No SL No Leverage Strategy - working so far

when hanover is sleeping, i show some support here to him

first, let me use an analogy:

tom is a great trader, he has been profitable for two years. every morning, he smokes 1 box of cigar, feeling great, then go trading, and winning. he concludes " smoking 1 box of cigar is my key of success ". then he keeps doing that, and he keeps winning in trading.

it is okay that tom does his trading in that way: smoking a box of cigars, then trade.

it is NOT okay that tom tell the other folks " smoke and trade, you will win. it is the key to trading ."

second, i can guess why fxtr and favourite support NO-SL, since i've been there before. they think that they can have "another chance" to save the wrong position. and this "another chance" may show up several times, and they can take the correct direction in at least for once to exit with profit/BE.

this thought is NOT right in math.

we all know that you toss a coin, even if you've tossed 100 head-up, for the 101st toss, your chance of head-up is still 50%.

similarly, if you enter a pos, it goes into DD, at this point, you decide to lock, your winning probability is same as SL and enter another opposite pos.

As to the p/l thing, hanover has said all.

now i actually believe that fxtr and favourate are profitable traders. but please, you are profitable NOT because you do lock-unlock. it is simply because you know the timing. On the other hand, noobs who try to follow your lock-unlock way will doom.

No, I'm not. Sorry if I created that impression with the numbers I used. fxtr51 was taking about floating losses of 1%-2%. So perhaps I should have said "if you had $8000 balance in closed trades, and a $10 floating loss, you have only $7990 available to you". But the principle involved — that the amount available includes the floating loss(es) — remains the same.

The point of difference in our respective ways of thinking is the way in which floating losses are viewed. I see money lost to date in a trade as being tangible, while fxtr51 sees it as a "possibility that can become a profit, a breakeven or a loss", and you likewise see it as "an opportunity to fix the mistake". I don't fully understand the nuances of locking/unlocking, but I don't need to, now that I see the underlying reason for the opposing points of view.

In terms of furthering the discussion, I can't present my case any more clearly, or any differently, than what I have done (but I will have one final attempt — see below). I will simply end up repeating myself. Unless somebody can show me how or why floating losses are intangible, then I'm afraid I can not change my position, namely that MM in itself can never provide an edge.

I've had this type of discussion in many other threads, and to avoid the same misunderstandings, I'd like to make one point doubly clear. Do I believe that it's possible to be profitable using hedging and/or locking? ABSOLUTELY YES. It's just that I believe that the edge does not come from the MM. It comes from the skill in timing. It is obvious to me that if the locking was applied at different times/prices, the P/L would be different.

_________________________

To illustrate this, here’s a fully annotated example. It might not use the same kind of locking that you guys use, but I believe the principles involved are exactly the same.

Let’s assume that we have 2 traders, Mr L, who uses a form of locking; and Mr M, who uses 'conventional' MM. Price follows the line shown in the attached image, from A to B to C to D. The distance from A to P is 60 pips, P to B is another 20 pips, B to C is a retracement of 30 pips, and C to D is 70 pips. Sketch a diagram for yourself, and work through the following scenarios.

Scenario #1: Both L and M buy 1 lot at point A. Price rises to B, at which point L locks in his profit by opening a 1 lot sell, while M simply closes his position. Both are +80 pips, but L has a floating profit on one trade, while M has realized his 80 pips. (You would say that L, who has a floating position at this point in time, has better opportunities than M, right? I’ll address this point later**). Price then retraces from B to C. L has now two open trades, a buy at +50 pips and a sell at +30. M still has +80 pips in the bank. Now both traders correctly forecast that price will rise from point C. Hence L unlocks by closing his sell, banking his +30, while M simply opens a buy position of 1 lot. Now both traders are net long 1 lot. Price rises from C to D, causing a gain of +70 pips. Both traders close their positions. OK, now who is the more profitable? M has netted +80 and +70 from two buy trades, for a total of +150. L’s buy, which was open the whole time, has netted +120, plus +30 from his sell, for a total of +150, exactly the same. So did the locking provide any added profit? No.

