The simplest EA ever?

Has anyone coded this? It's so simple I'll be amazed if it's not been attempted.

On MT4, the simple idea is to scalp for 1 pip, in whatever direction the market is moving, and immediately that trade is closed, to open another trade in the same direction. When price goes the other way, do the same in the other direction, thus you're picking up 1 pip winners each time the market moves by 1 pip. So, at minimum, you'll always have 1 trade scalping a Buy trade for 1 pip and 1 trade scalping a Sell trade all the time.

When the market moves away from one of your open trades you'd want to have the option of whether to wait until price returns to that trade and it becomes a winner, or to open a 2nd trade in the same direction. Feasibly, you could have 2, 3, 4 etc. trades open in each direction, depending on your attitude to risk and the size of your trading bank. So the EA would need to have a trigger point at which a 2nd, 3rd, 4th etc. trade would be opened when price is away from the original trade.

Of course, there are some obvious flaws to this approach:
1. Draw down: Very quickly, the EA will open a trade that's at the high/low of the market, that won't reach even it's 1 pip target. So you'll always have draw down on at least 1 trade in each direction. However, of course, that is off-set by the 1 pip winners you'll be picking up in the other direction, especially if you've got multiple trades running in each direction. This won't be a problem in a ranging market as price will come back and start the cycle again. But once you open a trade in a trending market you will soon get a substantial draw down on one trade.

2. Slippage. In a rapidly moving market, the EA won't be able to open and close trades quickly enough to catch each pip of movement. However, if you use an ECN broker this occurrence may be reduced.

3. Margin requirements. With too small a bank and with the inevitable trade that continues to go against you in one direction, if you have too aggressive an amount per pip your account will be blown out. No strategy comes with zero risk, and here's the risk to this strategy.

4. The spread. Practically, you could only run this strategy on a pairing with the lowest spread. EURUSD is the obvious choice.

However, with good money management and using a micro account, you could start with the minimum stake per pip and build it up. I'm UK based and use a spread betting platform and don't use micro accounts so forgive my fuzziness here, but just say as an example, the minimum stake on a micro account is $0.10 a pip. With an initial bank of $100 you could stand a draw down of 1000 pips (which would be more in practice, as you'd be picking up winners on the other side all the time the price was going against you). To reduce your risk, you'd probably want room for a draw down of, say, 1000 pips per open position.

In practice, the initial target would be to double the size of your account and withdrawn your original funds. Then, trade freely with the profits you've gained.

I'm no programmer but if anyone has developed this I'd be fascinated to give it a go.

Sounds like grid trading to me.

apart from technical reasons for what it won't work with any retail (especially MT4) broker, apart from the fact that you've got to pay commission with any ecn....

imagine a trend reversal.. a new trend begins, think of an uptrend as example: with every higher low, there will be a killer short trade running, eating your equity.. there are not only the higher lows u see on daily chart or 4hr.. there are literally thousands of them on a tick chart - read: "in reality" ;-)

All the remaining 1 pip profits can never offset those losses.. in fact, you have to make more than two pips (spread + commission + your 1 pip) to close a successful trade. You'll never gain more pips than you'll be cumulatively losing. I'm more than convinced you can't get anything but a rapidly descending equity curve from that idea; this would blow the account regardless of balance/trade size ratio, some sort of martingale / "rescue trade" application only delays the inevitable end.

I suspect it has been attempted many times, and then discarded.

You've already alluded to some of your biggest problems: drawdown, and the spread.

Here are some of my thoughts:

#1. Paying 2-3 pips spread to gain 1 pip will make your br0ker rich, not you. Suppose the spread is 2 pips. If you're trading with a view to capturing 100 pips per trade, then (everything else bing equal) that's effectively a 2% edge against you before you start. If you're trying to capture 10 pip moves, that's a 20% edge against you. And so on.

#2. Further to point #1......... Being both long and short simultaneously in the same pair is called 'nedging'. The two positions cancel each other, and you're paying the spread on each position, when you could be out of the market altogether, achieving the same (zero) P/L, and paying your br0ker nothing. You can only make $$$ when you expose yourself to risk by being either net long or net short, by closing one of the nedged positions. But that has exactly the effect as simply opening a long position whenever you want to be net long, or a short position when you want to be net short....... and you pay less spread that way. You have exactly the same problem with swap: having two positions open at 5pm EST, your br0ker will almost certainly charge you more swap on the one order than he pays you on the other; once again, you're better off being out of the market altogether.

#3. When you're net long or short, you will either win or lose, depending on whether the market moves in your favor, or against you. If you allow losses to grow - or even worse, add to them - you're playing a losing game. Here's why, at least in my view. In general, the forex markets move sideways, or indeterminately, most of the time, but when they do trend, are capable of moving a long way, as macroeconomic and 'black swan' factors (e.g. recent events in Japan) play themselves out. Suppose, as a worst case example, you'd bought EURUSD at 1.5130 back on Dec 3, 2009. You'd still be waiting for your 1 pip gain today, some 16 months later, and would have suffered more than a 3,000 pip drawdown during that period. (Sure, that would have been offset by some 1 pip gains on short trades, but you would have been paying the spread on every one of those). The bottom line is simply this: if you don't have an strategy for exiting losing positions, you're only ever (potentially) one trade away from ruin.

