No SL No Leverage Strategy - working so far

Yes but that is an acceptable alternative for larger lot trading. I had been working with Steve Hopewood on a recovery EA that would have done a hedge and unhedged when price came back but ended the project with the hedge ban in the USA. I see you fine tuned the idea. I have set my loss on recovery at max 1% and that seems to work very well. No danger of big losses and enough room that the vast majority of recoveries are successful. Anyway my next project is projecting the strength of a move. With this info you can decide to stay in or get out and even add to a winning position. Testing it now and getting certain indicators adjusted to the system. Al's system gave me the idea and adding some interesting twists for higher chart trading. Hopefully ready and tested by May. Where or where is Nacho?? LOL

No, it is not the equivalent. It is your definition of it.
But all the time my definition was different.

I understand your mathematical model but it does not fit and you simply refuse to accept that.

So here are the rules:
5 entries.
4 of them hit SL.
1 goes to TP.

The losser enters 5 positions with 1 % risk each.

The locker enters 5 positions with 1 % risk each and besides that
he is locking and unlocking a few times.

The losser will not take action when the locker is doing his locking and unlocking.
He is only entering 5 positions and accepts the loss or the profit.

That is the premise I described from the first moment I posted about
the lock-unlock.

All I wrote was based on this premise.
Is it too hard to understand for you ?
I don´t think so.
I rather think that you simply refused to accept this premise
because you had your own agenda. Unfortunately you did nothing
than comparing apples to oranges henceforth.

My math is this:
losser: - 4 + 1 = - 3 % loss.
locker: 0 + 1 = + 1 % profit.


Your own made premise includes a martingale progression for the losser.
1 , 2 , 3 , 4 , 5 etc. according to your rules.
Do the math if you can.

Or maybe your personal definition of martingale is different from that which is common ?

Before you offended me, you made sure that you defined
your premise to support that offense, while before that moment
you did not define your premise like that.

Great black rhetoric tricks you are playing here in order to break your own rules of conduct.

What you basically are saying is:
If a losser trades a martingale progression ( which normal lossers will not do) he will be even with the locker.
I hope everybody understands that.

But it was besides the point all the time.
The point was that the losser would not take extra trades like the locker does ... and that the losser would not trade martingale style.

You wasted your time and you broke your own rules of conduct several times and why all of this misery ?

Because you were not willing to accept the premise.
Now go and figure that out .....

I am interested.
Where can I find the material in May (or whenever it is ready ) ?

The hedger and the SL guy are both experienced operators and know that their system never had more than 3 losses in a row.
Both can come out with the same profit with the same risks.

signal:
SL guy 1 lot loosing trade = 30 pips loss
Hedger 1 lot loosing trade = 30 pips hedged

next signal:
SL guy places 2 lots
Hedger unlocks hedge and places 1 extra lot
both unlucky: SL now 90 pips loss, hedger 90 pips hedged.

next signal:
SL guy places 3 lots
Hedge unlocks 2-lot hedge and places 1 extra lot
both unlucky again!: SL now 180 pips loss, hedger 180 pips hedged

next signal:
SL guy places 4 lots
Hedge unlocks 3-lot hedge and places 1 extra lot
both lucky: SL guy as well as Hedger ends up with a 30 pip profit overall.

so its really just a preference how a trader wants to trade.
but the SL guy as well as the hedger should normally have smaller positions in the market to be able to add to positions later on.
this will affect profit if only 1 succesful trade is needed.

also from this example it is clear that it does not matter if hedging is not available for the US people.

But this is not about what you (fxtr51) or I (LazyPawn) accept or refuse. It is simply about the truth regarding 2 different ways of managing trades. We want to determine if one of them can be made more profitable than the other. Your contention is that by using a lock/unlock model of some kind (which you are free to define as you wish) you end up making more money than any traditional SL method. My point of view, shared by all great traders that I know of, institutions, banks etc. is that the lock/unlock model cannot outperform the standard model and in fact it is a little worse due to trading costs.

