TheWolfInsideUs » Fri Nov 13, 2015 8:04 pm wrote:I gladly like to participate in the discussion on the exit strategy of losing trades. It is a common recurring dilemma in the beautiful EA's of Mr. Garcia. The balance grows while the equity gap is widening. There are several ways tried, some with more success than others but the gap is still not where we want it to be. (That's at least my opinion.)
I like to share an idea based on an article I read a few weeks ago. Is it THE solution? I have no idea, but it might be worth the shot.
No stoploss creates large drawdown. Too small of a stoploss means premature closure of trades that can generate profits. And too big of a stoploss means unnecessary loss of profit optimization. Simply put; having the correct SL set is extremely difficult, perhaps even too difficult. It depends on each own situation, the price action, the moment of trading, news events, the pair that is traded etc. I believe that all these external factors never really can be successfully incorporated in an EA. Mechanical methods such as a fixed or indicator trailing stops for exit logic are poor methods for long term timing and consistency. It may work in the short term but the probabilities weigh heavily against you for the long term. The market changes too frequently for such static risk management to remain effective forever.
Therefore, I like to share another view on the matter.
For a good exit strategy, you must first find a good entry strategy. A good exit strategy can mostly make a profit on it's own, independent on the entry strategy. You win a trade not on your entry, but on your exit strategy. But if the entry strategy is not right it becomes harder to manage the trades, especially if you're running EA's that have 40 or more trades open. Fortunately many of Mr. Garcia EA's have a successful entry strategy, on the first trade. But I'm not a fan of adding lots during a trade session for any other purpose than scaling in on a trade. Many of Mr. Garcia EA's use the grid principle and in all honesty sooner or later you will lose with a grid system.
In my view of EA trading you open only 1 trade per pair and then manage this trade to the best possibility. You make long-term profits on the way you are managing your trades. Getting rich quickly in the Forex world works in most cases only if you are already rich. You want an EA which consistently builds up your account in both balance and equity over the months and years. It is not a get rich quick scheme, but a long-term investment to build financial independence over the years. An EA offers the possibility to do other things, while it makes money for you. Do what you love or earn extra money and deposit every month a little extra in the account of your EA. (Only if you can spare the cash.) The Forex world offers at any time uncertainty, but a well-constructed EA knows how to deal with this sort of uncertainty as long as you think in the long term.
For an entry strategie is Pipcruiser's Pipmasher in my opinion a wonderful example of a strategy which will be successful in the long term. In some way the same goes for the first entry of EuroSpeedWay and Mr. Sapu his strategy. Take no offense in this, but if I may say; in my opinion are these the strategies that we have to focus on.
I am of the view that any strategy that’s designed for anything under the 1-Hour timeframe will lack in consistency and risk management over the long term. Derive the majority of your information from higher timeframes than H1, with only some additional filters on the M15 timeframe for entry and exit purposes.
Now having said this, let's discuss the exit strategy for losing trades. For the exit strategy of losing trades, I recommend a hedging strategy with pending orders. It is about capital preservation. If a trade goes into negative, the recovery mechanism kicks in. There are several commercial variants of this principle which I like to show you Mr. Garcia, but I would like to do this privately. I'm not trying to sell a system. I'm just trying to give you inspiration and an idea for a possible solution so we can design and build it up from scratch.
I like to hear from anyone and like to work together with all of you to build success.
With sincere respect,
The Wolf
