# Simple trading system idea? (simultaneous long/short with trailing stop on both)



## jorxster (10 May 2011)

hey folks!
I'm fairly new to the world of trading, and have a question.
What do you think of a system where-- say you see a triangle narrowing into a pattern. It could breakout in either directions, and chances are that it will break out.
What if-- you got into the market with a simultaneous long/short orders and each had a tight trailing stop? 
Then the market moves one way, your opposed order gets stopped out, and then assuming the market doesn't reverse immediately then, (and keeps moving) then you collect a few pips.

It almost seems too easy to be true. What am I missing?


----------



## Gringotts Bank (10 May 2011)

I think you might be assuming that the price will continue in the direction of the breakout.  In reality it might hit one stop then immediately reverse on you.  I think patterns are pretty reliable.  If you like them too, get AB and Pattern Explorer for AB or something similar.  Or open a CMC CFD account and have a look at some of the auto pattern finder software; it's very sophisticated.


----------



## ginar (10 May 2011)

jorxster said:


> hey folks!
> I'm fairly new to the world of trading, and have a question.
> What do you think of a system where-- say you see a triangle narrowing into a pattern. It could breakout in either directions, and chances are that it will break out.
> What if-- you got into the market with a simultaneous long/short orders and each had a tight trailing stop?
> ...




FWIW simpler idea for breakout trade like that is to use stop loss entries at points where breakout occurs . so a break up you have a stop loss buy to enter and a break down visa versa stop loss sell to enter short . makes a lot more sense that what you are invisioning imo ...........


----------



## azioni (30 August 2011)

jorxster said:


> hey folks!
> I'm fairly new to the world of trading, and have a question.
> What do you think of a system where-- say you see a triangle narrowing into a pattern. It could breakout in either directions, and chances are that it will break out.
> What if-- you got into the market with a simultaneous long/short orders and each had a tight trailing stop?
> ...




Hi there,

I am actually thinking of using the same kind of strategy in order to avoid a stop loss  level for my entries. I'm coming up with different ideas but I'd better check with you guys.

First I would use a standard filter such as multi TF momentum strategy just to increase my chances. 

I would enter the trade only if I get the signal to reverse on either higher and lower TF. If the price crosses and closes under the MA (I use a WMA 9 displaced 1), I'd buy the second contract in the opposite direction.       

I would sell the first contract only if the price passes the 127% ext retracement of the previous swing and keep the second contract up to the next reversal signal. 

In all other cases I would keep the first contract and sell the second when the trend resumes.

What am I missing?


----------



## ParleVouFrancois (30 August 2011)

Why not just set levels that you'd buy into a share at? E.g. you see something trading at 100, you think it's either going to soar or get smashed down, to say 90 or 110. Instead of opening a trade both ways at 100, just wait till it gets to 105 or 95 (the location of the "stop loss" of the tactic you're talking about), then buy or sell it with the same framework as you've outlined above. I am but a simple man but it makes no sense to open two exactly opposing trades at the same time.


----------



## azioni (30 August 2011)

ParleVouFrancois said:


> Why not just set levels that you'd buy into a share at? E.g. you see something trading at 100, you think it's either going to soar or get smashed down, to say 90 or 110. Instead of opening a trade both ways at 100, just wait till it gets to 105 or 95 (the location of the "stop loss" of the tactic you're talking about), then buy or sell it with the same framework as you've outlined above. I am but a simple man but it makes no sense to open two exactly opposing trades at the same time.




Thank you for the reply,

I understand it seems a bit convoluted, however it makes more sense if you are trading with a dual TF strategy. 

Basically I am trying to enter in the trade when the lower TF breaks in the direction of the higher TF based on the reversal signal I get thru the momentum indicator. 

In this case I am able to anticipate the higher TF break.

*I am only going to buy the 2nd contract on the price pullback in the lower TF.* That allows me to cover the 1st position in case I am wrong. Then if the price keeps dropping, I sell the first contract only on 127% (up to 150%) external retracement of the previous swing. I'm open to different ideas based on ATR instead.

If the price doesn't reach that level I sell the 2nd contract as soon as I have another reversal signal in the direction of the 1st contract.

