Maybe it's not for this thread, but i'm thinking about the concept of dollar cost averaging as it may be applied to a forex account, perhaps not as an entire strategy, but as a powerful supplement. There are two kinds that i'm aware of, the most interesting to me is where an account is split, half in the market, half in cash. At regular intervals, this account is rebalanced, so that it returns to 50/50. Anytime volatility is abundant, this system will outperform straight buy-and-hold where all cash is always in the market. This system does not depend on any new money coming into the account. The other kind of dollar cost averaging operates on similar principles, but takes new money in at regular intervals instead of drawing from cash reserves, or adding to cash reserves. Maybe someone else can comment on how this works in our favor. I once put together a spreadsheet that demonstrated this principle. I was surprised.
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- Thread starter ybfjax
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Quote from Good1:
Maybe it's not for this thread, but i'm thinking about the concept of dollar cost averaging as it may be applied to a forex account, perhaps not as an entire strategy, but as a powerful supplement. There are two kinds that i'm aware of, the most interesting to me is where an account is split, half in the market, half in cash. At regular intervals, this account is rebalanced, so that it returns to 50/50. Anytime volatility is abundant, this system will outperform straight buy-and-hold where all cash is always in the market. This system does not depend on any new money coming into the account. The other kind of dollar cost averaging operates on similar principles, but takes new money in at regular intervals instead of drawing from cash reserves, or adding to cash reserves. Maybe someone else can comment on how this works in our favor. I once put together a spreadsheet that demonstrated this principle. I was surprised.
I can prove that cost averaging can improve anyone's existing strategy. The main problem with people trading one trade at a time is that they are not taking full advantage of price swings. With forex, you can trade with micro lots (1000 units of base currency) and even nanolots (100 units of base currency). So why not take advantage of this additional flexibility?
using two accounts where one account is a "cash account" that you can top up the primary account is good idea. This works well with super-aggressive strategies where if you blow your account, you can quickly top up and try again. Each account is treated as separate account, and no broker will allow an account to go into negative.
Very wise of you to use a spreadsheet. Let me upload a spreadsheet that I have used. I have an automated one with macro, but i think this basic one still illustrates the point that spreading out your risk, taking small profits when the risk is small and taking larger profits when risk increases.
The whole spreadsheet is designed to run "what if" scenarios from the initial lot (first entry) and simulate what would happen if you add positions. You can measure the amount of market pullback/retracement necessary to break even and profit.
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Quote from ybfjax:
Your images did not show up. But anyway, you are correct. The formulas are gone. I will have to find it on my other laptop and i can upload it.
The pics are stored on my Skydrive. I edited the permissions on the folder they are in from "friends" to "public". Maybe now they can be seen. I see them in my browser.
The VBA macro would be great! I might be able to decipher from that how this works. But hopefully i can get these pics to be seen so we can comment on them.