TP Tree Method

Quoting Syahmi

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Just curious... what does SAR trades mean ? And following this system, what is the probability of winning ?

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Quoting Syahmi

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Just curious... what does SAR trades mean ? And following this system, what is the probability of winning ?

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Quoting Leonlorenzo

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Just to throw in...

Theres also progression of lots as so:

1, 1, 2, 3, 5 ..... (adding together last two numbers of the sequence)

Although it is only realy usefull in systems that have a larger target than stop.

Maby sharing the progression and the TP increase between the two could be something to look at.

Could be a stupid idea though, realy shouldnt paint the walls in a closed room.

Leon

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Quoting Ronald Raygun

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If I were to do a grid system, here's what I would do...

I would take a daily chart, and a 5M chart (or something smaller than the daily).

Use a zigzag indicator on the 5M chart to determine average distance between peaks and valleys.

With that information, I then size the grid so that it takes two TPs per peak/valley.

With the spacing in mind, I then move to the daily chart.

Let's say the current price is 1.000, and the optimal peak/valley is 20 pips. I then place buy stops above 1.000 every 10 pips, and sell stops below 1.000 every 10 pips. Each trade has a 10 pip TP/SL. So, let's say the market breaks out long and ultimately hits 150 pips before retracing. That means I had 14 10-pip orders successfully hit their targets, and 1 order stopped out.

As the market moves up, I would then place sell stops after the price, maintaining the 10 pip interval.

The thing that will kill this system, is if the market bounces around in a 20 pip range.

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Quoting permanentjaun

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Yes I understand that. I'm still trying to find where you implement the ideas I presented in to your strategy. Also, in fact, my strategy is somewhat similar to what you're presenting. Once TP is hit in a direction, then an entirely new trade is entered. So I could still allow the system to hit 14 TP's in a row, per your example.

What I'm asking though, is what happens when you hit a SL. Yes, getting whipsawed will kill our methods. One problem I see with tkimbles daily and weekly methods, is they base their trades on time rather than performance. In my system I would not mind letting a trade run as short as only a few minutes to several days. It all depends on the volatility of the currency.

My question then comes back to your grid presentation. What happens when you hit SL. Are you going to increase the TP of the next trade to overcome the losses without having to increase risk? Will you martingale the first few trades to reduce the possibility of whipsaw and increase probability of hitting TP on the subsequent trades in the series? If you do increase TP and you're up to a 30 TP 10 SL do you not trigger the buy/sell stops that would be triggered while this initial trade series is still open?

It's all about the money management and strategy when we hit a SL. Otherwise this is just a grid strategy that will get whipsawed as you point out. There isn't much of an advantage in that. I'm trying to show a way to play volatility through simple money mangement and trade structure strategy.

Get what I'm sayin?

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Quoting Ronald Raygun

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As I see it, it's simply another approach.

Pyramiding into a position isn't really much different than changing the targets. Ultimately, the goal is the same: make your money grow. Yours does it with the same lots, but different target. Mine does it with the same target, but different lots. Your method is ideal perhaps in trending markets, while mine places emphasis on ranging markets.

If you're following me on the forum, there is a thread where I coded an EA which turned 10,000 into 97 billion in 10 weeks. That specific EA was smart enough to do block trading/lot splitting and position adding where necessary. That part won't be a HUGE problem.

But back to the 150 pip example...

Let's assume the currency does shoot up 150 pips with retracements no greater than 10 pips, before retracing more than 10 pips.

Let's assume that for each level, 1 pip is one grump (so as not to confuse the meaning of pip). There would be 14 trades in profit, and 1 trade stopped out.

Using this scenario, there would be a gross profit of 1050 grumps, gross loss of 10 grumps, with a net gain of 1040 grumps.

With your scenario--as I understand it--your gain in grumps is equal to your gain in pips. Right?

