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Set it and Forget it, Dollar Cost Averaging

  • #21
  • Aug 17, 2012 2:39am Aug 17, 2012 2:39am
Quoting jaws810
I understand the math I just don't think it will ever continue in the same direction for 20 trading days without a big enough retrace for me to make my 50 pips.
Unfortunately, the price seldom respects our beliefs. I did a manual backtest on GBP/JPY, starting with a buy on 29/09/2008. Let's not argue about the entry, I took it there on purpose, as a worst case. Suppose you enter a new position on daily open price for simplicity. Here's what would happen:

29/09/2008: buy @ 194.620
30/09/2008: buy @ 187.670 / average 191.145, tp = 191.665; daily high 190.960
01/10/2008: buy @ 188.990 / average 190.427, tp = 190.947; daily high 189.870
02/10/2008: buy @ 187.450 / average 189.683, tp = 190.203; daily high 188.080
03/10/2008: buy @ 185.120 / average 188.770, tp = 189.290; daily high 188.460
05/10/2008: buy @ 184.770 / average 188.103, tp = 188.623; daily high 185.740
06/10/2008: buy @ 184.600 / average 187.603, tp = 188.123; daily high 184.830
07/10/2008: buy @ 176.980 / average 186.275, tp = 186.795; daily high 182.000
08/10/2008: buy @ 176.870 / average 185.230, tp = 185.750; daily high 178.920
09/10/2008: buy @ 171.760 / average 183.883, tp = 184.403; daily high 176.380
10/10/2008: buy @ 168.610 / average 182.495, tp = 183.015; daily high 172.090
12/10/2008: buy @ 172.840 / average 181.690, tp = 182.210; daily high 173.410
13/10/2008: buy @ 172.600 / average 180.991, tp = 181.511; daily high 179.110
14/10/2008: buy @ 179.030 / average 180.851, tp = 181.371; daily high 181.350, tp missed for 2.1 pips (not counting spread)
15/10/2008: buy @ 176.690 / average 180.573, tp = 181.093; daily high 178.680
16/10/2008: buy @ 170.740 / average 179.959, tp = 180.479, daily high 176.230
17/10/2008: buy @ 175.800 / average 179.714, tp = 180.234, daily high 176.510
19/10/2008: buy @ 175.810 / average 179.497, tp = 180.017, daily high 175.290
20/10/2008: buy @ 175.820 / average 179.304, tp = 179.824, daily high 179.180
21/10/2008: buy @ 175.260 / average 179.102, tp = 179.622, daily high 175.550

Price closed @ 165.330, almost 3000 pips below the first entry.
The problem with this kind of averaging is the weight of the old positions. If you don't get in profit quickly, the position becomes heavier, the new positions offset the average price slower and you need bigger retraces to end up in profit. That's why you should have some kind of limit, a point where you accept the loss.

Just for the record, three days later, GBP/JPY reached 138.990.

And just one more thing... let's assume you sell instead. You're probably going to collect several times 50 pips by having 50 pips TP and no SL. But... what if you had it the other way around?

Best regards,
Barbossa
  • #22
  • Aug 17, 2012 2:59am Aug 17, 2012 2:59am
Even knowing the end results, just for the sake of saving after grief to some, I placed the idea in my test lab.

Used eur/usd, 50K account 1 lot.
Not only I used the suggested strategy, I added the opposite to it. To add a bit of mathematical advantage.

That means that in 1 magic buy the EU .. if goes against average down every 100 pips... and close all with a 500 global TP. In the other magic did the opposite. In that way at least in one direction it is always making something.

I started the backtest in June 2011 and planed to go to June 2012... but the accounts makes it to only September 2011 and gets a margin call.

Dukascopy Tick data tested in Jforex platform.

J.
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  • #23
  • Aug 17, 2012 3:25am Aug 17, 2012 3:25am
Hi Jeuro,

Could you try testing it with 0.1 lot size?

Thanks.



Quoting jeuro
Even knowing the end results, just for the sake of saving after grief to some, I placed the idea in my test lab.

Used eur/usd, 50K account 1 lot.
Not only I used the suggested strategy, I added the opposite to it. To add a bit of mathematical advantage.

That means that in 1 magic buy the EU .. if goes against average down every 100 pips... and close all with a 500 global TP. In the other magic did the opposite. In that way at least in one direction it is always making something.

I started the backtest in June 2011 and planed to go...
  • #24
  • Aug 17, 2012 3:52am Aug 17, 2012 3:52am
As long as there is not an extreme and fast price move your system might do well. Otherwise your account will go to zero or negative.


