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Static, If you prefer by all means use indicators to gauge the market condition and only play the currency that has a small spread and is not trending. Some great indicators for this are Williams %R (set to 100 on 1 min time frame in particular) ADX, MACD, BrainTrend, (The former should be coupled with high volume to signify a healthy trend, along with corresponding trends in lower time frames), MTF MACD is a good one too. I think Igorad authored that one.
Anyway, use these if you prefer. I don't bother and I do great.
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Scotty said:
"Below is the part I simply cannot understand....
Now, let's say that you get out with a pip of profit but it leaves you -7 in the opposing trade and then that trade shoots down to -23. What to do? That is a huge hole, and a big problem. What I do is to cap the trade with another opposing trade and let it run. Assuming that I allready have some in the pocket I can ride it out (depending on how close you are to using full margin) and wait to see if the negative trade turns around. Naturally it may fall back to zero, leaving you with a smaller hole in the other trade, using the other pips I have in the pocket. Worse case scenario is a small daily loss.
WHat does this mean?
If I am down 23 pips on the open trade (lets assume its the short trade - so currency is up 23+)...now I enter another short? Or as when you say "cap" I enter a new long. This means I have capped my shortnloss at 23 pips, BUT it also means my loss is LOCKED, I cannot make up anything at this point. If the currency turns around now and goes down, lets say 24 pips, I am up one on this short trade, but I am also down 20+ on the new long. Am I missing sonmething? Based on how I understand, you can never overcome the hole in ANY condition. Even if only down 5, once you start over you will lose unless it seesaws enough"
This situation would come about after having closed the long trade at a profit of 1 pip. So the short then blows up and falls to negative 23. Open a new long (before then, one would hope ) . One of two things will happen. The short will recover, falling back towards zero, making the long go negative, or the short will continue to fall, making the long go positive. Let's say that the short goes to zero. You then have a long position at -26. If you have 26 in the pocket you can break even. If you have 10 in the pocket you can close with -16 for that play, if you only have 1 in the pocket you can close for -25.
This is the 'bad trade' of this method. It is however, rare.
If you have 8 hours to work with you can make the loss up usually and finish the day at break even.
Do you see now the concept of the pocket?
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The reason that the above described loss is rare is because I only need the negative trade to move up 2 or 3 points before opening the opposing trade again. Waiting for the price to move toward 0 ensures that the hole remains constant and small, so that the pocket can catch up and overtake it. WHICH IS WHAT CREATES PROFIT IN THIS METHOD.
Even in strong trends the price fluctuates within that range, back and forth, back and forth. I do not require steady seas, just a small back and forth of about 5 pips.
Even if the price falls like a rock after I close a trade it will generally recover. What I call 'capping' it, which is hedging it while it is at a large negative like -23, is a last resort of desperation. It recovers usually.
You might need nerves of steal to do this sometimes, but you don't really need indicators.
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Last edited by Cyclesurfer; 06-23-2007 at 09:00 PM.
Thanks for the explanation. I do believe I understand now, I am just not sure if this could really work, although I am still very intrigued.
My problem is this (forget the above problem). Assume:
I enter Long and short 50/52...goes to 53. I exit long +1
I am now down 3, I wait a minute, and its very likely the -3 becomes -5. So I enter new long, it goes up 3, so I pocket +1 (now +2), BUT I am now -8 . I enter another new long, and now it all reverses, so my short gets to +1, I exit (pocket now 3). BUT my long is now -11. This cyle will keep going and I could never overcome the loss in the pocket. Am I missing something still? Under my following its impossible for this to work, unless you always exit when it moves 3 pips back and forth?
Thanks for the explanation. I do believe I understand now, I am just not sure if this could really work, although I am still very intrigued.
My problem is this (forget the above problem). Assume:
I enter Long and short 50/52...goes to 53. I exit long +1
I am now down 3, I wait a minute, and its very likely the -3 becomes -5. So I enter new long, it goes up 3, so I pocket +1 (now +2), BUT I am now -8 . I enter another new long, and now it all reverses, so my short gets to +1, I exit (pocket now 3). BUT my long is now -11. This cyle will keep going and I could never overcome the loss in the pocket. Am I missing something still? Under my following its impossible for this to work, unless you always exit when it moves 3 pips back and forth?
Now I see where the confusion is! If it becomes -5 you would NOT enter a new long at this point. You are right that if you are careless you will end up with an ever growing hole, and buying back in at -5 will do it! You don't want to do that because it will enlarge the HOLE (the negative balance of the trade that the pocket must overcome to make profit for you, remember that you will always have a negative trade as long as the play is open. Play is open until either you close the negative trade for a loss or you subtract the pocket from the hole for a profit by closing the negative trade while it is less than the pocket. The pocket is the total trades made in that play, each making 1 pip, added up...anyway....) and this is NOT good. You have 1 in the pocket and 5 in the hole. When the negative trade (the hole) goes to -2 you would open a new long. Not -5. So now you have a long at -3 and a short at -2. You set limit orders for each trade (you would already have one for the short, so just set one for the new long) to catch 1 pip. WHICHEVER DOES NOT HIT PROFIT BECOMES THE NEW HOLE. The idea is to continue to open a new position at DISCOUNT (which is what you did by opening the new trade while the hole was closer to zero, not farther away) Repeat this process until you have around 8 in the pocket then you should be able to get out with 5 profit or so once the hole rises to -2. Do you see that either trade can become the hole?
I hope this makes it clearer.
This is not a perfect system, but it will make money for you. It is also less risky then opening a single position in one direction. Though I admit this may be a matter of opinion for some, but not for me. The market is very unpredictable when one tries to predict it's future direction short term.
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Last edited by Cyclesurfer; 06-23-2007 at 09:22 PM.
) . One of two things will happen. The short will recover, falling back towards zero, making the long go negative, or the short will continue to fall, making the long go positive. Let's say that the short goes to zero. You then have a long position at -26. If you have 26 in the pocket you can break even. If you have 10 in the pocket you can close with -16 for that play, if you only have 1 in the pocket you can close for -25. 
or you subtract the pocket from the hole for a profit by closing the negative trade while it is less than the pocket. The pocket is the total trades made in that play, each making 1 pip, added up...anyway....) and this is NOT good. You have 1 in the pocket and 5 in the hole. When the negative trade (the hole) goes to -2 you would open a new long. Not -5. So now you have a long at -3 and a short at -2. You set limit orders for each trade (you would already have one for the short, so just set one for the new long) to catch 1 pip. WHICHEVER DOES NOT HIT PROFIT BECOMES THE NEW HOLE. The idea is to continue to open a new position at DISCOUNT (which is what you did by opening the new trade while the hole was closer to zero, not farther away) Repeat this process until you have around 8 in the pocket then you should be able to get out with 5 profit or so once the hole rises to -2. Do you see that either trade can become the hole? 
Linear Mode
