Automatic Loss Recovery System (ALR) - read this first

Post your EA's using ALR here
Post Reply
Dewey McG
Trader
Posts: 435
Joined: Sat Nov 26, 2011 4:20 pm
Location: Tampa FL

Automatic Loss Recovery System (ALR) - read this first

Post by Dewey McG »

Edit: Thanks to Wealthmaster for catching a big error I made earlier. Again, before any coding please double check the numbers so we can make sure this is ready to roll out.

Initially I was just curious and rather sceptical, but after playing around with this with help from Gary, Spider. Wealthmaster and others, I think this is pretty amazing. I am updating my first post and will try to explain this. It might seem complicated at first and the initial reaction is to think it is some type of martingale, but it isn’t. Just to whet your appetite, what if I could tell you there was a way to take a system that only hit TP 50% of the time and change it so the rest of the trades would get out at a small profit and your chance of hitting SL was only .098% or one in every 1000 trades! If your win percentage is 70%, your chances of hitting SL are just .0006%, or 1 in every 180,000 trades. Read on:

I am sure many of you have also been getting some e-mails from Dustin Pass' latest and greatest, the ALR (automatic loss recovery) program that supposedly means you will never lose a trade again. You can check it out here: http://forextradersdaily.com/alr/?p=1 BTW—it sells for $1997.

This looks very similar to something Joseph Nemeth is selling as part of his program. His lecture on recovery where he says this method will mean you never lose a trade again is explained in Lesson 4 here: http://www.4x-dat.com/nemeth.asp His program is around $3,000

If you google the names of these two you will see enough to make you run for the hills. Having said that, I have to admit the hype intrigued me enough to want to investigate further since there is plenty of talent here to be able to program such a thing if the theory held any water.

The idea is that say you take a buy order for 1 lot and would normally place a 150 pip TP and a 50 pip stop loss, instead you take a sell order for 1.4 lots. If price keeps going down another 150 pips you will make a small profit. If it goes back up to where you first took your order (this area is called the recovery zone), you open another buy order for 1 lot. If it goes up another 150 lots, once again you get out with a small profit where you would have taken a loss otherwise. Each time price reverses instead to the other side of the recovery zone then you open another trade. Eventually price will go up or down enough to be able to close all the trades. This means when you are right, you will hit your tp as you planned. When you are wrong, your trades will close at a modest profit. Once in a blue moon you will hit SL but it won’t devastate your account.

As we played with the numbers we realized the exposure is nowhere near as much as we expected. At this point I want to also thank Gary for improving the numbers we were working with. With even a modest win rate, the chance of hitting a SL become remote and unlike a martingale, does not kill your account. It will still be a hit and you have to factor that in, but you can specify your risk ahead of time.

The ALR calculator will allow you to test this based on how many turns you want to try, risk factor account size TP levels and where to start your recovery (TP should be at least 3* ALR. So if you turn ALR on at 50 pips, your TP should be 150).

Please read the guide on how to use the ALR, but feel free to ask questions.

If you want to reduce the numbers of turns on your trades, try using pairs with higher volatility. I might even add looking to see if volume is above average.

I am guessing that programming the trade manager will be complicated. Perhaps the simpler way would be to have the user use the ALR Calculator spreadsheet then enter in the numbers into the EA manually. The more complicated version would have all the calculations built into the EA once the user selected how many turns, TP and ALR level.


((also note I did not include profits from the ALR trades. They are small and I wanted to allow for slippage and swap)

Edit. The PIC with Scenario's 1 and 2 should say a tp of 150 pips, not 15.


June 22 edit:
Another update to play with:

I made different tabs for numbers of turns so you can test everything from risk size, number of turns, win rate etc.

Each person will have their own comfort zone. Use enough turns and you may never see a stop loss again, but if you ever do it will be much larger. if you use this approach please don't go crazy just because the odds are 1 in 180,000 that you won't. Chances are you will be that one, so make sure it doesn't blow your account. Use less turns and the SL is much smaller but you will get more. The size of your account should be factored in as well.

EDIT Jun 23: Just trying to make the ALR Calculator a little easier to use. To set your SL and TP just use the first tab labeled SL & TP. IT will automatically copy those values to the risk tabs where you can play with different sl and TP values, risk settings etc.

IMPORTANT Edit June 25th:
Important update on ALR calculator

This is important for calculating risks and expectancy of profit. I realized a mistake I was making before. While it is very reasonable to experiment with different win rates for the initial trade, once price goes against our position and we begin ALR we have to look at it differently. If we are using a 150 pip tp and 50 pips to another ALR trade, then we are really looking at a 25% win rate on all ALR trades after the initial trade. So even if your strategy would normally give you 70% winners, once to moves against you and the ALR cycle begins everything changes. Now one could argue if your system is trend trading VSA or price action based etc. that you will still be right more than wrong I figured we should be as conservative as possible and use the 25% number. As you use more turns, odds against hitting a stop loss still remain small, but we need to use these numbers. New ALR calculator is attached.

