Hm. You know, there might actually be something here.
I knocked out a little spreadsheet to test this. Using the EURUSD example posted earlier, it doesn't work:
ALR.gif
The "Size" column shows the size that you buy or sell.
"Net Pos" shows the net long/short position, so e.g. when you buy 0.10 and sell 0.13 you are net short 0.03.
"SL Loss" shows the loss for that position size; in this example we have a 50 pip SL and the first trade (turn 1) has a 0.10 size so you'd lose 5.0 if you hit the SL and reversed.
"Total Loss" shows the total losses from hitting a bunch of SLs in a row, so if you hit the SL twice you'd lose -5 and -1.5 for a total loss of -6.5.
"PT win" shows the win when you finally hit the PT, so after Turn 2 you are net short 0.03, times 150 pips = 4.5 won.
"Total Trade P/L" takes the "Total Loss" from the *previous* line and adds the PT win from the *current* line.
So for example if you hit the SL and reverse 3 times, then hit the PT, you would be short 0.05 on Turn 4. You would have lost -8.5 on the three SLs, then you win 7.50 on the PT. Net is a loss of -1.00.
That was what I expected to see.
But then I realized, with a 3:1 PT:SL ratio and no fancy ALR stuff, you only need 25% wins to break even. But if I get 25% wins with this ALR setup, I'd win 15.00 one time and lose about 1.00 3 times -- and I'm way ahead of the non-ALR case. Hmmm.
I started playing with numbers, and -- if I haven't fooled myself somewhere here -- it **IS** possible to set it up so you DON'T lose, and the sizes don't get too excessive. Here's an example taking it out to 15 turns:
ALR2.gif
So if you have a 25% winning trade signal, 25% of the time you win 15.00. The other 75% of the time you will bounce back and forth, hitting SLs and reversing, until you finally break out and hit the PT. With the sizes I chose here, when you finally hit the PT you will make a small profit overall, not counting costs. So 1/4 of the time you make 15.00, 3/4 of the time you break even. And you can reverse 6 times before your net position even exceeds your original 0.10 trade size!
The size DOES keep increasing, so it IS basically a Martingale. If the market reverses enough times -- which it can and eventually WILL -- it'll blow up on you. But at least it grows slower than most M's. If you have a 50% winning signal, the chance of hitting 15 losses in a row is 1 in 2^15 or 1 in 32767, and in the meantime you never lose. That's better than most Martingales.
This is almost a perpetual motion machine! And I don't believe in those. I MUST have a mistake here somewhere but I'm not seeing it. I've attached the spreadsheet. Play with the SL/PT and the Size values. See if you can figure out where I went wrong. |