Scenario #2: Again, both L and M buy 1 lot at point A. Now this time their forecasting is not perfect. Both believe that price will turn downward at P. Hence M banks +60 at this point, and L locks his buy with a sell, just as before. Price moves to B. Now M has +60 in the bank, while L has +80 and –20 in open trades. Price moves to C. Now L has +50 and +10 in open trades, while M’s account balance remains unchanged. Now everything proceeds just as in scenario #1 from this point. L unlocks by closing his sell, banking his +10, while M simply opens a buy position of 1 lot. Now both traders are net long 1 lot. Price rises from C to D, causing a gain of +70 pips. Both traders close their positions. This time, L has netted +120 from a buy trade, and +10 from a sell trade, for a total of +130. M has netted +60 and +70, likewise for a total of +130. So did the locking provide any added benefit? Again, no.

Now why did both traders made +150 in scenario #1, but only +130 in scenario #2? The answer is more accurate forecasting and timing. In #1, they forecasted turns at A, B, C and D, and nailed them perfectly. In #2, they were wrong by forecasting a turn at P, which didn’t eventuate until B. Hence their forecasts were inaccurate by 20 pips, and that 20 pips is the difference between +150 and +130.

Both traders made equal profit in each scenario because they made their decisions to adjust their positions at the same time. Both were net long and net flat at identical times. The locking merely amounted to different ways of placing the orders, nothing more.

**Finally, let’s address the point about opportunity. At the exact moment price reaches point B in scenario #1, L has an open buy position, while M is out of the market. Let’s freeze time at this point. Depending on whether price rises or falls from B, L has a 50/50 probability of increasing or decreasing his floating +80 at this point. I would argue that — from the standpoint of mathematical expectancy — L is neither better nor worse off than M, because 50% of the time he will be right and outperform M, and 50% of the time he will be wrong, and will underperform M. However strange it might seem, the opportunity is therefore the same for both traders. But, you might ask, what if L gets the direction right more than 50% of the time? Well, then he will benefit from his forecasting expertise, but not from the locking/unlocking. And if M is equally skilled, he can simply open a buy trade at that same instant and his P/L will be exactly the same.

It would also make no difference (apart from incurring additional spread) if L closed his +80, and then immediately opened a new buy position. The prior P/L is of no consequence to what happens henceforth; the new position will stand or fall on its own merit, increasing or decreasing bottom line in exactly the same way as if the former position was simply kept open. Exactly the same logic applies if you attempt to use locking to recover from a –80 position.

I'm not sure that I understand your "cycles" concept, but merely grouping trades into different "cycles" is not going to change the overall net P/L. Each position contributes to eventual bottom line, no matter how recent wins and losses, or floating and realized positions, are grouped.

Conclusion: It’s the timing that determines P/L. The number of pips banked equates to how accurately you’re net long when price is rising, and net short when it’s falling, relative to turns in the market. Hedging or locking in itself does not add any value, and does not create opportunities that the conventional trader can not replicate by simply adding new positions at the identical time.

You guys might use locking/unlocking differently to this. You can change the distances between A, B, C, and D, and even create more complex scenarios, or use percentages or dollars instead of pips, but I contend that the principles remain exactly the same.

hanover, as I said before, whatever we say, we can't change each other's point of view. Sorry, but I just can't add anything to what fxtr51 and I already said.

However I agree that the skill in timing is the most important part of the locking.

Yes, but you see: if fxtr51 and I were stop-loss guys, we still would be profitable, but we would be less profitable than we as the lockers.

Absolutely!

Guys, you know what?

It is Nacho's thread, everything started with his system. We explained everything about our methods, and now let him choose what he wants to use: Recovery, Locking, Stop-losses or No-Stop-Loss.

