Trading strategy with the Power of Money management

hi all you great members of FF

i'm not a man of the big words so let's start:




i have an idea for a tradingsystem but before i start to invest much time i'd like to know what you think about.

the main idea is to use the power of money- and riskmanagement.

so, in theory the market gives a 50/50 chance of win and loss, right?

if we have a risk/reward ratio of 1:2, the 50/50 chance would be more than enough to be at the winning side, right?

the only thing to do is to find a good SL and TP for the given pair. (ex. a SL of 3pips and TP of 6 would'nt be a
good for daily, but maybe with 40 and 80)

my idea to find a good SL and TP is the following:


take a simple indicator like MA, nonlagma, macd or whatever, wich shows the main trend on a daily chart

and trade only in this direction.

the trade is set at the beginning of every new candle... 00:00.

the SL should be calculated by the diffrence from the OPEN to the HIGH/LOW (marked zones in the attachement)

it should be the average of the last x days and then be doubled.. so if the average of the last 5 days is 25 pips,

the sl should be 50.... and to get the 1:2 risk/reward ratio the TP should be 100 pips.


currently i dont have a specified plan which zones to be calculated for long or short trades, maybe both, the upper

zone and the lower zone, maybe the upperzones only for longtrades and the lowerzones only for short trades or

whatever.... like i said: its only a idea.

i hope you think about and give a feedback.
if i talk bullshit.. please tell me, if not please tell me too.
maybe this brings you to a totally new idea ----> simply write it down..

i hope we could develop a good strategy together...

regards
spence



PS: i use a maximum risk of 3% of my equityper trade, with 1:2 R/R it would be a 6% gain if its a winner... so for 20
tradingdays and a 50/50 chance there could be 30% a month

Hi Spence,

did u ever implement this strategy and gauged the results?
i think it wud be a quite profitable if we take into consideration the price action and points of s/r while entry/exits .
risk factor can b better contolled if we move our stop to break even in case market reverses before reaching our desired t/p.
take care,
Khaira.
p.s. At the moment im studying various methods of money management including fixed ratio money management which is in a way better than fixed fraction.
And looking fo sum advanced hedging technique so that i neednt use stop loss as such. lets c what outcome i get.

Ignoring the spread for now, with a R/R of 1:2 you would not get a 50/50 chance of win/loss. If you have a R/R of 1:1 - let's say 20 pips SL, 20 pips TP - then you could *conceivably* say that there's a 50/50 chance of it going 20 pips one way or the other. (Not that's it's really 50/50 as there are other factors, but we'll ignore that for now.) However if you set your TP at double your SL - say 40 pips - then you still have a 50/50 chance of price reaching 20 pips in either direction. But since you need it to go another 20 pips to hit your TP, you get another 50/50 chance that it will continue another 20 pips and hit your TP, or that it will go back 20 pips to where you started. Or you could look at it this way: there's a 50/50 chance it will go 40 pips in either direction. However since it only needs to go 20 pips against you to hit your SL, there it a higher probability of it hitting your SL than hitting your TP.

You are thinking critically about a forex trading system and that's a good start. The minor "flaw" with your method right now, and we all have fallen into this trap before, is to believe that a 1:2 risk/reward scenario has a 50% chance of winning or losing.

You are right that your trades can only go up or down, but... once you apply that 1:2 for target profit and stop loss your win loss ratio will be "skewed" towards that over time when you disregard other factors (indicators, trade method, etc.). You will win approximately 33% (1) versus 66% losses (2). So, you do not even have to win 50% of the time with a 1:2 RR. Even if you can tune your methods, find an indicator, or whatever to win say... 40% of the time with an RR of 1:2 you will make plenty of money over time. The "flaw" in your logic at present is to think that a 1:2 RR trade can be a "coinflip" disregarding everything else.

I hope I understood what you were presenting, if not, forgive me... it's early here.

Find a method that has positive expectancy, then apply money management to control risk/maximise profits.

How about not take SL but use hedging, for example: you have new sell GBP/USD 1 lot but you are get floating 100 pips high in price in trade not to SL but sell stop/ new sell in 2 lot, and more. In note you enter with minimal 1 hours frame. how about this??

Anyway, NFA rules...
Hedging has been terminated in America....
Fifo also rules....

And tomorrow, NFA will rule the entire world.
We all will be out of business...
Most strategies will become OBSOLETE.

If you have a good strategy that surpasses them all, tell me about it.

High probability setup for entry and exit /w good money managment along with good risk/reward DOES NOT IMPRESS ME!
Tell me something I don't know......

this is ridiculous ....

spence asked a question and then 2 years later people start answering

as to the idea i think spence should have done his own testing before posting , it would probably take the same amount of time as setting up this thread to get a hint weather it will work or not with some simple back tests....

i do think that maby the idea of varying the sl and tp according to average size of candle sicks over a period mite work in some way with a different system....

hello Ddmaster,
i kno very well that the question was asked abut 2 years back. but, as Spence still uses foexfactory nd made a post on 17th march, i was curious to kno wdr he still uses that strategy or ever tried to impliment it.

tc..

my guess is he probably faild and left forex to do something else as this is his very last post on FF , and it seems to me more like a last plee for help ....

any way thats just what i think ...