A Dream Scheme... (Don't waste your time)

It can be done, you would have to wait for the best possible set-up and have a strategy that only the really Best knows how to put together. It may sound a little crazy but its amazing what the mind can do once used to full potential.

T/P would be 25, but S/L would be 12.5 due to margin call at 50%.

It would take one of the best scalpers in the world or waiting for the "perfect" entries to make that strategy work.

I've done the math on such strategies and I challenge the notion that these kinds of methods are poor money management. Poor money management is being a full-time trader and getting returns of 15-25% per year. Time has value just like pips have value.

Anyone not allocating at least a small portion of their portfolio to high risk strategies is missing out on the occasional huge return.

Here's an example scenario. Say you used a method like this (I wouldn't use the same rules as here, but something similar) and chose to end and restart after any consecutive losing trades. Losing trades are margin calls, so you would be at 25% of the last peak. Now let's say you're very aggressive and use $1,000 to start and only have $20,000 of total capital to invest. How about we put the other $19,000 in a money market account that returns 5% per year.

At the start, you lose 2 trades in a row. You're down $750 with $250 in hand. You take $750 from your $19,000 account and start again. You're down to $18,250 in your money market account.

Next time, you lose 2 trades in a row again. You're down $750 more with $250 in hand. You take another $750 from your $18,250 account and start again. You're down to $17,500 in your money market account, but don't grab the revolver yet.

The third time is better and you reach your target the first two trades. You take $1,000 from the account and move it to the money market (now at $18,500) and leave $3,000 in the trading account. The next two trades are losers and you're left with $750 in the trading account. You take $250 from your $18,500 account and start again. You're down to $18,250 in your money market account.

The next time you reach your target the first two trades again. You take $1,000 from the account and move it to the money market (now at $19,250) and leave $3,000 in the trading account. You reach your target again the next two times and take $3,000 from the account and move it to the money market account (now at $22,250) and leave $9,000 in the trading account. Even if you lose the next two times, you have $2,250 in the trading account. You move $1,250 to the money market account (now at $23,500) and start over again with $1,000.

The end result after 4 tries at this method would be $23,500 in the money market account not including any interest gained and $1,000 in the trading account. At the end of the day you have $24,500 total or a 22.5% return.

Given the worst case scenario... you don't reach your profit target the first 10 trades in a row. You would still have $16,250 or a 18.75% loss.

I don't see how a 18.75% loss in a worst case scenario is any worse than some of the returns most mutual funds will see in a bear market. Why then in that situation is the common knowledge to "be in it for the long haul"? Again, time has value and if it takes 3 years to reach 20% ROI then your time has a very low value (of course depending on starting capital).

Anyways, just my 2 cents. Whichever method allows you to go to sleep at night should be the method you employ. The problem is that someone will inevitably read this and use 100% of their trading capital towards this method... suicide trading.

there is one VERY big problem with your scheme, its called math you cant fool math with fancy money management tricks, it is simply impossible. this is what so many casual vegas goers do, they concoct betting schemes and think it will overcome the math ingrained in the tables. the mathematical expectancy of your trading system is the mathematical expectancy of your trading system, period! yes, if you have a successful system your scheme would be possible, but then again if you have a successful system, why trade with such huge risk? how much you bet is a function of the risk you are willing to take, but whether you win or lose is a function of expectancy.

also, lets take a look at what your scheme is equivalent to. i find this helps understand many MM issues. essentially what you are doing here you have a large trading account (all the money you are willing to invest in this scheme) but only have a small portion of the money with the broker (the $1,000). and you have a specific process for withdrawing and depositing. it doesnt sound that trick when you put it in perspective!

my advice after many years of study and reading on this subject is to stick to the simple %R mm strategy and save your time for researching your strategies.

Trading EUR/USD or any pair where USD is the counter currency will gain or lose $10 per pip for each standard lot--no matter what the leverage. If you open a position of 4 standard lots and the spread is 2 pips (for the sake of argument) it will cost 8 pips or $80 just to open the trade.
Now you have to put up margin for the position. At 400:1 leverage you'll need to put up $250 initial margin for each standard lot. So you'd need $1080 in your account to open the position and a fraction of a pip to the negative would cause a margin call.