And if he chooses Locking, I'm sure fxtr51 and I will be able to help him.

OK understand, recovery of 25-30 pips would be simple if you use the next trading signal. I assume you could trade large lot sizes then and go for the big kill at times. It is interesting to see, and I respect Hanover a lot, that multiple trades considered as a single unit seems to mystify some. In a sense that is the real debate over certain trading methods. They will add positions to a winning trade, using their same arguments and lose all their profit. Meanwhile you can add positions and wipe out a loss also.

Like last fall with the EURO, no matter what price action did you could do a sell and just wait for it to become profitable. The fundamentals were just on your side if you were patient with the trade. Multiple trades and levels just does not compute being considered a single unit, I understand how it works, some just dont. The one truth in Forex that is always 100% true, what goes up must come down and what goes down must come up. Doesnt mean you have to come back to point of origin, but you do have places you can recover. Good luck with your trading.

I think the real problem is that most traders, or aspiring traders for that matter are not willing to invest the time that it really takes to study. You should only approach any of these techniques after understanding all of the underlying concepts.

The most profitable trading is always discretionary trading. That is what hedging/locking etc falls into. Most new traders, and then many others just want to make a stable profit. Even if that means you are doing 70/30% or less.

For some even better if they could simply write an EA, that is all they want. This is a problem for many to understand here. This technique is based on a deeper understanding of the market, with cycles and price action. This can be a real problem for most novice traders, and for many seasoned ones as well.

"After all why invest 25 hours per day if you can only 8 ? , and still make a good living".

but...

for any novice who tries, the reward is great, since in order to achieve success you simply have to learn a wealth of information about the markets and what it is that actually moves them.

Very good post!

Thank you, nanningbob, and good luck to you too!

Charvo,

I know how you feel. It's really frustrating when you can see something so clearly, but can't explain it in a way that others can follow it. LazyPawn is right; I guess I'm foolish to participate in these types of thread, because they invariably end in an impasse, with both parties believing, in all sincerity, that they can see something that the other party can't.

I have a friend who claims that he has a system that can improve his odds of winning the lottery. Actually, all he's doing is applying gambler's fallacy (just as in your coin toss example). I've tried to explain this fallacy to him many times, but the problem is that he frequently wins decent sums of money. Math professors would agree unhesitatingly that he's merely lucky, but he has results that appear to prove his illusion. You'll never convince him otherwise.

People will believe whatever they want to believe; so long as something works profitably, they have no reason to ask questions WHY.

Anyway, I'm going to smoke a cigar now, before I place my next trade.

David

hanover, you're killing me!

If one has the common sense to accept the obvious mathematical truth it becomes clear that if 2 traders "read" the market exactly the same way, opening their positions exactly at the same point, using the same lot size ... the one using lock-unlock will end up getting at best the same profit as the one using the standard stop loss method. In fact he would fare a little worse given the higher trading costs. It's an inescapable mathematical truth, and hanover did a great job of proving it for those who had doubts.

However we cannot ignore the psychological issues involved. We are not machines and too often let our emotions take over. For some people closing a position as a loss hurts a lot. They accept doing it only if at the same time they close another one for a bigger profit, to get a net profit that day. If such people were forced to use the simple SL method they would fail because they would be too often tempted to do foolish things (like moving their SL, increasing their bet size, revenge trading and so on). So for this type of trader I suppose that hedging works better.

For other traders like myself there is absolutely no pain in having a 1% loss today and a 2% win tomorrow. Such traders have accepted losses as part of the job and they know they have a sound strategy that wins overall. To this kind of trader having multiple positions open at the same time, especially on the same pair, and in opposite directions, is a much bigger stress or mental torture. So they couldn't do a proper hedging for psychological reasons, just as the no SL guys would probably fail trying to use SL.

My personal conclusion regarding the lock-unlock vs. SL discussion is that even if overall the SL method of trading is mathematically superior (by a very small margin), from a practical point of view each trader should choose the method that allows him to trade emotion-free and sleep well at night. Eventually it's still the trading skills themselves that decide the outcome and not some MM gimmick.