Now what are you trying to do here? You are trying to make the SL model look bad by allowing the locker to have twice the lot size open in the good direction, but you don't allow the same thing for the SL model. It is obvious that in such a case the locker grabs more pips on any good move. But that's simply the result of having more lots during that particular move.

You can define what you do as a locker - your rules, for your trading. But you cannot force the SL player to have inferior rules for his trading. The SL player simply shows you that he gets exactly the same results as you do by following his own rules. And to be clear: in fact his results are better, because he doesn't pay the rollover fees that you incur by keeping longs and shorts at the same time on the same pair, sometimes for several days or maybe even weeks. But I'll leave that aside for now.

If this is not clear enough I will bring it to an extreme, to see the absurdity of your position. Suppose a locker (not you, someone else) at some point has taken 10 bad positions in a row, and each of them is hedged at a distance of 20 pips. Overall he has a floating loss of 200 pips where the SL person would have 200 realized loss. And then he sees this great signal on the chart to go short. His strategy is that at that point he will close all his longs, so he has 10 shorts open. And maybe he even opens a new fresh short, so that makes it 11. From that point, any pip is worth 11 times more than usual to the equity, and a small good move could make hundreds or thousands of pips. But for the SL player - you give him only 2 options. You say that he should only be allowed to have 1 lot open there, so he doesn't have the 11x factor as the locker has ... or if he opens 11 positions to have the same progression as the locker, you say that he's martingaling (and the locker is not ). Do you see the double standard there? On one hand you allow yourself to be 2 or maybe even more net positions short or long ... on the other hand if the SL player does the same you say he's martingaling. You cannot have it both ways.


Of course he is taking action! If he is not taking action it means the 2 traders do not read the charts in the same way. That was the most basic premise, that both traders have exactly the same signals on their charts, the same trading system, and what is SL to one guy is moment to hedge for the other guy. When the locker does something he does it because he has a signal, right? At the same time the SL player also has the exact same signal. A weak signal showing that maybe the upmove is finished would make a locker close his long leg and the SL player to open a short. A strong signal showing that upmove is finished and strong downmove likely to happen makes the locker close the long leg AND open a short ... and it makes the SL player open a short with double the size. A super-mega-extra signal that makes the locker close 4 long legs and open a fresh short would make the SL player open a short with 5 times the usual size.

Again, if you don't allow the SL trader to do this, then you are simply forcing him to play by some rules that you invented FOR HIM, to make him gain less pips than the locker. That's like me defining some losing rules for the locker and then claiming that it's not profitable.

My goal is simply to show you that whatever rules you invent for the lock/unlock money management they can be replicated perfectly well with the SL management. So the steps in my view are the next:

1. The locker defines his rules. When, what lot size, when does he lock/unlock, how much, when does he add new positions, when does he close them etc..
2. The SL trader then defines his rules to show that the outcome (equity) will be always the same as the locker's.
3. If the locker still thinks that his method leads to a bigger equity, they take a chart chosen by the locker and follow the rules defined above, to see who is right.

I hope what I said above makes perfect sense.

I also have a different question for you, regarding your locking method and depending on your answer I have another important point to make. Consider our common chart. You enter the initial sell position, it goes bad, you lock it with a buy 30 pips above. Fine. You get a second sell signal and then, as you say, you close the long leg and open a short. At this point you have 2 shorts. Then if the price refuses to go down, I suppose you would hedge again after another 30 pips. Is this new hedge with 2 lots, to cover the 2 shorts you have open, or with just one lot (so that you have 2 shorts and 1 long)? And then if the same thing happens for a third time, will you then have 3 longs opened at this new high level?

Yonnie, thank you very much. I see at least one person understands what I'm saying here.

The discussion was never meant to prove that from my side and I made that clear all the time in each posting.

For you it was and I called it "twisting the rules".

