Quote from clambill:
Has anyone here thought about doing the exact opposite of a trading strategy that just seems to totally BOMB!? I mean, in the last 30 trades, I've had like 27 losses. It's stupendous. Now, I just realized I could possibly just DO THE OPPOSITE and own the world in 4 months. What do you think?
This is a very interesting question and one that I have been curious about. In my opinion you are correct to assume that if you reverse your system, or to be more accurate, reverse all your trades, you would make money, the problem is no one exactly reverses their system. Let me explain. Here I am assuming that you are trading a time frame such that the commission is not prohibitively large as a proportion of the stop or any profit target.
Imagine if every time you took a position someone sat next to you would immediately take the opposite position. Then when you get stopped out, he closes his position with a profit. This is exactly reversing the situation and if your system, as it is, looses money, the other person will win. The fact that you have lost money is proof of this.
The reason most of the time reversing strategies does not work is that we do not exactly operate the reverse strategy. I shall illustrate this point by breaking down the strategy and its reverse into the following steps
Strategy Reverse
1 Signal to enter Enters opposite position
2 Enter stop No profit Enter stop no profit target
target
This is were the problem arises.
Step 2 for the reverse strategy should be
Enters profit target equal to the system's stop and have no stop loss
Here I have assumed that you have not had a profit target in your initial strategy. Perhaps you had one in mind or were using a trailing stop but I assume like a lot of traders you limit your loss and hope for a large gain. The equivalent reverse strategy would be to have a very large stop (eauql to that very large profit you are hoping for) and a profit target equal to the stop loss in your main strategy. But this would be very very hard to do because if the very large stop is hit it could wipe the account. This would be equivalent to that very large profit that you are after materializing.
Theoretically it should but who can trade with an indefinite stop?
Also this supports the fact that by doubling or tripling your stops you get you increase your chances of winning trades but you are always in danger of that one trade the "kills" you
