Is Never closing any trade a good idea?

Is Never closing any trade - a good ::idea:: ?

A trader decides he never wants to close any trade taken in his account , rather increment the lots by locking the existing position and trading the other side?

Sounds confusing enough huh?

Nevermind, this thought was going around my mind for quite some time i.e assume you have a trading system which you are confident of generating +ve pips at the end of the year . Now you decide to do something like this as illustrated in below example:

a) Lets say you get first signal to buy say eur usd @ 1.2700 & you are LONG 0.01 lot which you hold tight till you get sell signal

b) Now you get sell signal on eur usd per say @ 1.2980, take 0.04 lot SHORT without closing existing 0.01 LONG and going for the second signal (sell) with additional 0.03 lot

and wait for next buy signal and so on..

Trade history might look like this :

BUY 0.01 EUR USD 1.2700

SELL 0.04 EUR USD 1.2920

BUY 0.07 EUR USD 1.3010

SELL 0.1 EUR USD 1.3250

BUY 0.13 EUR USD 1.3172

SELL 0.16 EUR USD 1.3650

etc...

Assume your trading system generates about 450pips -500pips on eur usd yearly trading basis overall,with no orders closed you seem to gain cumulative on the profits made aswell as when you close down all the trades at the end of the year I see another edge i.e getting significant $$ cashback rebates back aswell for the lots traded so far.

Any thoughts welcome, if its sensible to do this or its not worth it unless you have good profitable % system..

-Scoobi

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Did you read Building an equity millipede (http://www.forexfactory.com/showthread.php?t=245149)? It is exactly about this.

When you long 1 lot and short 3 lots that's the same as closing the long and going short 2 lots. So you do close the trade on a practical point of view. You pay more swap.

You will take losses even if they are "hedged" and therefore at some point the margin requirement for the next positions will be paid by the floating profits. When a pullback comes you may get margin called just because of the accumulated high leverage that the missing profits can no longer sustain.

When you go opposite with a much bigger lot size (you say 3 times) a wrong decision can hurt badly. On the other hand if you use the same lot size you will accumulate lots in the direction of the next trend and when the trend changes the accumulation of opposite orders won't balance quickly enough.

At least this is the result of 3 months of my own experimentation of the millipede.

Fantastic Pipmeup!

So if you know your system is capable of hunting Xpips at the end of the year, we can do this way rather Long 1 lot with buy signal and then when you get sell signal short 2 lot rather than increasing the stake. make sense! Thanks a Ton!

What made me look at your thread is that I don't know the answer to this. It comes down to the management of open positions which led me to open the Expectancy Management http://www.forexfactory.com/showthread.php?t=411923 thread.

If you want to try out the millipede idea keep in mind that opening a short is cancelling a long. So to increase the lots on the short side you can close the longs the nearest of the PA. It took me a while to realize that this is what the OP calls diversification.

Pipmeup,

When we reach 100lot thats the max with my broker, is it the time to close the entire portfolio of orders all at one go perhaps?

Appreciate your response!

Also I feel we should do this millipede approach on most volatile pairs as in this list from dukascopy :

http://www.dukascopy.com/fxcomm/blog...w&post_id=3909

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hey scoob...... it would really depend on how many trades you took on.......

i've never been able to make it work using standard signals..... such as taking every macd cross on the 4 hour chart and never closing any..... or buying rsi crosses above 50 and selling when it fell below......

those are just simple ideas, my actual trade signals the ea's took were far more complex, meant to win, and never it closed trades just to see what the end result would be......

almost without fail, eventually the long side or short side would become so large that a small move against it could not be supported by the opposite trades....

just write a ea that sends trades without profit target and stoploss...... this way they never close...... you'll see.....

there is a point where you must come clean or the out of trend trades will drag you under......h

Thanks Hayseed. Nice ::idea:: to code an EA for this!

Coded an EA named Neverclose007 , lets see how it unfolds

P.S : It can't be backtested, good candidate for forward test only on Daily chart!

Would recommend to run against 10 most volatile pairs from the dukascopy list with different magic number ofcourse...

Entry condition for EA :

If Market is not Rangebound confirmed using Daily RSI(20) not in the range of 45 to 55

1. Take a long entry upon breaking daily high (or) Take a short entry upon breaking daily low

Exit Condition : None (Neverclose)

Position Money Management: If a last open order buy exist with 0.01 lot , upon new sell signal 0.02 lot(0.01 lot increment) comes in (we nullify the open order this way without closing it) and vice versa recursively

If a new signal doesn't arise existing position is carried forward till a new opposite signal arises.