I've tried variations of these things early on. The always ended in a financial bloodletting.

Lilydat, by saying "it's just straight-up gambling", you're obviously fully aware of the nature, and implications of your method.

There's a table in this post: http://www.forexfactory.com/showthread.php?p=188593
that gives the probability of encountering a losing streak ("X" losses) within a 50 trade sequence, given any win rate. We could "invert" the table to give us the probability of a winning streak, given a loss rate (i.e. a 60% win rate = 40% loss rate, etc).

Thus the probability of attaining 10 consecutive wins (if that's the goal) anywhere within a sequence of 50 trades is:

If the system win rate is, for example, 50%, the probability is 4%
If the system win rate is, for example, 60%, the probability is 22%
If the system win rate is, for example, 70%, the probability is 69%

The table assumes that all events (trades) are independent. If we can show statistically that wins tend to "cluster" as the system encounters a prolonged period of "favorable" conditions, then the probabilities are actually higher than those shown. But we would need to somehow prove that this clustering effect actually occurs.

We can tinker with TP and SL points to adjust win rate. The lower the RR (i.e. TP is nearer to entry than SL), the greater the probability that the TP will be hit first, thus improving win rate. But we must somehow resolve the problem that the damage is much greater, in the event that the SL does get hit on any given trade. Or if the effective leverage is high, that a margin call may well occur before the SL is hit.

From a mathematical standpoint (for whatever it might be worth), bottom line is all about expectancy, which is the product of entry and exit. Position size has no effect on expectancy, i.e. you can't use MM to rescue a negative expectancy method. For mroe info, see my posts:
http://www.forexfactory.com/showthread.php?p=1764742
http://www.forexfactory.com/showthread.php?p=1783141
Also my 3 consecutive posts on the math behind Martingale versus flat betting, starting here:
http://www.forexfactory.com/showthread.php?p=198995

Although a 70% win rate might sound achievable, when one takes costs into account, I suspect it might be difficult to attain it, while still maintaining a respectable RR.

Anyway, good luck!

David

Merlin, magnificent post!

Echoes my view: MM operates independently from expectancy.

It's always comforting to find a kindred spirit.

David

Hello David

The probability percentages are tough enough to achieve. But the sequence of 50 trades required to produce them is an even bigger fly in the ointment.
We're fortunate to have a probabilities guy on the forum!

Bill

It's been said that the holy grail is the trader, not the system.

Sure there are pros that can get 10 good trades in a row, but not because of the setup, or the entry.

At the present, my last 9 trades have been "good", for a total of 104 pips. But on 3 of those trades, the gain was 2, 3, 1 pips. Another was up 27 pips at one time and I ended up taking 10. A couple churned sideways until within 15 or 20 minutes of news, and I got out with 5 or 10. So I really had 4 good trades of 9.

In other words, the only way I got that hit rate was by abandoning the target in quite a few cases, and pulling the plug on a trade that obviously wasn't going my way, or that might get hit by random movement on news.

Setting hard rules for stop / target eliminates discretion, and essentially eliminates the possibility of getting 10 in a row.

This thread is aptly named.

That's the oldest betting strategy on earth. Can work great at craps if you get a lucky streak. Forex would take to long. if you want to throw $1000 away go to Vegas and try your luck on the craps table.

i don't know why all the 'experts' are coming around flapping their wings about this. we had a guy post a similar thread about turning 1K into 100K and posted his statement. i don't see anything wrong with this if you do in fact have money you can spare. i had a streak over 10 winning trades running until just yesterday. it is definitely doable.

the fallacy in comparing trading to gambling is that you are supposed to be turning the odds in your favor when you trade, as opposed to gambling, which inherently favors the house.

there are plenty of credible posters around here that do better that 70% win ratios.

anyway, good luck.

i will say that you can get extremely generous returns with a lower risk strategy, however. if you risk 5% per trade you can make very hefty returns. you just need to find high probability trades and stick to them. there are some such strategies that can be easily found in this forum.