But since you never accepted my rules which did not allow the losser
to open additional trades to get even,
you always ended up offending me.

Can you see that pattern in this thread ?
Or not ?

Instead of just trying to understand what I explained dozens of time,
you always tried to argue on a completely different premise.

That cannot work and you proved it doesn´t.
Because it is flawed logic and comparing apples with oranges.

A reasonable path of discussion would have looked like this:

Oh, I see that you don´t allow the losser to martingale.
You make it impossible that he gets even and thus
you are correct: the locker will be ahead and make more profits.

But I (LazyPawn) want you to see that if a losser will use martingale
progression and enter at certain levels where you unlock,
then there is no difference in both methods (in fact the losser is better due to trading costs ).

I would have said: Ok, then show me how the losser could do this.

That would have been a sober discussion between grown up people.

But since you had your own agenda ( which you were hiding at the beginning ) and you never accepted my premise,
you acted like what ? Offending in about each of your postings.

You are not ready yet to accept and see what you have done.
Instead you justify your behavior and try to make me look like an idiot.
That is a problem, LazyPawn and it is not my problem.

Wrong again.
I completely understand what you are saying after you finally revealed
your hidden agenda and defined the premise you had in mind from
the start.
Before that I wondered why you tried so hard to twist my premise to make it fit to your desired outcome.

Do you understand what happened and what you did ?
I certainly do.

A good communication is only possible when none of the partners has a hidden agenda.
Our communication was a desaster because you had one while I said from the very beginning what my premise is.

Do you still feel an urge to offend and attack me ?

nanningbob, the pleasure was mine! And thank you for the voucher! Your voucher means a lot to me.

fxtr51,

I have never offended you deliberately. It is true that I expressed doubts regarding your mathematical understanding, when I became exasperated. But I also praised you for your coding skills. If my words looked offending to you, I apologize. However you did that more than once and I will only quote one such instance below:

Regarding the secret agenda, I definitely never had one. I always tried to get explanations from you which you constantly refused to give, simply stating over and over again that you already did that in some previous posts somewhere. I read all your posts and charts, didn't find a clear explanation of the method, but I was still ready to discuss it. That's why I used your chart, that's why I asked you questions (you never asked me any), that's why I constantly invited you to work together through a chart or drawing example, to see where we have a misunderstanding (if there was one). Even in my last post I repeated the same invitation. All this time you just told me that -3% is less than +1%.

Anyway I am willing to put all that aside, and what is really of interest to me is if you agree that a SL management can be conceived which mimics your hedging method 100% in terms of equity? I hope the answer is yes. I am also willing to show you that using only 1 position size every time for the SL player, while it could very well lead to inferior equities, is much safer if you happen to have a string of losses. In other words the conservative SL player who always uses the same 1 lot doesn't win that much if things go well in general, but loses only a little when things go really bad and you lose a lot.

Then for my second question, please read the last paragraph of my previous message. I think you don't see the problem with the way your floating loss increases. For example, you probably assume that after the first lock you are at -1% (correct), and that after the second lock you are at -2, and after the 6th you are at -6%. In fact the progression is 1, 3, 6, 10, 15 ... (the so called triangular numbers). In other words if you have a sequence of 4 trades gone bad your account equity would be at -10% (it's composed of a 18% growth in balance plus -28% floating loss). If you don't see where those numbers are coming from I am ready to explain in my next post.

Fxtr51,

If you re-read my earlier comments, I explained why I believe unrealized losses should be considered to be real. It is a contentious issue, with folk sitting in one camp or the other, but just for the record, here are some folk who agree with me:
http://www.secondopinions.ca/newslet...dopinion2.aspx
http://investing-school.com/definiti...ns-and-losses/
http://www.theforextrader.net/Realiz...ed-Returns.php
http://blog.realized-app.com/basics/...gain-real.html
http://www.the-money-cafe.com/Paper-...es-Stupid.html (this article raises the point that the current global crisis has been caused primarily by banks allowing paper losses to escalate out of control)
http://www.investmentterms.net/Paper+Loss-definition/
http://www.schwab-global.com/public/...ing_stock.html

I’ve no doubt that you could likewise perform an internet search, and find folk who share your view.