Pros are:

1) The broker can't chase my stop level 
2) Much lower risk/reward ratio
3) I'm already winning when the price breaks the higher TF
4) Can anticipate the breakeven trailing stop  
5) Cutting losses to a minimum amount or not losses at all  

The only disadvantage would be paying the extra spread for the 2nd contract, however you can choose markets with 1-2 points spread. In any case it would be a smaller loss comparing to any stoploss strategies.

How does it sound?


----------



## nomore4s (30 August 2011)

azioni said:


> Pros are:
> 
> 1) The broker can't chase my stop level
> 2) Much lower risk/reward ratio
> ...




To me it sounds like you are increasing your risk and reducing your reward.

Some of your pros aren't really pros imo.
1) Brokers chasing stops is a bit of a myth imo but if you are really worried about it - get a real broker instead of a CFD provider.
2)Lower risk for lower reward isn't really a pro, but I actually think this method will increase risk and reduce reward but you need to do some testing to confirm this.
3) Then why do you need to open a trade in the other direction?
4) Can't you do that anyway?
5) Maybe but you need to do some testing on this imo.

Also will your broker let you have 2 positions in opposite directions open at the same time?

I personally don't think it will work over the long term but you need to do some testing to find out for sure.


----------



## azioni (30 August 2011)

nomore4s said:


> To me it sounds like you are increasing your risk and reducing your reward.
> 
> Some of your pros aren't really pros imo.
> 1) Brokers chasing stops is a bit of a myth imo but if you are really worried about it - get a real broker instead of a CFD provider.
> ...




Thank you for your reply.

1) I dont' think it is a myth especially outside market hours
2) The ratio is lower, I didn't mean the risk. If you enter in the lower TF the level would be closer to the bottom of the trend, therefore you are risking less than entering at a higher level, and the reward is higher.
3) I need to open the trade in the opposite direction to cover my ass coz I don't have a stop in place 
4) I know it must be tested but before I do that I would like some feedback.
5) The CFD broker I am with allows 2 positions in opposite directions at the same time


----------



## nomore4s (30 August 2011)

azioni said:


> Thank you for your reply.
> 
> 1) I dont' think it is a myth especially outside market hours
> 2) The ratio is lower, I didn't mean the risk. If you enter in the lower TF the level would be closer to the bottom of the trend, therefore you are risking less than entering at a higher level, and the reward is higher.
> ...




Test it and see what the results are would be my suggestion. With no stop on the original position what happens when price moves against you straight away?


----------



## azioni (30 August 2011)

nomore4s said:


> Test it and see what the results are would be my suggestion. With no stop on the original position what happens when price moves against you straight away?




That's a good objection.

It would depend on the TF you are using I guess. For example if you are trading the daily chart for the higher TF and the 1H for the lower TF, I don't think the price can turnaround that quickly. 

On the contrary If you are trading intraday it would be better to have a stoploss that it is not obvious and away from the bottom/top just for extra safety. However I don't think that the price would turnaround so often to invalidate the strategy.

Plus you can remove the stop loss as soon as you buy the 2nd contract, or better trail the stop to breakeven if goes in your favour.


----------



## skc (30 August 2011)

azioni said:


> Pros are:
> 
> 1) The broker can't chase my stop level
> 2) Much lower risk/reward ratio
> ...




Firstly let's establish some facts
- When you long and short a contract at the same time it is the same as having no position. Any pros that you claim should be compared to this base case. 
- When you open a second contract in the opposite direction instead of just closing the first, you are paying twice the commission and/or spread. You are also incurring additional interest (if applicable) compared to not having a position. 

None of the pros you listed are real pros compared to the base case (i.e. having no position) except for 1). So this strategy only has advantage if your stops are being hunted, and you are paying for that possibly non-existent advantage with increased transaction costs that are very real. If all you are doing is trading a couple of mini contracts from your friendly CFD provider, you can be pretty sure that no one is chasing your stop.