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Quoting tdion

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hey matt

sorry i don't have the mental power to read all those thoughtful paragraphs... too much techical paperwork at my job

do you see similarity between your idea and post #1 here?

http://www.forexfactory.com/showthread.php?t=12287

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Quoting permanentjaun

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Pyramiding is a much different approach to what I've presented. You are increasing the value of your position, (risk), and I think your math is wrong on how many 'grumps' you've lost. (Not sure why you used that.) You lose a lot more than 10. You're losing not only on that last trade in the series, but you're breaking even on the second to last, and finally also losing 10 pips of profit per previous trade.

Here is how the trade series you propose would look when the last trade is stopped out.

Trade Number of Pips Positive (Negative)
1 130
2 120
3 110
4 100
5 90
6 80
7 70
8 60
9 50
10 40
11 30
12 20
13 10
14 0
15 -10

Total Net pips = 900

When you get stopped out on the last trade, your previous trades lost 10 pips of value as well.

I have to disagree with you that my system is trending and yours is ranging. In fact I think the complete opposite is true. You're banking on consecutive winners and moves in one direction with little retracement. That would be a trending market. My idea has no preference for trending/ranging since we're fine with opening new positions immediately, but also gives us the ability to profit if direction were to reverse several times. While your system can trade in a ranging market, it doesn't really profit until that big swing, ie trend, occurs.

Eventually, yes my system would require a trend to occur if the stop outs increased the TP levels to large levels. That is why I would trade this on multiple ranges with multiple currencies though. Perhaps I'd trade a 25/25, 50/50, and 75/75 TP/SL systems. If the 75/75 system is getting stopped out then that means price is moving in a 75 pip range. This would mean it is likely the 25/25, and perhaps 50/50 systems, are experiencing enough movement to hit their TP's. Thus drawdown is reduced. Since 75/75 is such a large range, I expect that it would get stopped out less and it is less likely that price would stop out this range enough times to make the TP level absolutely massive.

If the 25/25 system is getting stopped out many times, then price is in a tight range and the 50/50, 75/75 systems are not getting stopped out. Of course the opposite is also true that if price is ranging tight enough that it would stop out a 30/30 or 40/40 system then its possible the 25/25 system is hitting TP.

I can't answer your last question about gain in grumps equal to gain in pips because I don't know what the difference between the two is.

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Quoting Ronald Raygun

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You're right about the grump count. I need more coffee.

The reason why I use grumps is because a pip is defined as "The smallest amount of change in a foreign currency price, up or down." It is not a measure of profitability like dollars. Some people take 5 trades, each with 100 pips profit, and call that 500 pips profit. To me, that means the price moved 500 pips. NOT true.

In my case, as I'm adding lots, my grump count increases per pip. In your case, as you're extending TP/SL, your grump count does not change. Ultimately, the risk does change. Yours by increasing the stop distance, and mine by increasing the lot size.

In a ranging market, because my inter-trade spread is small, it's possible for my system to capture more pips compared with yours, thus giving mine a greater advantage. In a trending market, I would think you have a greater advantage, given the distance you maintain between TP and SL.

Ultimately, I guess it's to each their own. I personally would rather risk more lots for the juicy--if short--middle of a trend, than try to capture a trend in its entirety. I guess it's that scalper mentality in me. :nerd:

Try searching "Grid Trading Forex" on youtube or similar. I think we both need to agree on the definition of "Grid trading"

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Quoting permanentjaun

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Money Management

This entire system/premise is essentially money management. There are no indicators or concern over market direction. We are expecting that our money management and trade setup will allow us to remain in the game long enough to allow the price to fluctuate out of our range to hit our TP. That's it.

Here is a key point of the money management that we can NOT overlook. In my previous posts I always said that each trade was entered with 1 lot. 1 lot. 1 lot. I never said, "enter a trade with 2% risk. Enter a SAR trade with 2% risk." This is because we must NEVER decrease our lot sizes on any trade in a trade series. If on the initial trade of the series we enter with 1 lot, then on the 15th+ trade of that series we must still be trading with 1 lot. If we were to trade with 2% on each trade then our lot sizes would decrease as our equity shrinks after losses. We can not do this or else the power of the pips on the later trades in a series would not hold enough weight to make up for the losses in the previous trades.

Here is what I mean. Assume we lose 3 trades in a row on a series.