I will re-state the reasons for my opinion, one final time, hopefully with greater clarity.

Essentially what we are doing is speculating on the future value of an asset, and the key is probability. I’ll accept that unrealized losses don’t need to be considered, if there’s a 100% certainty that they will return to breakeven (or better), before they accumulate to the point of ruin (i.e. a margin call, or otherwise irretrievable drawdown). That is because I believe that avoiding ruin must necessarily be the first priority of every trader.

If, at a given point, the probability of a loss decreasing is no better than 50/50, then I believe that the loss should be considered to be real, simply because there is an equal probability of it worsening, and it must be realized at some point. The point at which all losses must ultimately be realized is a margin call.

In post #147, you state that “I always manage to close my cycle with a breakeven or profit”. The key word is ALWAYS. If this is a 100% certainty, then I accept that the frozen/floating loss need not be considered, because there is an absolute guarantee that breakeven will be attained at some future point.

That is a key point common to all grid/hedge/recovery MM systems — whether or not they can return to breakeven, before ruin occurs.

There is another reason why I consider unrealized losses to be real. I’ve already made this same point in two earlier posts. Your legal agreement with your br0ker states that the amount of money in your account that is available to you at any point includes unrealized P/L. If for whatever reason, you urgently need to close the account (e.g. you have a family emergency; or you’ve just heard a rumor that your br0ker is about to go belly up; etc etc), then you must realize all of your losses. I’m not discussing the probability of any of these events occurring, just that this is the amount of money that is actually available to you at any given point, for any practical use.
______________

Now let’s return to the original issue, which is the extent to which your edge comes from your trading expertise (i.e. how accurately you time adjustments to your overall position), as opposed to your MM (i.e. the way in which you use your “cycles”).

The concept of a “cycle” not ending until breakeven or better is attained, is exactly the same as the gambling concept that the punter will not end any roulette session (“cycle”) at the casino until such time as that session is profitable. That way, by never having a losing session, he is guaranteed to always remain ahead, and thus beat the casino. There is, of course, a fallacy in that argument, whose fundamental basis is that no player can ultimately beat a negative expectancy game, with the result that the punter's losses are always likely to escalate more quickly than he can recover them. And it’s borne out by the fact that no punter (apart from exploiting physically biased wheels) has ever managed to beat a casino consistently at roulette.

Your trading expertise (“if you look on a H4 chart, you can find moves of 200 - 800 Pips and more in one direction all the time. And within such moves you always have pullbacks. The whole Fib trading armada lives from that fact. Therefore in every move there will be plenty of unlock levels and when I need 30 - 70 Pips to break even and the pullback is 100 - 200 Pips”) is what guarantees that you “always manage to close your cycle with a breakeven or profit”. To whatever extent that gives you an edge, you’re playing a positive expectancy game against the market.

I believe that your definition of a “cycle” is completely arbitrary, and therefore illusory. You could group your trades any way that you wish, but you can’t escape the fact is that your overall bottom line is always the sum of all of these trades, and each trade contributes either positively or negatively to this balance, in its own right. Recovery systems focus on recovery of recent losses, but I would argue that all losses (of the same size) have an equal effect on bottom line.

Your cycle has to get back to breakeven somehow, and it faces an identical battle, pip-wise, as the losser, who (assuming equivalent trading expertise, and making the same trading decisions in terms of being net long, short or flat at the same points along the way) does exactly the same thing, albeit over a series of open/close trades. As demonstrated in post #122.