If anything Hanover, I was on the fence thinking "I've an idea what this guy is on about, but wouldn't it just double the spread?" and you perfectly articulated what exactly is wrong about this kind of hedging.

Lazy Pawn:

-1 , -1 , -1, -1 , +1 = - 3 %

0, 0, 0 , 0 , + 1 = + 1 %

For you it is the inescapable mathematical truth that
- 3 % is equal to + 1 %

For me - 3 % is not equal to + 1 % .

And even if the brightest mathematician on earth would try
to convince me that they are equal, I would never ever
believe him.

How many times must this obvious fact be repeated until it
finds its way into the mind or brain or whatever you like to
call that thing which is doing the thinking and reasoning ?

fxtr51,

Please provide a chart, or a drawing like hanover did a few posts above. Then show on that chart how the lock-unlock method wins more, if both traders read the market exactly the same way. Simply typing that you make x% has no meaning. Show it on a diagram and we'll see what you fail to understand.

Bob, we've had some great discussions, and the respect is mutual.

My problem here is that (A+B)+C = A+(B+C) = (A+C)+B. If A, B and C represent the P/L of individual trades, it doesn't matter how I group them, my overall bottom line is still the same. Hence I don't see how the grouping provides an advantage; I'm afraid I belong to the "mystified" club.

David

I explained it in great detail, more than once, posted charts and explained it again.

But it is obvious that some don´t bother to read.

And from some who read, some don´t understand what they read.

Sorry, I cannot and will not change the world or people.

Minds do not only process information like computers do,
there is more involved. Emotions like fear or envy and others.
Trauma, belief systems and more of that stuff.

That is just fact and we only can accept it and move on.

Everybody with an open mind can go through my postings and some of those who understand the concept and get it.

It makes no sense to repeat it dozens of times and then the next
posting says "this will give you a margin call" or "this is crap".

Let us agree on: Some get it, some not.
Peace.

We had no discussions yet but I have read some of your postings
and from that I have great respect for you, hanover.

That doesn´t mean that I agree on all you say.

Of course your math is correct, but lock-unlock is different.
It is basically - 3 % are not equal to + 1 % .

Meaning that 5 setups are taken with identical SL and TP levels.
4 hit SL , 1 hits TP .

The locker comes out with an overall 1 % profit.
The losser comes out with an overall loss of 3 % .

That is the essence in a nutshell and comparing P/L the way you do it
doesn´t fit. It is the wrong method and thus gives you a wrong conclusion.

fxtr51,

You posted charts showing how hedging worked for you. Great, good job. But you fail to see that reading the market in the same way and using a SL would have gained the exact same number of pips. You never compared the 2 methods, as hanover did in his diagram above. If that diagram and the explanations that go with it are not enough for you there is really nothing more that I can add. Maybe just that I'm honestly surprised to see such an excellent coder having a hard time grasping a simple mathematical model.

This is exactly the issue. People do not bother to spend the time necessary to fully understand the subject. Simply looking for EA's and automated black-box methods.

In general it's just plain stupidity:
Long 1: 1.50 10 SL.
Long 2: 1.50 No SL (Will hedge at 10 pips loss).

Price moves to 1.40
Long 1 closes: realized loss: 10).
Long 2: Price is "locked" for hedge, 10 pips unrealized loss.

Price moves to 1.5 again.
Long 1: 1.50 10 SL.
Long 2: Hedge is "unlocked", still 10 pips unrealized loss.

Price moves to 1.60.
Long 1 has 10 loss, 10 profit = Breakeven.
Long 2 has 10 loss (before locking at 1.40).
This loss is not realized, but once you unlock at 1.50 you still have a -10 pips trade. Your trade moved to 1.60 and as such, a move of 10 pips only gives you the EXACT same result: Breakeven.