next trade was a winner, but it wasn't. In fact the next two trades were losers.

Including the first trade I now would not take, there would have been 20 trades. 12 winners, 8 losers. There were two sets of consecutive losers. The first was the one I mentioned just now where there were 3 in a row;2 if we now don't take that first trade. The second set was 4 losing trades. FOUR! Ouch. 2% - 4% - 8% - 16% - 32% risked on the doubling up trades with the 32% winning.

When you get periods of time like this you almost want the losers to be in a row. This is because using this risky doubling down strategy you cover your losses with only one win. If the losers were not consecutive then you would be using one winner per loser to breakeven on the losses.

So 12 wins - 8 losses = -200 without utilizing a double down strategy. -100 if you didn't take the first trade.

Using a doubling down on losers strategy you would be +450 for the 3 months. It seems this strategy seems to be averaging anywhere from 125-400 pips a month. I'm backtesting under absolute terrible trading conditions of the tightest ranges. I'm thinking though, that it is nearly almost absolutely profitable only because of the risks involved with doubling down. Without doubling down this strategy would produce several periods of losses.

Possible ideas to prevent yourself from having to produce 4 losses in a row would be to expand the trigger to 300 pips so that price is most likely moving out of the range it's currently in.

It brings up the idea though, does it matter how good the system is if we're willing to risk our money in certain money management strategies? I still like this system just because it is so easy to use and requires so little time. Results like these do have me thinking though. Is it the system or the doubling down strategy? I like to think it has a little to do with the system since even in severe ranging periods there are more winners than losers.

What is everyones opinion? Is it just the doubling down or a combination of the system and doubling down that is making this profitable, even in rough scenerios? Matt

More back test results. This time in a period not necessarily ranging.

4/10/2005 - 6/30/2005.

17 trade - 13 winners, 4 losers. None of the losers were consecutive.

Total profit if doubling down - +450 or about 225 a month
Total profit if not doubling down - +250 or about 125 a month.

Just trying to show a better picture now after demonstrating the rough periods. 225 a month isn't so bad.

Who cares about pips? Pips are unimportant. The most important question is: What is your ROI (=Return On Investment) in percent each month? I assume your ROI is lousy.

I was looking as far back as 1990 to determine weekly levels, and yes I would agree that it becomes a bit of a lottery deciding which levels to use. I will proceed down this avenue of approach until I have reached a conclusion.

BabeFX.

Drop the crap, place B/S OCO orders at previous session H/L away you go. Just got to add a buffer & work out the stops.


BabeFX.

can you please explain you strategy in detail please

Thanks

B/S = Buy/Sell

OCO = One cancels other (order)

H/L = High/Low (refers to previous session posted high/low)

Buffer = leeway on entry, pip value away from actual H/L

Stop = Amount of money you are prepared to risk before you accept you are wrong.

Hope that is enough.

BabeFX.

Yeah, I think we know all of those definitions Babe.

We wanted some of the details behind your comment of "drop the crap".

We are trying to use historical data to work out those details of the amount of buffer, amount of stop, amount of take profit, to maximaize the return over time.

Then how would you determine the ROI and increase it? I think you're saying the strategy isn't worth it because it requires strict money management that limits you to how much you can put towards a trade. Correct me if I'm wrong.

I'm not trading for next month or even next year. Trading should be a long term goal if you ever plan on making it a full time ordeal.

Sure, I could probably get a great ROI if I gamble that I'll have a good month with the system. Hell, so far backtesting shows it always wins more than it loses. But then what happens when I hit those consecutive losses? My account has to be able to handle it.

I've shown that with sound money management the strategy of doubling down gives us profits in even the worst situations. You take the bad with the good. Sometimes you have 100 pips months, sometimes you have 400 pip months. I like the idea because my bad months are still positive months and not -200 pips. This way I know I can just keep putting money into the system. Compound, compound, compound. The ROI will eventually make it worth it.

Feel free to tell me why you think ROI is going to suck. Matt

That was somewhat the original idea of the thread. Instead of previous session highs and lows we used the open price. Some have profited off of this strategy. What I didn't like was the system resests itself only because of time and a new candle forming. My idea right now is to disregard time and only play off of the highs and lows of the runs we see on intraday charts. If the low of a run was 1.9600 than play the breakout when it rises 200 pips even if thats 2 or 3 days down the road. Whats your opinion on that instead of resetting the system for each new session?

Also, I'm not so sure your strategy would work in theory. If you place a trigger so many pips away from the highs and lows from a previous session it will be hard to determine the buffer for each session. There will be candles that close near their high and then there will be candles that have closed 40 pips away from the high. So a sell trigger should not be based off of the high because the next candle could be only 5 pips away and create a triger off of a weak trend.

The only way to use that idea, IMO, would be to base buy triggers off of highs and sell triggers off of lows. This again has the problem of resetting itself after each candle though. The price could move in a strong, predictable downtrend but stay inside the buffer you've created from the highs and lows. It could maybe only move down 40 pips a day and your trigger is at 50 pips. No trade this candle. It does the same thing next candle and doesn't trigger again. The price has moved 80 pips, but no trigger hit. That's why I say we should eliminate time from the equation and play the highs and lows of the trends instead of resetting the system after each candle. Matt

I am looking at a couple of ideas, trying to get it all down on paper.
I have spent a great deal of time & effort in the past looking at various breakout methods. One of the methods is an adaptation of a strategy I picked up from reading "The Logical Trader".

I will be in a position to present some results ( I hope ) in the not to distant future.

BabeFX.

Traderone,

I am working that out at present.

Trading is an art not a science !

BabeFX