To the losser, then, a “cycle” is simply defined as his entire account. Given that he has the same trading skill as the locker, he has the same probability of returning his account to breakeven, thereby ending his current “cycle”. You say that freezing losses gives them the opportunity to return to breakeven. Sure, but they still have to claw back the same pips, when they are unlocked. And the losser has exactly the same opportunity, simply by placing additional trades.

A good way to determine whether or not a component is contributing to a whole is to examine the effect of that component in isolation. If “cycle” based MM provided an edge capable of overcoming costs, then any trader who used it would be profitable, regardless of his trading expertise, by simply trading random entries and exits.

Conclusion: a trader’s edge comes from his trading expertise — the way that he times his entries and exits — not from his MM. That has always been true, and will always remain so. This is also borne out by the actual results: if markets could be beaten merely by using MM, then there would be no need for analysis. Every one of us could simply run an EA that used random entries and exits, but employed this MM, and retire rich.
______________

This hedging/locking debate has occurred many times before. It became a hot topic when NFA decided to ban hedging in the US. Here are some threads where these same points have been repeatedly (and passionately) discussed:
http://www.forexfactory.com/showthread.php?t=68598
http://www.forexfactory.com/showthread.php?t=163814
http://www.forexfactory.com/showthread.php?t=137836
http://www.forexfactory.com/showthread.php?t=163467
http://www.forexfactory.com/showthread.php?t=264690
http://www.forexfactory.com/showthread.php?t=174626
Look for posts by smittens4212, merlin, Craig, birdt, nubcake, philmcgrew, 7bit and pipmutt. Perhaps they can explain all of this better than I can. LazyPawn has also provided some good explanations in this thread.
______________

This post is my last one. I have nothing more to say on this topic, as I have already expressed my views many, many times. I am not trying to prove that I am right. I am simply telling you what I believe, and why. All I will say is that I have satisfied myself that it has sound logical and mathematical basis, and I have yet to read anything that seriously threatens it.

David

we assume 2 experienced operators, who know their system in and out.

the hedger will know what the maximum number of straight losses is and will enter a position and hedge that position accordingly.
a prudent hedger will err on the side of caution.
from my example above the hedger will have a 180 pip floating loss before closing everything out for a 30 pip profit

on the other hand the conservative SL player who uses the same lot all the time will do the same 4 trades at 1 lot each and his P/L shows -30, -30, -30 and +30 = -60 pips.

I would say the hedger will always come out on top, unless the conservative SL player will become more creative.

mind you, the conservative trader will always be happy with (a lot) less profit knowing that he risks less.

hanover: the issue here is NOT about if floating losses are real or not

Yes it is (well, at least in the context of my discussion with fxtr51). My post #190 explains why.

I will start a thread or continue in 10.0. Depends how much I vary from from it but the basis will still be 10.0. My focus on trading for the last year or so has been defining clearly what people talk about in Forex. What is a trend or a range? When do they start when do they end. Now I want to define the strength of the price movement. Knowing this allows a person to add positions or close the position because it isnt going anywhere or the move is going to move now. I dont know if I can do that but that is what I will try to do.

hanover,
what a masterpiece you delivered.
That is what I like and what I call a sober conversation.

I will not comment each sentence, it is after midnight and I am up now
19 hours but only make a few comments:

I agree and add: only by placing more trades, otherwise the locker is ahead.

The whole discussion went into the wrong direction because my premise
was that the losser would not place more trades in order to get even but that premise was ignored.

This way apples were compared to oranges and we saw where that path is going.

Never say never and never say always and never say 100 % certainty.

A tornado could kill me, then my hedge would collapse somewhere in the future when somebody is trying to get the heritage.

Or 100 other things could happen.

It was wrong to say "always" because that will never work in this world
as we know it.

I did not think about the casino thing and about the "never say always" thing.
I simply looked on a H4 chart and concluded that
I would always find levels to unlock and go to BE or into profit.

Enough said.
My conclusion : I will continue to improve my trading skills because that will increase my profits - with locking or without.

