How many pips before a sellout?

[eurosport]

Ok, I may be using terms from my days in the equity trading industry. But I have a question that probably entails calculating %'s of pips against me, & was wondering if anyone had done this before.

I met a guy whose premise was that, if you had a large enough account, and went in with a small enough position, using maybe 3% of your 400:1 buying power, then you could ride out most scenarios. Now, before you tell me it ain't so, I know a few things to be fact...

1. Most programs don't work over the long haul, they will eventually run into a market condition that they hadn't experienced prior.

2. Most traders do not make money, or if they do, the 7 or 8 good trades are eventually blown up by the 1 losing trade, & you're back to square one, broke, or negative.

But, 3. I worked with this guy for nearly a year. Watched him trade the USD/NZD exclusively. He would go in small. Play it for a couple of pips, with no stop, (actually put it 200 pips away as part of his OCO order). If it ever got within 50 pips of hitting his stop, he would simply move it another 100 or so pips. After every major swing against him, he would average pretty hard, pretty aggresively, would lower his limit order to 2 or 3 pips profit from his new average. Guess what, it worked. Not most of the time, but all of the time.

Now, what he had was a $30,000 account that from summer of 2005 to winter 2005, had become $400,000. Saw him take out $200,000. Brought account to over 1 mill. Took out $400,000 profit. Then, ONE time, he was sweatin, as he got caught in a EUR trade. Went to bank, had $ wired in, held position til, you guessed it, he came out with a 1 or 2 pip profit. (By this time, the averaging was so hard, 1 pip was more than enough $.)

So...I've been demoing the USD/AUD in similar fashion. The only difference, starting w/ $1500, looking to start w/ base 10 account, buying less than 1 contract each time out. I would ride out a profit of more than 3 pips when I could, putting a stop in place once I'm positive, & trying to average when it went against me, but only when it goes REALLY against me. I am certain I want to try this method out w/ a live account. So....

...how can I calculate, (without asking my forex broker & telling them how to trade against me), at how much of a loss would I be sold out of a position. Again, starting by simply buying 1 contract, or 1/10 of a contract in a base ten acct. Then watching it, putting a stop 200 away, ready to average another 2 or 3 when 100 against me, feeling that if I can ride out the position...I could have enought profits before the USD/AUD makes a 600 pip move against me without any pullbacks. By the time that trade does come, I would like to think I've pulled out more than the initial $1500 or so.

Thanks for help, & if there's anyone who would like to work out how to make this a reality for more than the guy I trained w/ any advice would be appreciated.

 

[ElectricSavant]

I know I am not answering your question. You can also use hedging to cut your calculations in half. Don't forget the cost of carry...

 

[sim03]

Quote from eurosport:

So ...how can I calculate, (without asking my forex broker & telling them how to trade against me), at how much of a loss would I be sold out of a position.

There's no single answer, because different forex dealers employ different (sometimes drastically so) margin call rules. You really need to find out what rules YOUR dealer has in place. If they are not posted, have an online chat with customer service and go over a specific, numerical example. Then verify what you've discovered and your complete mastery of those rules, by deliberately triggering margin calls on your demo account, more than once.

In any case, you need to choose a platform where the answer to that question is almost obvious, a quick calculation away. That is, a platform which clearly shows, in real time: your margin available; unrealized P&L; aggregate position size; average price; pip value. If you don't see all of the above... change your dealer.

eurosport, as you know, this type of stopless strategy - martingale, or averaging down indefinitely - is not exactly new. (BTW, why do you even bother with setting, then moving stops? That serves no purpose, you know.) I'm surprised you haven't been flamed and ridiculed yet... must be because it's Sunday... don't worry, just give it a bit more time.

Also, the question you posed is not the crucial one. The real questions you want to focus on are - what scaling in / money management / position sizing algorithm to use in the first place, and on what currency pair(s). Optionally, explore hedging, either with the same or a correlated (+ or -) pair, as ES alluded to. Solve those questions, and you'll be well on your way. Excel and price history are all the tools you need. It can be done... although most traders probably don't have what it takes, the necessary mindset, to handle this type of trading. Good luck.

 

[eurosport]

Yeah, in demo I've done the hedge thing. Actually, when I was brought on I was doing very well trading a small account. They were looking at seeing how guys could handle a $100,000 demo, in case we became Series 3 licensed & ran a fund. I was the other guy in the room who handled it well.

Whereas my "mentor" never did the hedge thang, he was exclusively in 1 position at a time, & worked his tail off to get out of each position before leaving that day. Yes, some times he went home long/short, & was up all night watching, but 90% or more was went home w/ no open positions. I didn't think I had the same deep pockets, so I hedged w/ the converse mirror traded pair.

However, I am still realistic enough to know that the demo is easier on the stops that a real account. Once my position was, say, up 10 pips, I put a trailing stop at +5. I know that more often than not the dealer will try to find a way to stop that out (& ring the register). So, sooner or later I expect one position to go against me.

Now, if I can start out w/ $1500 & make a few hundred here or there, pull some out of my account. I will feel more confident letting it grow. And if I've ever made something of it, sure, I'd love to hedge. But I haven't put in the time to figure out how I can average with a small account, enough to get out of both positions. With a 6 figure account, it looks deceptively easy. Deceptively being the key word.

But until then, unless you can tell me how to hedge, I think the least money used upon entry, leaving the extra margin as nothing but leverage to ride out that margin call until averaging, or holding, I think that's how I should handle it. It's the guy who managed a trading desk for years trying to take a piker account & make something of it. Using a little preventative wishful thinking & planning before getting in. I won't care as much as if the charts say to average at -40 pips. If I know I can ride it down 150 pips w/ no problem, I may do so, & buy 2 or 3 contracts more -120 pips.

So thanks. If the ripping comes, so be it. I'm not new to this. But I'm not the cocky guy who thinks he's gonna hit gold on 1st live acct. I have 3 kids & am really trying to make it work on a small investment. Trying to limit my downside. Any ideas more than appreciated.