Balance Risk $Value per pip on a 10 SL
Trade 1 1000 1 lot $1
Trade 2 990 1 lot $1
Trade 3 980 1 lot $1
Trade 4 970 1 lot $1

Our pips must be of equal value on every trade in a series. If we were to determine lot size on % of account then here is how risk would look in the above system.

Balance Risk $Value per pip on a 10 SL
Trade 1 1000 1% $1
Trade 2 990 1% $.99
Trade 3 980.1 1% $.9801
Trade 4 970.29 1% $.9703

As you can see, the value of the pip decreases. This means when we finally hit TP, it may not actually overcome the previous losses since the previous loss pips were of higher value.

NEVER decrease lot size in a trade series. Lot size should only be reconfigured once TP is hit and a new trade series is started. Then recalculate whatever % of your account you want to risk and go with it. Compounding has incredible power, and thus I believe we should look to increase lot size with every new beginning trade series. This doesn't mean to go from 1 lot to 2 lots on the next series. I mean to find a microlot or minilot broker, depending on your account size, such that you can go from 1 lot, to 1.02 lots, to 1.05 lots, etc.. That will add up really quick. It's better to manage your money and compound.

Are you afraid not decreasing lot size after the losses will increase risk dramatically? Think again.

If we don't martingale and use 1% on the initial trade to determine lot size then here is how the risk per trade will play out.

Balance Initial Risk Actual Risk per trade
Trade 1 1000 1% 1%
Trade 2 990 1% 1.01%
Trade 3 980 1% 1.02%
Trade 4 970 1% 1.03%

As you can see, it doesn't really increase our risk per trade enough to consider decreasing lot sizes. On the 20th trade in the series we are still only risking 1.22% based on the adjusted account size after the 19 losses.

Now let's look at a martingaling approach. We'll start with .1% risk though and stop martingaling once we hit 1.6% risk relative to the initial trade.

Balance Initial Risk Actual Risk per trade
Trade 1 1000 .1% .1%
Trade 2 999 .2% .201%
Trade 3 997 .4% .403%
Trade 4 993 .8% .812%
Trade 5 985 1.6% 1.651%
Trade 6 969 1.6% 1.679%

As you can see, actual adjusted risk per trade does not increase dramatically even with martingaling. On the 20th trade you will be risking 2.195% as a risk for the adjusted account balance after 19 losses in a row. You would have lost 31.9% of your account at that point. That sounds pretty reasonable to most any other trading system if you ask me. That's an average risk per trade of 1.595%.

I hope you can see what money management can do for you though. Eventually as I can begin to analyze results I'd like to determine if ending a trade series after so many losses would prove more efficient than letting it run as much as it wants. I do not want to end a trade series because of poor money management that does not allow me to safely continue the series.

Now to move on to same last minute thoughts.

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Quoting permanentjaun

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Ok Ok. I understand grumps now. Makes sense. I agree with your line of thinking. That would not be a 500 pip move.

I'm a little thrown off by this statement of yours:
Ultimately, the risk does change. Yours by increasing the stop distance, and mine by increasing the lot size.

I am NEVER increasing my stop loss. The stop loss in my system would ALWAYS be the same. The only thing that gets extended is the take profit level.

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Quoting permanentjaun

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I don't quite understand how your system would work in a ranging market better. Ok, assume my system is a 10/10 system just as yours. Distance between trades is the same. Correct me if I'm wrong, but I haven't seen any mention of what you do after a SL. You said this too, "If the SL is hit, there is nothing special done. This grid assumes that the market generally moves in bursts, and tries to capitalize on that."

I take that to mean you could get whipsawed many times and never recoup the losses from those whipsaws. That is until the market trends and you get several winners in a row which allow you to pyramid into your position and gain many grumps.

That's where I'm losing you, is how your system is better at ranging markets than trending markets. What happens if you're stopped out 7-8 times? You'd need a 40 pip move with no retracements to get back into positive territory. While not impossible, I have a feeling that a 10/10 TP/SL in your system would get stopped out many times unless you timed the market well. I'm trying to avoid having to time the market. It's much more of a probability system.

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