Discussion of article "Reversing: The holy grail or a dangerous delusion?"
i used this strategy 1 years ago ,better than the so call 'ollowing-trends-strategy.
but finally i lost all money ,without the riskmanagement.
then i think about this , and i can explain it in a symple way.
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for simply, let 's get a symbol AAABBB - no matter what is it. and the current price is 1000.
1)buy 1lot of it ,then you get a ticket ( buy 1 1000 ) -> in format of (direction lots tickopenprice),same as follow.
2) when price drop to 800, there are 2 choice if want to open more ticket:
2A) open ( buy 2 800 ) . now the two ticket { ( buy 1 1000) , ( buy 2 800 ) } are equal to a ticket (buy 3 866),means you don't open any ticket untill it reach 866 then you buy 3lots at 866.
or:
2B) open ( sell 2 800 ), now the two ticket { ( buy 1 1000) , ( sell 2 800 ) } are equal to a ticket(sell 1 600).
we can see ,no matter 2A or 2B, what it's done is to pull the cost down and make it get closer to the current price .
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in the case of 2A(for exam),you could earn cash when price running up across 866.
but what if the price keep falling?
just another 2A or 3B.
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BUT! 2 THINGS TO REMEMBER! THESE ARE WHAT I LEARN AFTER I LOST MY MONEY.
1. in the case of 2A(for exam),if price keep going down,the more 2A or 2B, the deadline are also drop down.
the deadline is the price position. if price reached there,all ticket will force to cancel.
do the math and mark the deadline, it is visualable that the margin% in the status bar.
2. the swaps. it could be our heave loads if we lock the order (buy tickets and sell tickets).
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New article Reversing: The holy grail or a dangerous delusion? has been published:
In this article, we will study the reverse martingale technique and will try to understand whether it is worth using, as well as whether it can help improve your trading strategy. We will create an Expert Advisor to operate on historic data and to check what indicators are best suitable for the reversing technique. We will also check whether it can be used without any indicator as an independent trading system. In addition, we will check if reversing can turn a loss-making trading system into a profitable one.
Basics of proper reversing
Having performed many tests while optimizing the below Expert Advisor, I have prepared some rules that need to be followed if you want to minimize the risk of losing your deposit. These rules are not the ultimate truth, but worked for all tested symbols and period.
Rule 1: Take Profit should be greater than Stop Loss.
Articles relating to martingale and reverse martingale techniques, suggest that Stop Loss should be equal to Take Profit. But tests proved this opinion to be wrong. In all tests conducted in all markets, the use of equal Stop Loss and Take Profit caused the deposit to be lost. Your only chance to obtain profit is to set Take Profit at least twice as large as Stop Loss.
The optimal ratio between these two parameters depends on the particular financial instrument. For example, the ratio for GBPUSD is approximately 3:1 or 4:1; for EURUSD it can be both 2:1 and 4:1.
The ratio of 2:1 means that the Take Profit level should be twice as large as Stop Loss. I.e. if SL is 40 points, TP should be equal to 80 points.
Rule 2: Stop Loss should be large enough.
In a ranging market, such as Forex, the combination of small Stop Loss levels with a reversing strategy causes deposit loss. All performed tests confirmed this rule.
In the below EA, we will use Stop Loss of 40-90 points. Please keep in mind that since currency symbols have 5 or 3 decimal places, the selected SL and TP are multiplied by 10 (I don't know why, but this is done in all Expert Advisors published under the Articles section). That is, the real Stop Loss is 400-900 points. That can be compared to the average daily movement of the financial instrument.
Stop Loss values below 400 points cause complete deposit loss regardless of TP. The only exception to this rule will be provided below, in the description of the strategy involving entries once a day.
Rule 3: The timeframe should not be too small.
The use of large SL and TP values reduces strategy dependence on the timeframe. Positions are held open for quite a long time - from one day to one or more weeks. But it was noticed that profit on timeframes below M15 was lower. The same was observed on timeframes above H1, which is because the number of trades decreases.
Rule 4: Stop at the proper time.
In theory, if you keep opening new positions after a losing one, you will ultimately obtain profit. But in practice, the endless opening of positions with a doubled volume may cause the total deposit loss.
Author: Roman Klymenko