But a win in forex is not a 100% gain like hitting the pass line in craps. if you are only buying forex on the spot market and not hedging, i would say the odds definately favor the banks. In craps the odds are as good as you can expect with a taste for risk.

I'd take one poster's advice and begin with $100 - although if you made it, you'd hate taking that advice.

But this reminds me of some Las Vegas waitresses from several years ago... they put an original bet of $100 on just one NFL game a week and let it ride until they reached $100,000.

It sounded so good that we tried it the next year. Ha! We never hit more than three in a row and dropped the project.

So at least in Forex - you're part of the team that's playing the game.

As long as it's completely surplus money, give it a whirl.

hehehe

It's the best game in town.

If you trade 100% of your account balance and you position goes into -1 pips, wouldnt you get a margin call?

I got an idea,

How about say we put all our money together in a big pile and then split it !

Is there a broker than can actually let you implement this strategy ?

example
Trade 1: 100k trade
Margin 250$ (1:400 leverage) 1000$ for risk = 1250$

As you increase the trade size you'll need more margin ?

Is there a broker that lets you trade with 0$ margin ?

Geez, sounds like you're really bored of doing it the usual way.

You should consider changing your system, or, if you are intrinsically a gambler nature, try to do without a system - would make it much less boring, I guarantee, lol. But to be serious, everyone needs to grow, and you can't limit yourself by using a system that doesn't really fit your needs. What you are doing with a second/gambling account is to undermine your other one, not only by losses but by disregard.

Remember that no lunch will ever be for free, especially not in markets.
Also, statistical expectation wouldn't allow you to make much more than a bonus in the long run (any system), so you need to have more money for larger results. Real studying work is necessary in order to follow the markets without indicators (that only display transformed price data) and sometimes against fundamental expectations (I personally like that the most, it's really exciting to be one of the few actually winning by going for the counter trend at a news release #). If you like that, try to investigate more time by watching the swings.

Entering just for fun can be profitable, even in a longer streak, but in the long run it doesn't give you an edge, thus you fall back to statistical expectation - your position size just works like a magnifier for the same results.

I have been right much more than ten times in a row, without a system, and I'm not a scalper, but I can tell you it involves a great amount of intuitivity and watching the markets, to know what will have to happen next most likely. If your system bores you, try to be better than it.
But be warned, this approach of guessing the markets gives you the 'edge' of that no serious money management would ever expect you to win ;]. On the other hand it simply isn't possible to calculate the markets, how would one be able to calculate that..

Thanks to everyone who had something to contribute. A few points I would like to reiiterate:

I was simply starting a discussion with the hopes of getting some good minds and ideas in here.

To Forexmoments - Gee... Thanks for your wisdom, but I must disagree. I think this thread is well worth the time... especially to a lot of newbies. Just look at Merlin's post on page #2. That alone should be worth the time of reading this thread. Sometimes I wonder if some of the know-it-alls on this forum even read the first post. It's like you are the world's worst listener, and can't wait till I get done, to throw in your smug, worthless comments.

I thought I did a pretty good job of explaining that I was simply starting a discussion, and by no means was ACTUALLY thinking this could happen... although people DO win the lottery. Thank you to those who paid attention and contributed.

For the record, my other system(s) do fine... whether we are ranging or trending. I stay the course, and risk a miniscule 1% per trade. Eventually, I will drop that down to .75%, and finally .5% where I will most likely stay for the duration of my trading career. There is nothing wrong with my systems, besides the constant small % of winning and losing capital is psychologically boring. I was simply looking for an outlet to be able to express some creativity, without being detrimental to my "REAL" account.

Being a seasoned trader, I realize how much psychology kills traders. It killed a few accounts of mine when I started, but it's human nature to dream. I don't know who said it first, but once I learned this and made it "my own" I became consistent... The trader is the holy grail... not the system. So that's what I do is employ a disciplined, boring trading system. While I do use some discretion, my money management, and position sizing are always the same %'s and allow good trades to run and hopefully catch trends. If I allow myself to think I will be right, I will surely start "betting" instead of trading, hence I am the holy grail... not my system.

Thanks again, everyone.