Here's an idea I had some time ago, I discarded it because I couldn't figure out any way to make it work but since I'm not doing anything with it, I'd like to see if any of you can come up with something, or if you have proof why it cannot work.
The idea is this (assume the ability to open long and short positions in the same pair in the same account - never mind if you can't, it's easy to get around it):
1. Open a long and short at the same time in the same pair.
2. Each trade's TP is a set number of pips (i.e. 20, 50, etc). There are no stop losses.
3. Using that same set number of pips, a new trade is added in both directions.
4. Only one trade in a given direction from a given price, i.e. no multiple longs or shorts from the same price.
For example, using 30 pips, entry at 1.1000, once price hits 1.1030, your long would be closed for 30 pips profit and a new long and short would be entered at that price. You would now have one long and two shorts. If price moves another 30 pips higher to 1.1060, you would take profit again on the one long, and create a new long and short at that price. Then price retraces 30 pips to 1.1030. The new short you just created from 1.1060 is closed for a profit, and the long position is in drawdown. (Note that your existing shorts are lighter as well.) You again establish a long from 1.1030, no short this time as you are already short from 1.1030. Price moves up again, you close your long. No long as you are already long from 1.1060, just open a new short. And so on and so forth.
Hopefully that was understandable.
The idea is to constantly be in the market, entering/exiting positions 24/7, without ever picking a direction. You would simply be trading volatility. This would of course only work in a market that has decent/good intraday volatility and doesn't trend much in the longer term. Trends kill it. It would work fantastically in ranges. You would always be carrying drawdown, but let's say price moves to what will become the outer edge of the range. You've accumulated a good unrealised drawdown, and lots of realised pips. Price then reaches what in hindsight is the edge of the range, and reverses. The drawdown you're carrying from the previous direction starts decreasing and you start booking those positions as profits, while the positions no longer in drawdown become replaced with new positions in the opposite direction which are now in drawdown. When you reach you initial entry point, your drawdown has neither increased nor decreased (as the drawdown you were carrying when you reached the range's edge has all been booked as profits now but you now carry the drawdown from the range's edge to here), but you've constantly been booking new profits every day from intraday volatility so your profits should go up while your drawdown remains more or less the same. To recap, the idea is to capture all (or most of) the intraday volatility.
That's in a ranging market. Now for a trending market. Price goes in a direction, losses build exponentially, profits build linearly. Obviously the market doesn't go in a straight line. All retraces and stuff are where extra profits will be captured. However if the market steadily moves in one direction then you get to the point where you have so many losing positions that a single 30 pip move against you is the equivalent of 500 or more pips against you (as each of your losing positions will have moved 30 pips against you) and it becomes unmanageable.
As an example, here is a worst case scenario where price has moved 450 pips from your initial position in a straight line, i.e. no retracements. The blue line is how many pips you'd have gained by then (450 pips since you always take profit and put a new position on), and the red line is the drawdown you'd incur. Obviously since you're not taking losses and keep adding every 30 pips, the losses grow exponentially. [Note: at this point a 30 pip move against you adds 450 pips to your drawdown.]
http://i56.tinypic.com/2hozg42.gif
I've played around with adding at different pip intervals, using variable position sizing, closing out the whole position at certain drawdown levels, etc., but I can't seem to find any foolproof way to make this work. The rules have to apply to both sides, i.e. they can't favour the currently winning side over the other because the market can change direction and then you'll have it skewed against the newly losing side. Remember you don't care what direction the market is going in, as long as it bounces around you profit.
[BTW if you're thinking you could just switch to keeping profits and booking losses in order for that exponential line to be profit, you'd get killed during ranges.]
It could even work as it is if there were a very volatile market, say one that had maybe an average of 150 pip daily range but it moves a lot inside that so you could capture say 400-500 pips daily, and then once the drawdown becomes larger then the daily profit you could close the whole thing and start from scratch, and the profit you'll have made in the meantime will easily outweigh the loss you took. But you'd have to find a market like that, that historically hasn't had massive trends (or only very brief ones). And without massive spreads too.
So if you have any ideas or can say why it mathematically cannot be done, I'm all ears.
I'm sure others must have thought of this before.
(Just to clarify, I'm asking you if you can think of a way this can be done in less-than-ideal conditions, i.e. a market that trends half the time with so-so volatility, or an unattractive trend-to-intraday-volatility ratio, by changing variables like position sizing, variable pip increments or TPs, using multiple markets, and whatever else you can think of. How can we get it to survive regardless of the conditions?)
[Note to mods: Please don't move this to the trading systems forum, this isn't a system I'll be trading, just a discussion.]
