Quote:
Originally Posted by sjerar
What you can reach?
1/1 win/loss ratio?
Even then you loose the spread.
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My thinking is that over time you would have equal odds then if you were using an indicator, say Henkin ashi or Braintrend. I have used them both (they give almost identical signals) allot and they do give the trader a small edge, but not enough of an edge to be of much use in building wealth. My thinking here is that if one uses a scale as described below then over time wealth will be built even though each trade has a presumed 50% of chance of giving profit.
Level 1
$100x5 profitable trades=$500
Level 2
$200x5=$1000
and so on, adding 1 lot at each level. I think it is a mistake to assume that the win loss ratio will be 1/2 because we are dealing with random probability. It could be in our favor, or very much against us, but I don' think it will stay 1/2 for any length of time. If you flip a coin 10 times it will usually show a slight bias for one side or the other. The trader would not need to be right every time for this to work, they just need to be patient enough to stick with it. If one thinks of that first $100 as the seed for the whole system it's actually not expensive. A serious trader should have two mini accounts minimum anyway so it's not like they couldn't go on using their normal system. Anyway, my working assumption is that eventually he or she will get lucky enough ( after allot of fluctuation between the first few levels)to reach the level where they stop adding lots (to protect the account that they have worked so hard to build), at which point they pile on more and more equity overtime. Eventually they can begin taking profit from the system. It's like a fire, it takes time to get started, and diligence to maintain. the upshot is that it es no analytical effort at all. Simply choose a low spread currency pair, open the trade and place the limit and stop order. Then go play golf and come back to it the next day. Of course it may lead a slight advantage to always go with the trend on the daily chart, but that's up to the trader. I don't think it would make any big difference. The trader just has to keep at it until they get to level 2, and then weather the bad trades till they get to level 3 (which may mean starting over a few times) and then level 4, and then level 5, etc. The farther one gets from level 1 the lower the probability of having to start over, of course. But this is no small point. AT level 10 using this system, one would be using 10 mini lots. That's $1000 per good trade, $5000 per 5. At that point the trader could simply maintain that level. Say if they get to level 10, hit a bad trade, lose $1000, so they are back at level 9, work their way back up and make some more money. Make it 100 lots and it doesn't seem like such a pain. Anyway, I'm going to open an additional mini account to test this, ill post the results.
It's kinda like using a martingale system in internet blackjack. The dealer has to win 7 times in a row to bust you. We aren't doubling our trades at every loss of course, but the concept is the same. If you get to level 5 you have to take several losses for the market to bust you. 10 to be precise ($4500/$400), rounding down to 10 to account for spread. I'm really exausted right now so if anyone sees a flaw in my math or logic don't hesitate to let me know. Of course the actual number would be slightly higher because you can't go on trading at level 4 if the market beats you back to the point where you've burned through that level so you drop down to level 3 at that point and so on until you recover. Anyway, that's 10 consecutive bad trades you can take if you drop down to i trading 4 lots. More conservative traders might prefer to drop down to level 2 to rebuild up to level 5 before trying for level 6 again. This may be way out of allot of peoples comfort zone and that's good, because too many people doing the same thing is never good.
As far as spread, I get as low as 2 pips for USD/JPY, which is the currency pair ill be using primarily for this, so it's not really a big deal. If nothing else, I can make my take profit two points higher, hell, 4 points higher.