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| Question about the beast https://www.stevehopwoodforex.com/phpBB3/viewtopic.php?t=1532 |
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| Author: | mattfordcoys [ Thu Feb 28, 2013 3:51 pm ] |
| Post subject: | Re: Question about the beast |
Well thank you gents. I'm a firm believer in the old adage "if it sounds too good to be true, then it probably is". At this point in my education I'm more interested in learning the underlying methodology...maybe one day I'll code the perfect EA though  Time to get reading the 10.4 manual! |
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| Author: | garyfritz [ Thu Feb 28, 2013 3:58 pm ] |
| Post subject: | Re: Question about the beast |
The basic idea behind Martingale and, to a lesser extent, grid trading, is: * Come up with some entry signal. It isn't that great. * If the market goes in your favor, great! Close with a small profit. * If the market goes against you, double up. Place another (usually bigger) trade in the same direction. Since the market went against you, this trade gets a better entry price. * If the market keeps going against you, keep adding bigger trades at better prices. * The bigger/better entries mean the market only has to retrace a little for you to get into profit for the whole position. If it does so, great! Close with a small profit. * BUT: if the market CONTINUES going against you, and never does a retrace big enough to put you into profit, you go SPLAT in a very big and ugly way. The many small profits with this approach produce a very characteristic equity curve: basically a straight line with little dips in it, gaining steadily. It's a beautiful thing. Until it blows up in your face. Martingales try to spin gold out of straw, by taking a mediocre entry signal and turning it into a near-perfect system. Unfortunately they basically "kick the can down the road," delaying all those losses that you would have taken all along with the mediocre entry, and package them all into one thermonuclear implosion. You might get the idea I don't recommend them .... |
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| Author: | mattfordcoys [ Thu Feb 28, 2013 4:44 pm ] |
| Post subject: | Re: Question about the beast |
I did get a whiff of pessimism Gary! After your initial reply I did some further research and ended up here: http://tinyurl.com/d5ofekw. I see now why it would be appealing, but also see why it will, sooner or later, wipe you out. So I'm glad I asked the question now! |
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