The idea is this (assume the ability to open long and short positions in the same pair in the same account - never mind if you can't, it's easy to get around it):
1. Open a long and short at the same time in the same pair.
2. Each trade's TP is a set number of pips (i.e. 20, 50, etc). There are no stop losses.
3. Using that same set number of pips, a new trade is added in both directions.
4. Only one trade in a given direction from a given price, i.e. no multiple longs or shorts from the same price.
For example, using 30 pips, entry at 1.1000, once price hits 1.1030, your long would be closed for 30 pips profit and a new long and short would be entered at that price. You would now have one long and two shorts. If price moves another 30 pips higher to 1.1060, you would take profit again on the one long, and create a new long and short at that price. Then price retraces 30 pips to 1.1030. The new short you just created from 1.1060 is closed for a profit, and the long position is in drawdown. (Note that your existing shorts are lighter as well.) You again establish a long from 1.1030, no short this time as you are already short from 1.1030. Price moves up again, you close your long. No long as you are already long from 1.1060, just open a new short. And so on and so forth.
Hopefully that was understandable.
The idea is to constantly be in the market, entering/exiting positions 24/7, without ever picking a direction. You would simply be trading volatility. This would of course only work in a market that has decent/good intraday volatility and doesn't trend much in the longer term. Trends kill it. It would work fantastically in ranges. You would always be carrying drawdown, but let's say price moves to what will become the outer edge of the range. You've accumulated a good unrealised drawdown, and lots of realised pips. Price then reaches what in hindsight is the edge of the range, and reverses. The drawdown you're carrying from the previous direction starts decreasing and you start booking those positions as profits, while the positions no longer in drawdown become replaced with new positions in the opposite direction which are now in drawdown. When you reach you initial entry point, your drawdown has neither increased nor decreased (as the drawdown you were carrying when you reached the range's edge has all been booked as profits now but you now carry the drawdown from the range's edge to here), but you've constantly been booking new profits every day from intraday volatility so your profits should go up while your drawdown remains more or less the same. To recap, the idea is to capture all (or most of) the intraday volatility.
That's in a ranging market. Now for a trending market. Price goes in a direction, losses build exponentially, profits build linearly. Obviously the market doesn't go in a straight line. All retraces and stuff are where extra profits will be captured. However if the market steadily moves in one direction then you get to the point where you have so many losing positions that a single 30 pip move against you is the equivalent of 500 or more pips against you (as each of your losing positions will have moved 30 pips against you) and it becomes unmanageable.
As an example, here is a worst case scenario where price has moved 450 pips from your initial position in a straight line, i.e. no retracements. The blue line is how many pips you'd have gained by then (450 pips since you always take profit and put a new position on), and the red line is the drawdown you'd incur. Obviously since you're not taking losses and keep adding every 30 pips, the losses grow exponentially. [Note: at this point a 30 pip move against you adds 450 pips to your drawdown.]
http://i56.tinypic.com/2hozg42.gif
I've played around with adding at different pip intervals, using variable position sizing, closing out the whole position at certain drawdown levels, etc., but I can't seem to find any foolproof way to make this work. The rules have to apply to both sides, i.e. they can't favour the currently winning side over the other because the market can change direction and then you'll have it skewed against the newly losing side. Remember you don't care what direction the market is going in, as long as it bounces around you profit.
[BTW if you're thinking you could just switch to keeping profits and booking losses in order for that exponential line to be profit, you'd get killed during ranges.]
It could even work as it is if there were a very volatile market, say one that had maybe an average of 150 pip daily range but it moves a lot inside that so you could capture say 400-500 pips daily, and then once the drawdown becomes larger then the daily profit you could close the whole thing and start from scratch, and the profit you'll have made in the meantime will easily outweigh the loss you took. But you'd have to find a market like that, that historically hasn't had massive trends (or only very brief ones). And without massive spreads too.
So if you have any ideas or can say why it mathematically cannot be done, I'm all ears.
I'm sure others must have thought of this before. (Just to clarify, I'm asking you if you can think of a way this can be done in less-than-ideal conditions, i.e. a market that trends half the time with so-so volatility, or an unattractive trend-to-intraday-volatility ratio, by changing variables like position sizing, variable pip increments or TPs, using multiple markets, and whatever else you can think of. How can we get it to survive regardless of the conditions?)
[Note to mods: Please don't move this to the trading systems forum, this isn't a system I'll be trading, just a discussion.]
OK I'll take a look. But I assume that people doing grid trading have encountered this same problem - has anyone come up with a genius solution?
you are way too funny.....you crack me up 
