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.
: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.