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Originally Posted by Cyclesurfer
I like your idea. However, there are times when it would be silly to randomly enter the market. When the price is in a strong downtrend and you look at it and say "okay, ill flip a coin...the coin says to buy" that would be one of those times. Ofcourse, you are still right that just to be in the market gives you a 50% chance of winning because, frankly, the current trend doesnt mean all that much to us because we dont know how long that trend is going to last. "The trend is your friend, unless its about to end" comes to mind, so you may be onto something. Id still say using an indicator like Brain Trend to enter that down trend as it recovers from a retraction would give you a 70% chance against 50% that it will reverse though. There is one more thing that I see. You say that you would enter a position from the opposite direction if you got stopped out. So if you got stoped out of a sell, you would buy. The market doesnt usually work like though. If it goes up 50, its probly going to retract atleast 30 before it keeps going up. And that is assuming that it is even a new uptrend. If its not, then it will either retract or keep falling and you would find yourself $100 short. Id say your better off just using BrainTrend to try to predict the new trends. I still like your idea though, it has a certain charm and logic, think we need to work those issues out though.
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I should have been more concise by what I meant about random entry. The idea of this system is that you don't need to wait for an MA cross or some indicator to tell you it's alright to get into the market. Since indicators lag, the price may have already made it's big move and you've entered at a bad time, or you just missed out on the opportunity of making all those pips.
So it's random in that you can enter the market whenever you want. Eventually the market will correct you though. There is no flipping a coin such that you could go long when the market is actually in a down trend. The decision is made by the market.
In the basic method to trade this system you only have 1 position open. TP/SL of 30/30 for example. You enter a long trade. Price rises and hits your TP. You then immediately enter another long trade since you won the last trade. This time price falls and hits your SL. You then immediately enter a short trade. If the TP gets hit on the short trade then you enter another short trade immediately. If the SL gets hit on that short trade then that means market is going up and you are then immediately placed into a long trade.
"If it goes up 50, its probly going to retract atleast 30 before it keeps going up. And that is assuming that it is even a new uptrend. If its not, then it will either retract or keep falling and you would find yourself $100 short. Id say your better off just using BrainTrend to try to predict the new trends."
Ok, say you have a TP/SL of 30/30. You enter long, your TP gets hit on one trade and you go long again. This time price only rises another 20, to get to your 50 pip gain. It then retraces 30. So our trade, after being up 20, is now -10. It hasn't hit our SL on the second trade yet. Price then continues in the uptrend and we win the trade. Or price continues down and stops us out, which would require price to have dropped 50 from the 50 pip peak you gave us. This, in my opinion, gives the price momentum to keep dropping and therefore be profitable to enter short trades.
Thats the idea of the system. Reverse your position when you get stopped out since that is where price is going. Carry the momentum into your trade. By having set goals to break up a trend we're allowing ourselves to give up the cost of the spread, BUT we aren't concerned with finding reversals. This way we're always in the market and have the possibility of riding a trend to infinity if it wanted to. We lose on the reversals, but gain on the entire trend down minus the spreads. We're simply locking in profits.
So really the perfect TP/SL combination is one that is incredibly small such that we can change our position early after the reversal. This isn't possible because of spreads and the general market noise that would stop us out too many times.
But to reiterate. No, this system IS NOT entirely random. We don't need a set market entry point and that is random. The market will then correct us if our position is wrong and place us on the right track towards getting profits. Matt