Special forex technique.

I've done a lot of research on this till I got a headache thinking too much. My goal was to figure out whether you get an edge with this procedure

:Enter(buy 5 minilot) the currency pair at 1.5555 The currency pairs falls down to 1.5550,and you buy 1 lot. It falls down yet another 5 pips to 1.5545, and you buy 1.5 lot(it has to be the sum of the previous: 0.5+1=1.5). And it falls down to 1.5540, and you liquidate your position and make a loss. For profit, you liquidate all your positions as soon as the price goes up by 5 pips, either at 1.5555 to 15560 or at 15545 to 1.5550.

I'm not sure what to call the above procedure, maybe adding up?

Anyway, I made som calculations, taking real spread and transactions cost into account, and the result was really bad, thus I almost thought i should rule out this method and just enter at 1.5555 with a bigger position, and liquidate the position at 1.5545 instead of adding up and finally liquidate at at 1.40



After my research, my first conclusion was that this method is bad, since the very few losses will outweigh the profits by far(almost by 2:1), if you for instance have a winning chance by 50% at all instances: 1.5555,15550 and 1.5545 etc. Even if you had 60% chance at the first enter, you would still make a loss, and i made som calculations that you would need about 75% winning chance at the first enter, or increase the winning chance from 15550 and 1.5545 so that losses become very rare.

My conclusion is that this method should only be used under market conditions when it is very likely that the price will retrace back 5 pips at some instance, and not go straight down without retracing form 1.5555 to 1.5545. And we all know prices usually retraces back a couple of pips(5pips might not be the optimal level to aim for, and should be adjusted). If it is a downtrend, the price will go down in waves.

My other conclusion is that this method is better than it looks like on paper. After prices have gone down a bit, I figured(might be a wrong conslusion so please correct me), the chance of the price retracing back a bit might be more likely than the price going down again, since prices usually move in waves.

Thus this method should not be used during news, or at other times when the price goes in one direction without retracing back for an extended period of time.

I hope you found this informative.

Transaction cost: 3 dollar per round turn:
Pip spread: 1 pip.

hmm.. 5 pips sounds very tight for this, plus the spread is not neglagable at this scale. Maybe for larger moves - sat 20-30 pips on a larger time frame (5 min)maybe ?

As for the high certainty - if you have a system for such tight ranges that gives you such a high percentage of wins - you don't need all this just a normal SL with reasonable SL to TP ratio will do and you're rich.

Yeah, but what if you don't have a high percentage of winning trades? I thought this procedure might give me an edge as it relies on the fact that prices moves in waves

I havn't scalped but want to try it out.

I don't see much benefit in the idea, it would only be adding to a losing position. But I can think of a couple hedging concepts that could be along the same lines.

1. Buy 1 mini lot
-----a. Market goes up (close for profit)
-----b. Market goes down (Sell 1.5 mini lot)
----------1. Market goes up (Buy 1 mini lot)
---------------a. Market goes up (close for profit)
---------------b. Market goes down (Sell 1 mini lot)
--------------------etc...
----------2. Market goes down (Close both positions in profit)

Advacast: Do you know any sources on internet, i.e ebooks, or books to buy focusing on this topic?

Well, if it turns out to be a losing trade, then, yes you have been adding to a losing trade. However, doing this, will increase the number of winners, and minimize number of losses, though, these losses will be big.

I thought that this strategy could be used in conjunction with other analysis, to additionally minimze the number off losses.

And as long as the price retraces back 5 pips, you will have a winner. So this method relies on the idea that prices almost always retraces or moves in waves and that number of losses in reality, applying this method, could be really low.

I've not tried this method yet, but i think it could give som value.

"And as long as the price retraces back 5 pips, you will have a winner. So this method relies on the idea that prices almost always retraces or moves in waves and that number of losses in reality, applying this method, could be really low."

Strong movements will blast you out of range quickly. If you plan to open new buy orders every 5 increments all the way down, holding the drawdown, using increasing lot sizes to compensate for previous losses, your lot sizes would get big very quick. Calling the end of the chain would determine your overall loss size, which would be the total of every one of those buy orders.

This is why I recommended instead maybe using a 10 pip gap where you alternate buy/sell hedges. Once the market leaves the area a profit would be taken. This too is cursed by the exponential lot growth to make up for previous drawdown. You can only do it so many times before the lot size gets out of control. The alternative to increasing lot size so rapidly is to drastically increase the target profit zone, which in turn increases your odds of adding another loser to the chain.

I think both of these will have their own nasty consequences. When you lose, you LOSE.

This techneaque is not hedging.

Mas you said - if prices retraces back 5 pips you have a winner - if it retraces back after openning your second or third position then you just breakeven with it. Though I can see how that is likely indeed, but again 5 pips seems too little, depending on the pair traded of course (for EUR/GBP I suppose it's okay).

All I can say is - backtest it and test it for real and see how it works. Make a few dozen trades at least - because you'll likely loose less often but loose a lot each time, and see what happens (on demo or with cent per pip trades of course ). Also, you'll probably need some entry criteria - if it just "looks" like it's going where you want it to go it probably isn't anough, maybe play with some indicators.

Good luck and tell us how it went if you test it

Jurassic,

Similar to the usage of orders that grow in lot size to compensate previous loss. Similar in concept where his idea to go against a particular direction using gaps and looking for retracement, the hedge holds onto a gap and attempts the same procedure in either direction.

Don't get me wrong though, I'm not promoting either.

Have a read about averaging down and Martingale systems. Might give you some ideas.

Advacast: Yeah a strong movement would blast me away, this is just a sketch, and the method should be elaborated by deciding at which increment interval to add positions by looking at how much prices usually retraces and the likelihood of strong movements and how much prices usually moves by the strong movements.

For instance, if you look at historical data, you will see that storng price movements rarely exceed 45 pips. Thus, you could add at 15 pip intervals two times and liquidate all your positions when you have lost 45 pips.However, increasing the intervals also means there is less chance that you reach your TP. However, this could be fixed by increasing the number of times you add up, and thus shorten the TP to maybe 10 pips.

One would have to research to find optimal levels for all the above parametrar. One should also try to increase the winning chance on the first trade from 50% to maybe 70%, to decrease the risk of getting a loss,and also do an ongoing analysis on whether to keep adding, by analysing the risk of a strong price movement.

Maybe I should have explained this before.

Jurassic: Hi,as i told Advacast, you can increase the intervals, and use analysis to increase the chance of winning on the first trade. Yeah, will back test in a real account, but only with very small positions.

Mas I trade using this technique I call it stacking. I works well using upper T.F. as your trend and a lower T.F. as your entry. For example the number you used was a 4hr 23% fib level in the euro/usd witch is my entry point. once price broke those levels I used the 5min t.f. to enter, every time price pulls back in the 5min T.F. and starts in the direction of my upper trend I enter another position. I usually use upper T.F. fib levels or Ema's to exit all my positions.

This technique also helps in the event I enter too early I'm able to witstand any pull backs and average down my position if necessary. hopes this helps

icthelite98: what is T.F ?

T.F.= time frame

Now that I understand what you mean about T.F, it is the same thing i thought i would do. Not only fib levels, but also pivotpoints,oschillators, macd, price action and fundamental analysis. I'vnt used it yet, but has your method you just outlined been profitable to you?

After thinking a bit, I realized averaging down is the ultimate way to go, rather than my procedure.

After thinking a bit, I realized averaging down is the ultimate way to go, rather than my procedure.[/quote]

Just one thing make sure you understand trend and what establish your trend in the time frame you are trading in. Most traders fail because they don't understand how to define trend.