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The Compounding System

  • #21
  • Aug 30, 2014 12:56pm Aug 30, 2014 12:56pm
Quoting Mr.Ma
Ladies and Gentlemen, I just finished a backtest using the simple basic method aahmad29 was providing us in post #1! I did run the backtest on an Armada Markets MT4 with 0.1 pip spread and the fxblue trade simulator starting from the 1st of august to the 29th of august. I wanted to see how this system is performing this month because as we all know august is the month of the year with the lowest volatility. As you can see, I set up a $1000 account and my risk on every first trade was fix with 1%. The maximum compounds were 3 trades! which is really...
Thanks for all that effort. I don't have any problem for backtesting of LO. You can do it and if u want to do it on any other pair then u have to consider the volatility because some pairs don't even have 10 pips ranging phase. That was the only reason i chose EU.
Love for all; Hatred for none.
  • #22
  • Aug 30, 2014 1:43pm Aug 30, 2014 1:43pm
Quoting Mr.Ma
Ladies and Gentlemen, I just finished a backtest using the simple basic method aahmad29 was providing us in post #1! I did run the backtest on an Armada Markets MT4 with 0.1 pip spread and the fxblue trade simulator starting from the 1st of august to the 29th of august. I wanted to see how this system is performing this month because as we all know august is the month of the year with the lowest volatility. As you can see, I set up a $1000 account and my risk on every first trade was fix with 1%. The maximum compounds were 3 trades! which is really...
Excellent work and nice results! Thanks!

The enclosed stats from the posted link clearly show that Mondays are the weak points of the strategy.

Attached Image (click to enlarge)
Click to Enlarge Name: Jeffrays stats.jpg Size: 213 KB
  • #23
  • Aug 30, 2014 2:13pm Aug 30, 2014 2:13pm
Quoting Paracelsus
{quote} Excellent work and nice results! Thanks! The enclosed stats from the posted link clearly show that Mondays are the weak points of the strategy. {image}
It is all due to low volatility
Love for all; Hatred for none.
  • #24
  • Aug 30, 2014 2:35pm Aug 30, 2014 2:35pm
Quoting aahmad29
{quote} It is all due to low volatility
Yes, correct. Actually, it is NOT a weakness of the strategy. It is how the market is.

Better to take long weekends and start it on TUESDAYS.
  • #25
  • Edited Sep 1, 2014 2:56am Aug 31, 2014 1:17pm | Edited Sep 1, 2014 2:56am
A significant risk of this strategy is when the spread opens up above 10 pips.

If and when it happens the SL and the re-entry are activated in VERY RAPID sequence after each other, grinding down the account to ZERO within a few seconds.
In other words: the entire account would be "gone in 5 seconds". LITERALLY. I have seen this phenomena happening on a live account with a similar strategy. NO BACKTEST would predict such an event.

If anyone plans to trade this strategy with an EA (apparently it may need potentially overnight attention) there should be a limit on the number of trades per "time unit" (e.g. 1 trade/minute) should such an unexpected "spread scissor" open. Even for a few seconds.
  • #26
  • Aug 31, 2014 2:41pm Aug 31, 2014 2:41pm
Quoting Paracelsus
A significant risk of this strategy is when the spread opens up above 10 pips. If and when it happens the SL and the re-entry are activated in VERY RAPID sequence after each other, grinding down the account to ZERO within a few seconds. In other words: the entire account would be "gone in 5 seconds". LITERALLY. I have seen this phenomena happening on a live account with a similar strategy. NO BACKTEST would predict such an event. If anyone plans to trade this strategy with an EA (apparently it may need potentially overnight attention) there should...
Yes thats why i mentioned that system is very risky and you need to do selection of broker and account very carefully. Look for ECN account along with very good reputation broker.
Love for all; Hatred for none.
  • #27
  • Aug 31, 2014 3:43pm Aug 31, 2014 3:43pm
This is more about martingale (stop and reverse with double size) than about compounding (adding winnings to balance to recalculate next position size)... This will blow up very quickly.

Another scenario: FOMC or any other high impact news for that matter with rapid ups and downs will cause your system to open/close positions in rapid succession. It will bleed your account dead in a matter of seconds indeed. Good luck anyway! Some martingales do work for a long time but I don't have much hope for this one.
  • #28
  • Sep 1, 2014 3:03am Sep 1, 2014 3:03am
Quoting ExForX
This is more about martingale (stop and reverse with double size) than about compounding (adding winnings to balance to recalculate next position size)... This will blow up very quickly. Another scenario: FOMC or any other high impact news for that matter with rapid ups and downs will cause your system to open/close positions in rapid succession. It will bleed your account dead in a matter of seconds indeed. Good luck anyway! Some martingales do work for a long time but I don't have much hope for this one.
A simple "newsfilter" and/or "extreme volatility filter" built in the EA could prevent the mentioned scenario.

Using a reasonable SL (e.g. max. 10%) would also protect the account from blowing up, and if the accumulated small profits are larger than the total of suffered SLs STATISTICALLY with a long term backtest, then the strategy might have a fighting chance.
  • #29
  • Sep 1, 2014 3:49am Sep 1, 2014 3:49am
Hi ahmad,
What indicatro you use to paint the bars?