Thanks for your contribution and thanks to all those who contributed too.

Hanover is a smart guy and always worth listening to his comments. What I like about him is he also posts his trading system and tries to teach better trading methods and systems. He just doesnt harass you but shows alternatives which you can studly and compare. He makes an interesting debate.

OK, I have decided to write a small pdf that should put an end to all the confusion surrounding these methods, since very few people understand their true mathematical expectation. It took me a few hours but I hope most people will find it interesting. I tried to make it as simple as possible, with graphics and detailed explanations, and I hope that anyone is able to understand it.

There is absolutely no difference in regards of profits between the SL-trading and the lock/unlock trading except the SL-trader has the guts to take the loss when the SL got hit and the lock/unlock trader is trying to make it up at a later point.
When the locker’s are taking the signal to unlock and recover the open floating loss the SL-trader will enter a position and close a profitable trade and in the end both are equal.
When the SL-trader does hit 5 times in a row a let’s say 30 pips stop-loss he is 150 pips down.
When the locker starts to lock the first trade and on the next 4 wrong entries unlock and lock later on again, he is also 150 pips down with the only difference that the 150 pips are reflected in open DD while the SL-trader has everything closed and the losses are booked.
Both of them need a 150 pip gain to get back at breakeven.
It is a personal choice of each one which trade management strategy better fits.
I personally prefer the SL-method … if it went wrong it went wrong.
And if it went wrong let’s say 10 times in a row I should definitely make some thoughts about my entries, if the strategy fits to the current market or about the strategy at all.
On the other side – if a locker after a couple of bad entries or let’s say better “wrong unlocks” and “locks” get into a larger and larger open DD it may have an impact into further trade decisions and lead to unlock when the conventional SL-trader probably wouldn’t even enter a position at all.

FXTR51,
Reading the posts between you and LazyPawn ….
I didn’t have the impression that LazyPawn wanted to change any rules into his favor nor that he likes to recover losses in a martingale way.
You said in post No. 146

When you unlock your hedged trade and additionally enter a second position you are definitely with 2 positions in the market. Let’s say each one with 1 lot ….. total 2 lots.
It doesn’t mean anything in this case what you call a cycle. At that precise moment you have 2 positions open on the same pair into the same direction.
So his conclusion was ….. as a SL-trader I can do the same.
When I get stopped out on my first trade I can enter the next one also with 2 lots.
In the end there is no difference.

I would like to add that the recovery trader has one advantage over the SL taker. Many of my trades in recovery that a SL taker takes a hit also become profitable meaning they never become a loss. That is the great advantaged missed in this debate. SL loss people fail to see that what they take losses on we often also take a profit on. If and when he unlocks both trades can end up in profit. Once you take a SL it will always be a loss. That is the other side of the formula ignored. Because these techniques take trading skill, the skillful recovery trader has the advantage of turning losers into winners which a SL formula never allows, he always has to recover a losing trade. I always have the advantage of making temporarily losing trades back into winners. That is the advantage and the edge. It is why many of us have such high winning scenarios that hover around 75-80% winners. That is the advantage that is ignored every time we have this discussion. You think if you only focus on that one occasional really negative trade it wipes every thing else out. NO it does not. It is just the occasional loss every trader takes.

You are right Bob but like most of the time …. an advantage has usually also some kind of disadvantage behind it.
The locker or recovery trader has the advantage to turn the floating loss into a profit while the SL-trader booked the loss already. But nothing is 100% sure and there is still the possibility that the floating loss can get bigger or worse finish at some point as a loser too, while the SL trader doesn’t have it anymore. The loss is booked and that’s it.
As I said …. It’s a personal choice of each one which trade management strategy better fits.
In regards to the higher win%:
Of course the win% for hedge or recovery traders is a way higher, as they carry on with the negative trades and most of the time turn it back into winners, but a higher win% alone doesn’t necessarily mean a higher profit at the end.