----------



## azioni (30 August 2011)

skc said:


> Firstly let's establish some facts
> - When you long and short a contract at the same time it is the same as having no position. Any pros that you claim should be compared to this base case.
> - When you open a second contract in the opposite direction instead of just closing the first, you are paying twice the commission and/or spread. You are also incurring additional interest (if applicable) compared to not having a position.
> 
> None of the pros you listed are real pros compared to the base case (i.e. having no position) except for 1). So this strategy only has advantage if your stops are being hunted, and you are paying for that possibly non-existent advantage with increased transaction costs that are very real. If all you are doing is trading a couple of mini contracts from your friendly CFD provider, you can be pretty sure that no one is chasing your stop.




Thank you for your feedback,

I'm not opening the 2 positions at the same time, the 2nd contract is open at the top of the pullback. When you open 2 opposite positions at different levels they won't cancel each other.

It shouldn't be a big drama if you select markets with 1/2 points spread, plus when I open the second position I am shorting the market and I'm actually getting paid interest. For sure the 2nd contract will cover the loss for the 1st when you sell below the retracement. 

I think that mainly this strategy allows you to control exactly the amount of money you are going to lose, and that amount should be much less than waiting for the price to hit your stop 2/3 ATR away. 

Cheers


----------



## skyQuake (30 August 2011)

azioni said:


> Thank you for your feedback,
> 
> I'm not opening the 2 positions at the same time, the 2nd contract is open at the top of the pullback. When you open 2 opposite positions at different levels they won't cancel each other.
> 
> ...




Why not just liquidate the first contract? Its essentially the same thing buy u play less interest and spread. Fwiw you will always pay more interest than receive interest on CFD positions on the same insturment.


----------



## skc (30 August 2011)

azioni said:


> Thank you for your feedback,
> 
> I'm not opening the 2 positions at the same time, the 2nd contract is open at the top of the pullback. When you open 2 opposite positions at different levels they won't cancel each other.
> 
> ...




Think about it again...

When you open 2 contracts at different levels, you've locked in your P&L. During the times that the 2 contracts are open, there will be no net change in your P&L. That is exactly the same as if you have no position.

Your CFD provider charges you a spread on the interest. Long you pay base rate + 2.5% (or whatever it is), short you get paid base rate - 2.5%. So by holding opposing contracts it will cost you interest. Holding no position cost you nothing.

There is no way you are better off with opposing contracts - only there are higher costs.

Write down on a piece of paper your entry and exits and the P&L. It doesn't matter what your criteria is for opening the 2nd contract. Just make up some numbers and see.


----------



## azioni (30 August 2011)

Hi Sky,

I'd prefer not to liquidate the 1st contract on the pullback because I don't know in advance how much it's going to retrace. Plus if the trend resumes I would have the problem to renter at a higher level and having to place the stoploss at the original break, increasing the risk/reward ratio.

Hi SKC,

your are right let's make up some numbers: 

Scenario1
I buy the 1st contract on the lower time frame break at 100, than the price pullback at 110, I buy the 2nd contract and after a 50% retracement the price resumes the trend and I sell the 2nd contract at 110 again. Basically I have lost  1-2 points spread. However I will be able to reach the break on the higher TF with a profit, without risks.

Scenario2
I buy the 1st contract on the lower TF break at 100, than the price pullback at 110, I buy the 2nd contract and after the price drops below the 127% retracement at around 97.5, I sell the 1st contract losing 2.5 points plus spread. At same time I'm gaining 12.5 points less spread from the 2nd contract. 

Basically in scenario1 I will be able to catch wave3 when I am already in profit. In the second case I'm wrong but I'm still able to make a small profit with virtually no risk at all in both directions.


----------



## skc (30 August 2011)

I am confused...

Here you said you are opening a 2nd contract in the opposite direction to the 1st contract.



azioni said:


> It shouldn't be a big drama if you select markets with 1/2 points spread, plus *when I open the second position I am shorting the market *and I'm actually getting paid interest. For sure the 2nd contract will cover the loss for the 1st when you sell below the retracement.