Edit June 29th. I made some improvements to the ALR calculator which I hope will make it easier to sue. I also included Klotsh' formulas so you can enter in spread and the amount of profit you want to lock in on ALR trades.

Edit July 4th: One error that a few people are making is what happens after the last turn. We do NOT close all trades at the last turn. at this point we wait. One of 2 things will happen. If the original trade was a buy then either it will go up 150 pips (or whatever the TP amount is) and we make a small profit or we go down 200 pips from the original price, which is the TP for the sell trades (150 pips plus 50 pips ALR zone).

This also means the odds are actually better after the last turn. We need 150 pips for a small profit but it will take 200 pips for us to hit a loss. So the last trade has a 57.14% chance of success not 25%. This only applies to the last turn. Updated ALR Calculator attached

Edit 7/09: We have some EA"s!!!

Trend trading EA with ALR from Spider (also set up as a shell to substitute other strategies: http://www.stevehopwoodforex.com/phpBB3 ... f=5&t=3719

Trendtrading EA with ALR from madpipa:
http://www.stevehopwoodforex.com/phpBB3 ... &start=170

Trade Manager from Wealthmaster (this one can be used with your own strategies):
http://www.stevehopwoodforex.com/phpBB3 ... &start=180

Link to demo account with Madpipa's EA: http://www.myfxbook.com/members/deweymc ... alr/983088

Edit August 11: Major revision to Spider's EA using "ALR II". I will add a post later describing the differences, but for now will add the new calculator. The big advantages are it uses smaller lot sizes, has less exposure and is compliant with US brokers. Check out the updated version here: http://www.stevehopwoodforex.com/phpBB3 ... 719#p95638
You do not have the required permissions to view the files attached to this post.
Last edited by Dewey McG on Thu Jul 10, 2014 2:14 am, edited 17 times in total.
User avatar
SpiderX
Trader
Posts: 554
Joined: Thu Aug 22, 2013 4:50 pm

Automatic Loss Recovery System (ALR)

Post by SpiderX »

Hi,

It seems that he trades a basket and the extra trade is a worse case thing.
He mentioned maximum of 4 turns, but it seems according to him...most of the time the basket closes before going into so many turns.

Cheers
"Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs.Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres."
-Corinthians 13:4-8
Dewey McG
Trader
Posts: 435
Joined: Sat Nov 26, 2011 4:20 pm
Location: Tampa FL

Automatic Loss Recovery System (ALR)

Post by Dewey McG »

SpiderX » Sun Jun 15, 2014 11:49 am wrote:Hi,

It seems that he trades a basket and the extra trade is a worse case thing.
He mentioned maximum of 4 turns, but it seems according to him...most of the time the basket closes before going into so many turns.

Cheers
The 4 turn max is what Joseph Nemeth says, plus he relies on other trades he has going on to close everything at BE or in profit. Dustin's version is not dependent on other trades and his ALR has a 15 turn default cap. He said in backtests the most he has seen is 10. My concern is how big the trades have to be at that point and the amount of exposure. I was hoping my math was wrong and there was another way to do this.
garyfritz

Automatic Loss Recovery System (ALR)

Post by garyfritz »

Dewey McG » Sun Jun 15, 2014 8:43 am wrote:So far, I am still trying to understand some of the basic math behind this to make sure this isn't something like a martingale that works great until that one day when it blows your account. If price keeps chopping you have to open larger and larger trades:
Sounds EXACTLY like a Martingale to me. Either you bail at some point (4 trades, 15, whatever) and take the (BIG) loss he said you'd never have to take -- or you keep reversing until the market finally cooperates. And in the extreme, you would need an infinite account to keep growing your size.

The biggest problem with these -- even if you cap your losses -- is that the eventual loss size (after 4 turns or whatever) is large, and your eventual win is small. Usually the loss is about equal to all the small gains. Even if you have a huge enough account to withstand the huge trade size it can grow to, so you really never have to take a loss, the eventual win is so tiny compared to the account that the returns are too tiny to bother with.

So basically you have three options:

1. You take on unacceptable risk -- the risk of blowing your account.
2. You cap the losses, but that capped loss generally eats the winnings from the previous wins. No gain.
3. You trade a huge account and you accept absurdly small returns.