Disclaimer : This EA secures the running profit/loss of the open position when counter signal arises & in entirety its left to the sole discretion of the user to decide when he wants to close all open positions for a pair if it makes "x" amount of pips according to his mindset.

1) If a position is never closed then by definition it is not a "trade" - it is a "position."
2) Traders trade while Investors invest.
3) Holding anything for such long periods of time makes one an Investor, not a Trader.

George Soros, does quite well as a Currency Investor but he also has billions of notional value and take very low leverage risk when he's seemingly "always-in" the market.

This is not really trading. It is gambling and it is predicated on a theory that when run to its final logical conclusion will ultimately contradict its own established premise. Essentially, at its roots, it is a Pyramid Scheme and a pretty good way to waste both time and capital. In my time as a trader, I've known only one (1) person who could juggle the Pyramid Balls in the air effectively, but at some point, even he ran out of capital to juggle with and folded.

If you really want to learn how to trade, you have little to no choice but to dig deep into the raw data of the market on your own to discover its true potential and structural limitations - then build a statistically based model with positive expectancy while keeping your risk levels to a reasonable level of acceptability within that model.

Bottom line - a trader needs to know and understand the historical boundaries of the market they trade and that can only be known through serious minded statistical research of the data that drives the market you trade. Each market (pair) has its own unique characteristic behavioral patterns that must be understood by the trader, so that the trader can know when that particular market is behaving outside of its known parameters - and so the trader can accurately determine when that market is establishing new behavioral parameters (a market in a structural transition phase).

It is not "Vegas Baby" - though some certainly do treat the business that way.

iDoubleStoch,

This is not gambling in Vegas on a blackjack table or playing roulette.

Let me explain if you are certain to make say 1500pips on trading an instrument for a year's time and you use fixed lot all the time say 0.1 lot which will end up making 1500 usd.

This way of "Neverclose" can be misleading however it also is expected to make same 1500pips just that we are not closing the orders and closing it at one go. i.e if we have buy 0.1 lot EU trade for next trade when you get sell its intended to take 0.2 lot to nullify the open lot position with 0.1 lot and staying short with remaining lot 0.1

I have put forward a very simple EA which can generate pips if one intends to run on daily chart of currency/commodity instrument as a Proof Of Concept, one can book the profits according to their like.

Its no Pyramid or Martingale style, its more in the lines of swing trading only on a daily chart.


Warm Regards,
Scoobie

Scoobidoobi,

It is called "Always-In" and it has been around as a methodology for quite a while.

Your theory is creative and that is a very good thing. However, what happens if somewhere along the line the systems doesn't fail, but just starts to fall short of making its targets. When that happens, using the trade management theory you put forth, you could end up spiraling losses until you ran out of capital to trade. If you are 1 lot Long, have profit in the trade and the enter 4 Lots short, where the market remains bullish, you could dilute your built-in profit 400% faster than you gained it. If the market does go Short, then you are netting profits at the speed at which you could (provided you held on to the initial Long position) until the point at which your original Long entry was established. After that, if you continue to hold the Long position, your net profits are cut down to 50% rate of growth (assuming the market continued to be Bearish). This places a much higher expectation on each successive trade signal in the progression.

This also creates asymmetrically increased pressure on the next trade signal to be correct, which is the exact same thing as asking your trading system or methodology to increase its own internal accuracy without providing it with any additional input for doing so. This loads up the system with increasingly higher levels of demand for more and more accuracy as time progresses and each new signal is generated.

In other words, the market could force you into a pyramid scheme even if your strategy has sound off-set principle. This artificially amplifies the accuracy requirement of each succeeding signal within the sequence over time.

I'm not saying that your POC EA does not work using the market data the produced the results you are familiar with. I'm saying that you should test your EA under all five (5) market phases before committing to it. A good EA won't be profitable in all five (5) market phases, but it will prevent blow-outs during those market phases for which it does not routinely produce progressive profits.

I certainly do appreciate the creative thought, however! Keep creating ideas!

Thanks iDouble. Certainly increasing the lot size of the subsequent trades will put pressure for the trade to be accurate, that said we need to use perhaps the same lot size then its as good as closing the previous trade and taking a new one!