Quoting jaws810
This system is very simple but requires the ability to open 20 equal positions. I've been using it on the Euro getting over 5% a week.

1) Choose a direction using whatever method you want or guess it really don't matter.

2) Sometime before or after all the news for the day is released, open your trade. 1 position, no sl, and 50 pip tp, I use 50:1 leverage which gets me about 1% per position opened you will do better with higher leverage just make sure you have enough margin for 20 positions.

3) Come back the next day before or after news...
  • #25
  • Aug 17, 2012 4:40am Aug 17, 2012 4:40am
Quoting jaws810
First off I would never open a long position at the top because I choose direction using the weekly high and low, I go in the opposite direction, if I'm near the high I short it, if I'm near the low I go long. I could get caught in the middle of a long trend but I still have plenty of time for it to retrace.

All of my positions close at the same time 50 pips TP from the average of ALL my positions, in a long run some of my positions will close with a loss but the profit will average 50 pips per lot or about 1% per lot.

I see what you mean now. If you manage to have profit with it, then it's cool.
  • #26
  • Aug 17, 2012 4:53am Aug 17, 2012 4:53am
So this strategy is more or less same as averaging the loosing positions. Its good when market is rangy, but can give a deep drawdown when market is trendy...
  • #27
  • Edited 6:07am Aug 17, 2012 5:11am | Edited 6:07am
No need to re-test Darrel. If the DD was 48192 with 1 lot... would be 4819 for 0.10 and 489 for 0.01. .

The point is that system is mathematically faulty, regardless if some discretion is use to enter. In fact, the situation gets worse when using discretion, because you flip-flop the system entry. Remember my test run both way simultaneously. No discretion would better that.
The max dd is almost 100% of the size of the account when it blows the account with a margin call. So, even if you use it with 0.01 you would at least 1000 and still would have a 50% dd... and not worth the time to figure up the end of the loss.

No point of me re-testing something that I know will not work.
Now, If someone is a good mathematician and have something that makes sense... sure. I tested for you. Up to 8 different pairs simultaneously.
Just send me a pm. (pure math stuff... no indicators)
J.

PS. btw.. no disrespect intended Jaws... also trying to save "you" time and possible losses. Remember.. I am a good advocate of averaging down systems.
  • #28
  • Aug 17, 2012 6:47am Aug 17, 2012 6:47am
Quoting Barbossa

Price closed @ 165.330, almost 3000 pips below the first entry.
The problem with this kind of averaging is the weight of the old positions. If you don't get in profit quickly, the position becomes heavier, the new positions offset the average price slower and you need bigger retraces to end up in profit. That's why you should have some kind of limit, a point where you accept the loss.

Just for the record, three days later, GBP/JPY reached 138.990.
Nice homework Barbossa,

The dreaded 'death trade'...or in this case 'death string'.
This system is alluring to many because, let's face it, who wouldn't like a set and forget and can't lose system.

In the end, it's very similar to martingale systems, not in mechanics but in the end result.

They all work until...well, until they don't. And then you lose everything.

That being said, there are still strategies that employ martingale-like aspects effectively.

So perhaps there are ways to use this strategy, or aspects of it, effectively.

As has already been mentioned, it would seem to do well in ranging periods, such as we typically experience this time of year. Also around December. Times when many of the big money players are off on holidays and not moving the market. I know my trending strategies die on the vine during this period. Could I supplement them with a ranging strategy in some way?

Problem is I don't want to blow an account. But what if you started with a fixed amount. Let's use 1000 for arguments sake. Traded as Jaws suggests and get a nice increase in your balance.

Then withdraw that increase rather then letting it ride in your account. If you could manage to glean profits that way, perhaps you could reap enough benefit before the 'death string' takes our your base account balance.

I don't know, just a thought to toss out there.

Sorry about the length.
  • #29
  • Aug 17, 2012 7:10am Aug 17, 2012 7:10am
Quoting spyderman
Problem is I don't want to blow an account. But what if you started with a fixed amount. Let's use 1000 for arguments sake. Traded as Jaws suggests and get a nice increase in your balance.

Then withdraw that increase rather then letting it ride in your account. If you could manage to glean profits that way, perhaps you could reap enough benefit before the 'death string' takes our your base account balance
The best way to trade this kind of "losing" strategies is to start a demo with it and let it blow the account ... Then immediatly start your LIVE with it. You should have time to make and withdraw some money before it blow again ... Then restart demo and so on.

