Question: Would you be willing to trade any system or strategy you want on your $10000 account and turn every trade you take into a win trade (of $200 or $20) or a breakeven trade and have only a small theoretical chance of losing let's say $600 in worst case scenario?
Some traders would probably say no, if your answer to this question is also NO, then have a nice day;) If your answer is YES or MAYBE, then before you will jump out of your seat thinking you just found a holly grail of trading, please read carefully all stuff below and download and test a demo version of my newest EA, because it might also work for you!
So everything started with the following simple question:
"Is it possible to design a recovery system that is using a smart hedging mechanism able to "beat" the forex market? - and also your broker "
Apparently and surprisingly the answer to that question is YES*.
(*= of course only under certain conditions)
So to prove the statement above, I've coded an EA that is using "back-and-forth" hedging mechanism (it's NOT a martingale system), which I'll explain in the pdf manual. This trading technique is probably not new and maybe it is also discussed many times on this forum. However, I couldn't find any EA for it so I've coded my own.
Thus, just for the illustration let's say you have just entered a "sell" trade and you are now waiting to see what will happen next. Let's think about this situation for a moment. For sure we cannot predict the upcoming market events with a 100% accuracy. Then what can we say regarding the future market direction? Unless you are an extremely experienced trader, the answer is of course: not so much! However, the one and the only one peace of reliable information, that we have at that moment, is that the market will eventually go "up" or "down" w.r.t. the current price level. It can take a day, a week or even a month but the market will move up or down, simply because it has to!
We can take this one peace of reliable information and use it to our advantage. And here is how:
At any point in time, any price level we can open a "buy" or "sell" position and add several new positions by anticipating to new market movements. Thus, when the first trade is a "sell" order and market moves several pips in the opposite direction (up), then we could open a new "buy" position, and vice-versa. While doing this back-and-forth hedging we could also calculate the new Lot size required to cover for our previously opened trade(s) at our original TakeProfit, but ALSO at our original StopLoss level! By doing some simple mathematical calculations we can easily discover that the Lot sizes of our new recovery trades are not necessary always bigger than the previous ones. This is so much better than a martingale system which will just blow up your Lot sizes just within a few trades.
Of course there are some constrains, w.r.t this trading methodology. For example we need to make sure our open trades will not eat up our freemargin, which we will use to open new trades in case of market direction change. So this automatically means (unless you have a $100000 account) that we need to trade only with small lot sizes, e.g.: using mini lots (0.1 of standard Lot size) but also not to small e.g.: micro lots (0.01 Lot size) because of calculation errors that are introduced by the "MODE_MINLOT and MODE_LOTSTEP" restrictions. Furthermore our account size needs to be large enough to be able to cover for some equity dips and the required margin. Our StopLoss and TakeProfit levels need to be carefully chosen to minimize the resulting recovery lot sizes. We also need to make sure the system can survive several recovery attempts, when market will be ranging. (The wise recommendation for ranging condition is to exit at the best price and take some small losses). Furthermore, we need to add some on-the-fly correction for our spreads, slippages and swaps and commissions. To help the system a little bit we will also add a BreakEven with a TrailingStopLoss mechanism and will also automatically close all positions when our pre-set ForceTakeProfit target is hit.
Nevertheless, this type of trading could have some potential for success when positions are opened manually or according to a proven trading system. How about the risks involved in this kind of trading? It depends on several factors like: account size vs lot size, spreads and slippages, selected recovery levels, etc. As I said before the most important is to avoid ranging markets and assuring our account has sufficient FreeMargin for opening new trades. Otherwise the system will not be able to recover and it will take a loss. The only way to find out the limits of this system is to play
with it and adapt the parameters according to desired trading behavior. Please try it first on your demo account or in strategy tester (99% modelling only!) When the settings are properly chosen you will see, that it is really very very hard to lose money with this system.
Link to this EA:
Link to the manual:
There is no free lunch: No free lunch theorem - Wikipedia, the free encyclopedia
Plus US regulations do not allow hedging
@nevar nobody is saying the lunch is totally free...there is some risk involved in this trading strategy (see the manual!), but when used properly the risk is very very low.
@nbtrading: there are plenty of brokers that allow hedging (mine does for sure! markets.com). See also:
Hedging Forex Brokers
That does not mean a lot to US residents (that a lot of brokers allow hedging) unless they want to be targeted by the law enforcement. Anyway. thanks
''Would you be willing to trade any system or strategy you want on your $10000 account and turn every trade you take into a win trade''
this is your initial claim now you are saying ''there is some risk involved in this trading strategy''.
If you do not like this strategy, ok just skip this thread and go forward, do not waste time here. I wish you the best.
This is a forum, it is free to say anything or you can save the universe with a free strategy , so dont be offended.All the best.
Sounds interesting, will go through it ..
Thanks for sharing ...
I was thinking how to improve this system even more and I think I have succeeded in doing that. So the main problem occurs during the ranging market conditions. Then the EA will keep opening buy and sell positions every time the price will cross the recovery line levels. In worst case scenario it could open even 10 positions (or even more). This will totally destroy the FreeMargin level and introduce a risk of "unfinished recovery" cycle. So my idea
was to introduce a "moving recovery target" mechanism. The idea is to shift the recovery levels closer to the market, each time a new recovery trade is opened. Doing so, the EA would be targeting lower and lower recovery levels and this would increase the chance of successful recovery.
To test this improved recovery system the EA (version 01.1) is programmed to enter the market almost randomly, where every new market entry decision is based only on the information from the previous candle and a new position is automatically opened when the previous trade (or trade group) is closed. The entry logic is:
This is of course the stupidest entry algorithm ever, so normally your account would be wiped out in several days. This kind of trading would end in a random walk towards the $0 line. So let's run a backtest from 2007 until now and see if this system can survive this worst case random test.
- initial deposit $10000
- EA settings: see tester report
- EURUSD @ H4
- dukascopy data 2007-2014 is used
- fixed spread of 3pips (to simulate my broker's spread)
- backtest performed using tickdata with 99% of modelling quality, this is extremely important since the results are very
sensitive to small price changes
- back tester set to "every tick" mode
Strategy Tester Report:
Link to the full statement:
Strategy Tester: CoensioRecoveryEaV01
So as you can see, apparently this strategy can withstand even 7 years of random trading! Personally I think it is, a very GOOD result.
p.s.: I'll post the updated EA version 01.1 as soon as possible.
What nbtrading was trying to tell you that US residents can not use that EA. They are obliged by the law to use US regulated brokers, and US forex brokers regulations prohibit single symbol hedging (among other things)