Compounding To A Big Winner

oten · Dec 12, 2003

My system works on reversing out of a suspected losing trade into the next position. Over the years my average number of reverses until I hit my winning target is 1.67 reverses. (Only 38% of trades ever reverse, the other 62% are winners).

The point is, I found that if I double my position on the 1st reverse, triple it on the 2nd reverse, and Quadruple it on the 3rd reverse, etc. I really end up with an extraordinarily improved profit at the end of the day.

The most I have ever had to reverse before hitting target is 4 times. And that occurs in about 1/2% of the time. My average reverse loss is 1.74 pts, and my average profit target is 2.79 pts.

So overall this has worked EXTREMELY well of late.

Only drawback - you need deep pockets!

Oten

Eldredge · Dec 12, 2003

Quote from oten:

My system works on reversing out of a suspected losing trade into the next position. Over the years my average number of reverses until I hit my winning target is 1.67 reverses. (Only 38% of trades ever reverse, the other 62% are winners).

The point is, I found that if I double my position on the 1st reverse, triple it on the 2nd reverse, and Quadruple it on the 3rd reverse, etc. I really end up with an extraordinarily improved profit at the end of the day.

The most I have ever had to reverse before hitting target is 4 times. And that occurs in about 1/2% of the time. My average reverse loss is 1.74 pts, and my average profit target is 2.79 pts.

So overall this has worked EXTREMELY well of late.

Only drawback - you need deep pockets!

Oten

I find this interesting and not too surprising. How long have you been using this reversal technique? Are you concerned that you may eventually suffer a loss that will be larger than your cumulative profits?

What time frame do you trade - are you holding some of these large positions overnight? Also, what do you trade - stocks, futures, indexes, etf's?

Thanks for the post, I hope this generates some good discussion. Good luck.

tango29 · Dec 12, 2003

I would seriously worry about the "Vegas blowout" doing this. Double down I believe is one of the classic strategies that the casinos count on to get money back from winners, and to really clean out losers. Be careful as pointed out previously you could end up in a loss greater than cumulative profits real quick.
Good luck

oten · Dec 12, 2003

Quote from Eldredge:

I find this interesting and not too surprising. (1)How long have you been using this reversal technique? (2) Are you concerned that you may eventually suffer a loss that will be larger than your cumulative profits?

(3)What time frame do you trade - (4)are you holding some of these large positions overnight? (5)Also, what do you trade - stocks, futures, indexes, etf's?

Thanks for the post, I hope this generates some good discussion. Good luck.

i TOOK THE LIBERTY OF NUMBERING YOUR QUESTIONS:

1 - ALMOST 5 YEARS

2- NOT REALLY - NEVER REVERSED OVER 4 TIMES IN 5 YEARS, AND THAT IS EXTREMELY RARE

3- 5 MIN ONLY

4 - NEVER

5 - EMINI SP, BUT LOOKING AT OTHER MARKETS NOW

AAAintheBeltway · Dec 12, 2003

Quote from oten:

My system works on reversing out of a suspected losing trade into the next position. Over the years my average number of reverses until I hit my winning target is 1.67 reverses. (Only 38% of trades ever reverse, the other 62% are winners).

The point is, I found that if I double my position on the 1st reverse, triple it on the 2nd reverse, and Quadruple it on the 3rd reverse, etc. I really end up with an extraordinarily improved profit at the end of the day.

The most I have ever had to reverse before hitting target is 4 times. And that occurs in about 1/2% of the time. My average reverse loss is 1.74 pts, and my average profit target is 2.79 pts.

So overall this has worked EXTREMELY well of late.

Only drawback - you need deep pockets!

Oten

What are you using for entry/rev signals, if you don't mind me asking? Your system in effect treats a signal failure as a more reliable entry signal the other way. If it's not more reliable, then it would not be logical to double up on it. In some cases, a signal failure may well be significant, perhaps a failed breakout, but in others it is just noise, eg, MA crosses.

I'm glad this has worked out for you, but it does strike me as awfully risky. You are putting the most at risk on days when your system has shown itself to be the most inaccurate.

trade4succes · Dec 12, 2003

Sounds good, go for it. Don't see any reason why not to.

One caveat: Make sure the liquidity is high enough, so you don't take more slippage on your larger reversals

oten · Dec 12, 2003

Quote from trade4succes:

Sounds good, go for it. Don't see any reason why not to.

One caveat: Make sure the liquidity is high enough, so you don't take more slippage on your larger reversals

Thanks.

I trade emini, plenty liquidity and average stop is 1.75, largest is 3.25, most stops 1.50-2.50

So not much risk of a blowout.

Quah · Dec 12, 2003

Quote from AAAintheBeltway:

... Your system in effect treats a signal failure as a more reliable entry signal the other way.

...You are putting the most at risk on days when your system has shown itself to be the most inaccurate.

Maybe the system being inaccurate IS the most accurate signal generated by the system?

oten · Dec 12, 2003

Quote from AAAintheBeltway:

What are you using for entry/rev signals, if you don't mind me asking? Your system in effect treats a signal failure as a more reliable entry signal the other way. If it's not more reliable, then it would not be logical to double up on it. In some cases, a signal failure may well be significant, perhaps a failed breakout, but in others it is just noise, eg, MA crosses.

I'm glad this has worked out for you, but it does strike me as awfully risky. You are putting the most at risk on days when your system has shown itself to be the most inaccurate.

Actually I never looked at that way. I have only observed that statistically the odds of the system having over 4 consecutive winners is about 1 in 200+, and over 5 it goes off the scale.

I only experienced about 1.5% net losing days before I started this compounding, since I have experienced zero losing days.

I will not disclose my specific indicators as I feel they are priceless, but you are welcome to observe if you like.

Just email and let me know you are form ET and wish to obverse live trades.

macal425 · Dec 12, 2003

Are you IN2WIN as this thread suggests. If so, why did you feel a need to have another username and talk to yourself?

http://www.elitetrader.com/vb/showthread.php?s=&threadid=25652