In other words, go live after a margin call on the demo. You would be unlucky to take 2 following margin calls in a row without some money in between ...
MT4/MT5 EAs/Indicators/Alerts coder
  • #30
  • Aug 17, 2012 7:15am Aug 17, 2012 7:15am
Quoting FerruFx
The best way to trade this kind of "losing" strategies is to start a demo with it and let it blow the account ... Then immediatly start your LIVE with it. You should have time to make and withdraw some money before it blow again ... Then restart demo and so on.

In other words, go live after a margin call on the demo. You would be unlucky to take 2 following margin calls in a row without some money in between ...

And stay away from the JPY crosses.
  • #31
  • Aug 17, 2012 7:16am Aug 17, 2012 7:16am
So basically you are just hedging your positions in the direction you entered the first trade. I suppose it could work just as long as the market doesn't drop too fast or too much. A friend of mine does something similar also working with the weekly and monthly high/lows and then entering positions. If it goes against him he'll open more position, but his maximum is 5. Otherwise he closes and starts again. I think he does fairly well, it's not the best system but it does work if you are patient enough.

Good luck, and all the best
  • #32
  • Aug 17, 2012 7:23am Aug 17, 2012 7:23am
Quoting Terraforce1
So basically you are just hedging your positions in the direction you entered the first trade.
I may have missed something ... but I don't think he is hedging here ...
MT4/MT5 EAs/Indicators/Alerts coder
  • #33
  • Aug 17, 2012 7:30am Aug 17, 2012 7:30am
Just had a thought. Let's say you had a bad string going. What if at some pre-defined point you changed your TP from average+50 to just breaking even on the string.

Haven't done the math but that may be a significant difference in what it would take to recover or rescue the string.
  • #34
  • Aug 17, 2012 7:38am Aug 17, 2012 7:38am
Quoting spyderman
Just had a thought. Let's say you had a bad string going. What if at some pre-defined point you changed your TP from average+50 to just breaking even on the string.

Haven't done the math but that may be a significant difference in what it would take to recover or rescue the string.
I would probably do that BE+1 if I ever got to the 20th position, then I would hate myself after it passes my TP by 200 pips. lol
  • #35
  • Aug 17, 2012 7:44am Aug 17, 2012 7:44am
Quoting jaws810
I would probably do that BE+1 if I ever got to the 20th position, then I would hate myself after it passes my TP by 200 pips. lol

Lol...yeah but think how good you'd feel if it hit your BE then plummeted.
  • #36
  • Aug 17, 2012 7:45am Aug 17, 2012 7:45am
What if you define (analysis) a direction each time you enter a trade instead of going all in the same direction ?
MT4/MT5 EAs/Indicators/Alerts coder
  • #37
  • Aug 17, 2012 7:55am Aug 17, 2012 7:55am
Quoting FerruFx
What if you define (analysis) a direction each time you enter a trade instead of going all in the same direction ?

Well then you would be effectively hedging and your orders (assuming you had a relatively even number each way) would offset making your string relatively stagnant. Now that might be good in some cases but the trade would take much longer to finally hit TP as once it starts moving in your desired direction you'd have many (potentially) opposite trades that have to be overcome.
  • #38
  • Aug 17, 2012 7:59am Aug 17, 2012 7:59am
Quoting spyderman
... the trade would take much longer to finally hit TP ...
The point was to try to lower the risk ... I am not saying that it will be profitable in the long term ... just a thought for those who want to test !
MT4/MT5 EAs/Indicators/Alerts coder
  • #39
  • Aug 17, 2012 8:06am Aug 17, 2012 8:06am
I have been using this system for a while now, but without any set rules like you have, and it has generally been working well. I have been shorting aud.usd for about 3 weeks using small sells, and with the drop this morning I have about 10k profit on [email protected], and am hoping for more. I actually sold 500k at 7:00 pm yesterday when it touched the top of the trendline. I cashed out 400k on the drop down. So far so good. I have also been using this method on eur.usd with mixed results. I was shoring this pair for a while, basically using fibonacci lines, and would short and buy back when it reached the next lower fibo line, short on the next rise and so on. I had run up about 275K profit, but got caught on the last us unemployment report. I ran out of margin and gave back about 200k. I think your idea of splitting into 20 portions might have saved me on that one.
  • #40
  • Aug 17, 2012 8:30am Aug 17, 2012 8:30am
Quoting FerruFx
The point was to try to lower the risk ... I am not saying that it will be profitable in the long term ... just a thought for those who want to test !
I understand you're quite a coder FerruFX. You could prob put something together pretty easy for testing or trading purposes
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