1. I believe that we shall start with 2-3-5 TP at SL = 25-30 pips.
Catching such a small move should be relatively easy and safe, but it's only the beginning I think. I also dont think that there will be no losses, no loss, no fun
2. The simplest possible EA to see what will happen should be sth like "buy 1 pip above/below previous day hi/lo with SL = y and take profit at x pips, thats all. Then we can test stability of this system for large value at risk.
In the attachment there is an excel file i use to simplest analysis of a system. This one is special - with small drawdown (this parameter is in my opinion far more important than number of pips gained, imho many traders are unnecessarily obsessed with the large pip gains with large SL). Small drawdown plus hard balls... But if you plan to risk a $100 it is only fun!
- #23
- Edited 5:19pm Jan 1, 2007 4:55pm | Edited 5:19pm
The problem I perceive with this system is that there is the potential for relatively huge drawdown, without the potential for more than very small gains. It is the disparity which represents a potential problem in my mind. I would not necessarily recommend increasing the size of the TP, rather I would recommend a version of trailing stop so as to take advantage of potoentially larger gains without increasing risk or losing the pips already gained. To my way of looking at it this would balance the equation a bit so that the effect of the large SL would be minimized with respect to the overall account balance. That way when a loss does occur it does not wipe out the gains from 20 to 100 profitable trades.
The simplest version (ver 1.0), without "bells and whistles" is only to assess if there is really a potential - are the losses outbalanced by gains.
Rigid SL will also show frist approximation of a proper TP/SL relation which can be only improved by adding trailing stop.
Then we can simulate gains by drawing equity curve for different results (different parameters SL/TP) and different VAR = value at risk.
I'd rather start from the most simple system partly because I want to fully understand whats realy going on. Thats my approach to solving almost every problem - baby steps, one at a time. There is no need to hurry, we can easily overlook something important.
At the beginning we dont design the system, we only try to find a clear answer to questions:
1. is there a real potential for some pairs?
2. if yes then for which combination (-s) of TP/SL/VAR is it maximized?
Some of the EA trades should be checked manually in order to be sure that all is OK with the simplest EA it is easier than for a complex one. I like to double check everything as this paradoxically saves time.
Forgive me if my English is sometimes non-understandable.
Quidquid latine dictum sit altum viditur