Some people say you can make it work by drawing out your profits and limiting your loss when it blows your account. But then you have to use your withdrawn profits to re-fund the account if you want to keep trading. In my tests that didn't work either.

Maybe somebody can make this work. I couldn't.
Dewey McG
Trader
Posts: 435
Joined: Sat Nov 26, 2011 4:20 pm
Location: Tampa FL

Automatic Loss Recovery System (ALR)

Post by Dewey McG »

Well I had hoped there was something I was missing but it seems this is no better than a martingale. I posted on Dustin's forum asking the same thing I stated above and it was deleted, so they obviously don't want people seeing what it really is.

OK--I take this back--sort of. They out my post back up but they didn't really answer it.
Last edited by Dewey McG on Mon Jun 16, 2014 9:42 pm, edited 1 time in total.
wealthmaster
Trader
Posts: 38
Joined: Mon Jun 16, 2014 2:21 am

Automatic Loss Recovery System (ALR)

Post by wealthmaster »

I am also investigating the maths behind this, and to me so far it looks promising. After watching the following videos

https://www.youtube.com/watch?v=8_6-y2Q ... e=youtu.be

I have concluded that lot size are depends upon ALR Channel, pip value of the pair and Take Profit zone.

For example in the above video He showed us two currency example.

1st EURUSD where he used 35 pips ALR zone and Take profit zone is not showed by him for a purpose so that he don't expose the math behind it, may be it is 150 pips but not sure.

1st lot 0.10 buy
2nd lot 0.13 sell
3rd lot 0.07 buy
4th lot 0.09 sell
5th 0.11 buy
6th 0.13 sell
7th 0.16 buy
8th 0.20 sell total exposure so far 0.11 ( very low) that is awesome. see the rest of the lots in the video


2nd trade he showed is EURJPY where he used 50 pips ALR zone and 150 pips Take profit area. See the difference in lots.

1st lot 0.10 buy
2nd 0.15 sell
3rd 0.12 buy
4th 0.16 sell
5th 0.21 buy
0.28 sell
0.38 buy
0.51 sell
0.64 buy
0.91 sell
11th 1.21 buy ( total exposure is 0.69 so far.. pretty low)

As you can see from above two examples , Lot sizes are based on (i) ALR zone (ii) pip value of the pair (iii) Target area

If someone expert in maths can crack this formula that would be awesome..
garyfritz

Automatic Loss Recovery System (ALR)

Post by garyfritz »

wealthmaster » Sun Jun 15, 2014 8:50 pm wrote:1st EURUSD where he used 35 pips ALR zone and Take profit zone is not showed by him for a purpose so that he don't expose the math behind it, may be it is 150 pips but not sure.
1st lot 0.10 buy
2nd lot 0.13 sell
3rd lot 0.07 buy
4th lot 0.09 sell
5th 0.11 buy
6th 0.13 sell
7th 0.16 buy
8th 0.20 sell total exposure so far 0.11 ( very low) that is awesome.
So your exposure is low. But you are deep in the hole at that point. If your stop-and-reversal level is X, meaning you lose X times the lot size when you reverse, then after that 8th reversal you are X*(0.10+0.03+0.04+0.05+0.06+0.07+0.09+0.11) = 0.55*X in the hole. (1st long loses 0.10 and you sell 0.13 to reverse to 0.03 short. The first sell loses 0.03 and you buy 0.07 to reverse to 0.04 long, etc.) For the 8th reversal you sell 0.20 to reverse to 0.11 short. If your PT is the same size as your stop/reverse size (X), then you'd only win 0.11*X if you hit the PT. In the whole 8-reversal sequence you lost 0.55X-0.11X = 0.44*X.

Maybe I'm missing the magic, but I'm not seeing it...
wealthmaster
Trader
Posts: 38
Joined: Mon Jun 16, 2014 2:21 am

Automatic Loss Recovery System (ALR)

Post by wealthmaster »

You are right about x times hole. Pt is not the same as stop zone it is 1:3 means if the stop zone is 50 pips then take profit zone is 150 pips. Price does not always hit 8 trades. It rarely reaches 7th trade. And let say it reaches 8th trade and then it only need to move 150 pips either way to break even. I want to known how he calculated lots in relations to its stop and take profit level.
wealthmaster
Trader
Posts: 38
Joined: Mon Jun 16, 2014 2:21 am

Automatic Loss Recovery System (ALR)

Post by wealthmaster »

Anyone can come up with maths behind this?
garyfritz

Automatic Loss Recovery System (ALR)

Post by garyfritz »

What maths are you looking for? I already worked through the numbers for several examples.
Post Reply

Return to “Automated Loss Recovery”