squared wrote:1- open two trades, buy and sell, 0.02 lot each whenever ea is started.
2- TP is set to be 10 points for each.
3- prices moves up 10 points. buy trade will close on profit.
This is
exactly equivalent to "don't open any trades, then open one short trade when the market moves up 10 points." Except you're paying unnecessary extra spread/commission/etc.
But I'll look at it assuming you enter those two hedged positions.
4- in the same time, 2 new trades will be opened, buy and sell, 0.02 for each.
5- prices moves up again for 10 points, buy trade will close on another 10 points profit.
OK, you've closed 20 points of profit on your longs. But your shorts are now 30 points in the hole. You're down 10 points so far.
6- in the same time, 2 new trades will be opened, buy 0.02 and sell 0.02*1.5=0.03
7- TP for sell trades are combined and calculated to get 10 points profit if price wend down.
OK. So your 3rd sell is 1.5x bigger, and you want 10 points profit. So your TP is 10/1.5 = 6.66? So when the market goes down 6.66, your 3rd sell produces 10 points profit. Score at this point:
You started at "position zero" (P0), the price where you initiated your first buy and sell.
You've closed 10 points of profit on each of your L1 and L2 longs, for a total of +20 closed profit.
You opened your L3 long at P0+20
You shorted once at P0 and once at P0+10, and at P0+20 you shorted 1.5x your base size.
Now price drops to P0 + 13.33.
Your L3 buy is 6.66 in the hole. -6.66.
Your L1 sell is 13.33 pips in the hole, L2 sell is 3.33 in the hole, so your open shorts are at -16.66.
Your L3 1.5x short closes at P0 + 13.33 for a profit of +10.
So at P0 + 13.33, you're at +20 -6.66 -16.66 +10 = +6.68. So far so good. You could close everything out and start over at this point, so that's a win. (Assuming the costs from your 6.5 trades didn't eat up that 6.68 profit......)
But what if the market goes up from P0 + 20, where you entered your 1.33x L3 sell?
At P0+30 you close your L3 long for +10. Now you have +30 closed trades.
Your L1 sell is at -30, L2 sell is at -20, and your 1.5x L3 sell is at -10*1.5 = -15.
You have +30 closed -65 open = -35 points open & closed profit.
So if price goes down from P0+20, you get a few points. If it goes UP from P0+20, you LOSE more than 5x more points. The trades haven't closed and booked the losses (yet), but that money is GONE from your account until the market goes down again. If the price continues to go up, your losses will mount exponentially.
Like most Martingale/grid systems, you are "picking up pennies off the train tracks." You're taking on enormous risk to bank tiny profits. If you're confident there will always be a pullback, then sure, this will spit out pennies pretty consistently. I have trouble believing 60% per month, but it will definitely produce steady profits with some gut-wrenching open-trade drawdowns and the occasional total blowup.
there are 3 major conditions that have to occur so that "sell" trades (in previous example) are opened. so, if price goes up for 10 points, buy trade will close and new buy trade with new TP will open, but not a new "sell" trade until it satisfies 3 major conditions.
I don't quite see how this will change the behavior so I won't try to analyze it. I'll accept your claim that it helps.
If this thing really produces 60%/mo profit, and very seldom blows up, you could use it profitably. For example let's say it blows up about twice a year. You could set aside 10% of your account for trading it. 10 months of the year you'd make 60% on the 10% subset or 6% on your entire account. 2 months of the year it would blow up and lose your entire 10%. 10 * 6% and 2 * -10% compounds to 45% per year. Not bad.
If it blows up 4x per year, it's barely breakeven. Any more than that and you're losing. So I'd want to be VERY confident of how often it blows up.
If you wanted to trade this -- and I'm NOT recommending it -- I would strongly suggest you figure out the changes to get rid of the hedging. Your pennies of profit are so tiny that spread/etc costs are going to completely eat them up unless you do everything you can to minimize them.
So instead of "open one L1 long and one L1 short at P0," do nothing at P0. At P0+10, instead of "close L1 long in profit, open L2 long and L2 short," open one L2 short, and so on. That will dramatically reduce your trading costs and might leave a few of those pennies for you.