BR
  • #30
  • Sep 1, 2014 4:20am Sep 1, 2014 4:20am
thats the point!
we only have to avoid major news Releases which are causing the spread increase!

I think I give it a go on friday on a small live account trading micro lots to see how it's performing under real market conditions.
  • #31
  • Sep 1, 2014 12:52pm Sep 1, 2014 12:52pm
Quoting sasavisnic67
Hi ahmad, What indicatro you use to paint the bars? BR
It is SonicR template.
Love for all; Hatred for none.
  • #32
  • Sep 1, 2014 12:56pm Sep 1, 2014 12:56pm
Quoting Mr.Ma
thats the point! we only have to avoid major news Releases which are causing the spread increase! I think I give it a go on friday on a small live account trading micro lots to see how it's performing under real market conditions.
thats why i mentioned that if major news is releasing at NY open then use LO.
My job was to share strategy which was in my mind. Now to avoid different scenarios, traders have to be careful.

It is not hard and it is very easy to stay away from major news release. It is not science, just stay away. Don't be greedy to get TP every day.
Love for all; Hatred for none.
  • #33
  • Sep 1, 2014 1:00pm Sep 1, 2014 1:00pm
If we compare NY and LO for today then LO is successful because it could hit TP on first trade but on the other side NY first trade is still active and TP is not yet achieved.
Love for all; Hatred for none.
  • #34
  • Sep 1, 2014 1:17pm Sep 1, 2014 1:17pm
Quoting aahmad29
If we compare NY and LO for today then LO is successful because it could hit TP on first trade but on the other side NY first trade is still active and TP is not yet achieved.
Today is an official holiday in the USA; probably it has something to do with it.

I guess, this strategy might be good with both NY and LO. At least it is worth testing it with both.
  • #35
  • Sep 2, 2014 12:31am Sep 2, 2014 12:31am
September 01, 2014:

5th successful day for this compounding system.

As per rules, M5 candle close at 1.31360 so

- Opened Long position at 1.31360 with 0.1 (SL hit at 1.31260)
- Because SL hit at 1.31260 so open short position at this value with 0.2

- Our TP hit at 1.31160


Take Profit is achieved and there was no need to open any other position.

Results:

First Long position = -10 Pips
Second Short position = +20 Pips


End Result : -10+20=10 Pips
Attached Image (click to enlarge)
Click to Enlarge Name: untitled.JPG Size: 88 KB
Love for all; Hatred for none.
  • #36
  • Sep 2, 2014 1:42am Sep 2, 2014 1:42am
Quoting aahmad29
September 01, 2014: 5th successful day for this compounding system. As per rules, M5 candle close at 1.31360 so - Opened Long position at 1.31360 with 0.1 (SL hit at 1.31260) - Because SL hit at 1.31260 so open short position at this value with 0.2 - Our TP hit at 1.31160 Take Profit is achieved and there was no need to open any other position. Results: First Long position = -10 Pips Second Short position = +20 Pips End Result : -10+20=10 Pips {image}
nice one!!!

was quiet slow yesterday because of US & CAD holidays
  • #37
  • Sep 2, 2014 4:40am Sep 2, 2014 4:40am
London open would have been good today, too.
  • #38
  • Sep 2, 2014 10:09am Sep 2, 2014 10:09am
September 02, 2014:

6th successful day for this compounding system.

As per rules, M5 candle close at 1.31159 so

- Opened Long position at 1.31159 with 0.1 (TP hit at 1.31259)

- Our TP(Green line) hit at 1.31259


Take Profit is achieved and there was no need to open any other position.

Results:

First Long position = +10 Pips



End Result : 10 Pips
Attached Image (click to enlarge)
Click to Enlarge Name: untitled.JPG Size: 66 KB
Love for all; Hatred for none.
  • #39
  • Sep 2, 2014 10:24am Sep 2, 2014 10:24am
Quoting aahmad29
September 02, 2014: 6th successful day for this compounding system. As per rules, M5 candle close at 1.31159 so - Opened Long position at 1.31159 with 0.1 (TP hit at 1.31259) - Our TP(Green line) hit at 1.31259 Take Profit is achieved and there was no need to open any other position. Results: First Long position = +10 Pips End Result : 10 Pips {image}
These results are very nice, but as with all Martingale strategies, the question is how often does the "Death Trade" (or SL) come.

I really DO see promise in this strategy, but we should be prepared for the "worst case scenario" which may come once or twice a year (backtests could give an ESTIMATE about it). And the strategy should be able to hadle such events.

So in my opinion, anyone who could contribute to this thread should come up with ideas about handling the "bad days". Mine is: SL should not be larger than 10% (preferbaly not larger than 6%), so a larger account could run further even after suffering 2-3 losses.
  • #40
  • Sep 2, 2014 11:23am Sep 2, 2014 11:23am
I guess, it should be important to have o good MM. I mean, if we have 6 good results, like aahmad showed, I think it's foolish to apply the whole strategy after an initial loss with a 0.01 lot.
In other words, I consider prior MM then the strategy.
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