#4. Following on from #3........ you've suggested trading tiny positions to get around the dangers in #3. But then you reduce your wins in exactly the same proportion. In the example that I gave, and by way of comparison:

a) Supposing you equate 1% pf your account to 30 pips. Then, everything else being equal, the 3,000 pip drawdown would drain your entire account. If you'd added buy positions along the way, then even worse, your account would have imploded before that.

b) Alternatively, suppose you look at the biggest move that EURUSD has made in a month since 1989; it's approx 1,400 pips. So let's equate 1% of your account to 1,400 pips. Now your 1 pip gain amounts to ~ 0.0007% return in 16 months - and that's if EURUSD ever reaches 1.5131 again. In other words, the wins are so tiny that it's hardly worth it.

Sure, that's a worst case example, but if you trade for long enough, you'll encounter some pretty decent trends along the way.

I've probably misunderstood you, most likely in the way that you offset long and short positions, and the fact that your roundtrip turnover will be high enough to offset some of the 'tiny position' problems. But read what I've said, and decide for yourself how, and to what extent, it might be applicable.

Finally, ask yourself this: if it's possible to win in the long term by using an EA whose only real strategy is MM based (i.e. there is no technical or fundamental analysis being performed) then why don't all of the big banks and funds do likewise, as they could save millions in salaries by replacing all of their highly paid analysts and traders with an EA along the lines of what you've suggested?

No offence intended, but your suggestion that you withdraw money along the way acknowledges that your strategy has no guaranteed edge; that you realize that you're gambling rather than trading. To win at forex, or indeed any kind of trading, you need some kind of edge, one that comes from discovering inefficiencies or non-random aspects in price movement, and timing entries and exits in such a way as to exploit them. You can't win in the long term by using MM at the casino, simply because (no matter what you do) the house edge is always against you, and forex is no different. Meanwhile, the 'house edge' is bleeding you at a rate determined by your position sizes, and roundtrip frequency.

I'd be delighted to be proved wrong, because it means that I could become a forex millionaire myself, by effortlessly running an MM-based EA. But then everybody would use them, and markets (being the product of decisions made by buyers and sellers) would simply re-balance themselves accordingly......

that's incredibly dumb, not to offense, but want to make it clear

eurusd 2 pips spread

you win 1 pip for each trade, but paid 2 pips (in a sense, 2x2=4 pips, cos u enter and exit are two trades in fact).

if your system is a winning system, that'll be like sun rising from west. why,

your system is great/profitable by paying 2/3 (or i feel it is 4/5) of your advantage to brokers, and only paying urself 1/3 (or 1/5). is this possible?

if it is possible, you should visit those brokers, ask them to write the EA for you. they will be billionarires by allowing you to trade this EA.

Thanks to everyone for discussing this interesting scenario. (Although charvo I'd be interested to hear which part of calling someone incredibly dumb isn't offensive!).

The great thing about FF is that traders can discuss ideas, whether whacky or not, and sometimes it may generate an idea that could help someone. It's interesting that there are many grid trading EA's out there, but I've not seen any that are based around very small pip gains - of course, there could be a very good reason for this(!). The reason for suggesting using a micro account, starting with minimum stakes, is to start with minimum financial risk and potentially build up your trading account so you can withdraw your original funds at the earliest opportunity, and then trade with other people's money (at this point onwards it's zero risk to your own funds and low stress). If you get a bad run and a huge draw down on one or more positions (which you will eventually) after you've withdrawn your original funds all you've lost is time. Clearly, then, the risk is that a shake down move will happen at the outset while you've still got your own original funds on the table. However, once you get past that initial stake if you manage a good run you can withdraw some of your profits at various intervals.

Alpari UK have EURUSD at 0.8 pip spread, others have EURUSD at 1 pip. I agree that trying to run this experiment with a 2+ pip spread would be unworkable.

RR, thanks (once again) for your contribution - I see from elsewhere on FF that you developed a grid trading EA some time back roughly along the scenario I described, though with larger profit targets. Did the results come to anything?

I re-read your original post.

I'm sorry if my prior post seemed negative. Upon re-reading, I realize that I was articulating possible flaws that you'd already considered. However, my gut feeling is that even 0.5 pip spreads will quickly defeat a system that looks to capture 1 pip moves.

Nevertheless, the only way to find out for sure if your idea is profitable or not is to try it. You'll need to define concepts like "whatever direction the market is moving" and "when the market moves away from one of your open trades" in strict mathematical terms, if you want an EA written.

Primestop, dont worry, you are doing just right. Dont bother the negative reply.

It's good you bring out the idea from your head. i believe one day, somehow this idea will contribute for more bigger ideas.

BTW I had try the exact idea in the past just for my curiosity. My finding as explained by few posts above are correct, the equity curve will decline.
Need to think for more ideas