Whereas here your 2nd contract is in the same direction as the first contract.



azioni said:


> Scenario1
> *I buy the 1st contract *on the lower time frame break at 100, than the price pullback at 110, *I buy the 2nd contract *and after a 50% retracement the price resumes the trend and I sell the 2nd contract at 110 again. Basically I have lost  1-2 points spread. However I will be able to reach the break on the higher TF with a profit, without risks.
> 
> Scenario2
> *I buy the 1st contract *on the lower TF break at 100, than the price pullback at 110, *I buy the 2nd contract *and after the price drops below the 127% retracement at around 97.5, I sell the 1st contract losing 2.5 points plus spread. At same time I'm gaining 12.5 points less spread from the 2nd contract.




So which one is it? 2 contracts in the same direction or 2 contracts in the opposing direction (which is what everyone thought you were talking about)?


----------



## azioni (30 August 2011)

skc said:


> I am confused...
> 
> Here you said you are opening a 2nd contract in the opposite direction to the 1st contract.
> 
> ...




The 2nd contract is always opposite the 1st, just to cover the 1st position in case the break doesn't work.

I clarify a bit the scenario: 

I buy the 1st contract (long) on the lower TF break at 100, it rallies up to 110 and then pulls back. I buy the 2nd contract (short) in the opposite direction. The pullback has a 50% retracement and drops to 105 then the original trend resumes (in the direction of the 1st contract). I wait for the price to reach 110 before selling the 2nd contract. In this way I have only lost the 2 points spread. However I will be able to reach the break on the higher TF, lets say around 120 with 20 points profit, without risks.


----------



## Mistagear (30 August 2011)

azioni said:


> Hi Sky,
> 
> I'd prefer not to liquidate the 1st contract on the pullback because I don't know in advance how much it's going to retrace. Plus if the trend resumes I would have the problem to renter at a higher level and having to place the stoploss at the original break, increasing the risk/reward ratio.
> 
> ...




I'm confused, sorry
I'm wondering how your broker deals with the accounting side of this. At the point you enter the second contract, you become neutral the market, but have you bought 1 then sold 1 at 10 points apart. Therefore your account is neutral and showing a 10 pt loss at this point ?
Does this mean the moment you drop one of the neutral contracts, you have to subtract the original gap from whatever gain achieved ?

Cheers, M


----------



## azioni (30 August 2011)

Mistagear said:


> I'm confused, sorry
> I'm wondering how your broker deals with the accounting side of this. At the point you enter the second contract, you become neutral the market, but have you bought 1 then sold 1 at 10 points apart. Therefore your account is neutral and showing a 10 pt loss at this point ?
> Does this mean the moment you drop one of the neutral contracts, you have to subtract the original gap from whatever gain achieved ?
> 
> Cheers, M




Hi there,

basically there is an option you can tick with your second order called "Force Open", that allows you to open a new position for the same market, when you have already one in the opposite direction .


----------



## Mistagear (30 August 2011)

azioni said:


> Hi there,
> 
> basically there is an option you can tick with your second order called "Force Open", that allows you to open a new position for the same market, when you have already one in the opposite direction .




I understand you can open the second trade, but that was not the question. It can be done in sim on the futures platform I use, however not when live trading because the way my brokers back end accounting deals with it, creates a loss on the first part, equal to whatever gap between the 2 positions.
Cheers, M


----------



## azioni (30 August 2011)

Mistagear said:


> I understand you can open the second trade, but that was not the question. It can be done in sim on the futures platform I use, however not when live trading because the way my brokers back end accounting deals with it, creates a loss on the first part, equal to whatever gap between the 2 positions.
> Cheers, M




AFAIK the 2 positions are standalone and of course the balance at the end would be the gap between the 2. That's what I use in my strategy to know exactly how much I will lose/gain. In the 2nd scenario I have a loss of 2.5 points+2spread on the 1st position and a gain of 12.5-2spread on the 2nd. Balance +6 points in case the break doesn't work.


----------



## skc (30 August 2011)

azioni said:


> The 2nd contract is always opposite the 1st, just to cover the 1st position in case the break doesn't work.
> 
> I clarify a bit the scenario:
> 
> I buy the 1st contract (long) on the lower TF break at 100, it rallies up to 110 and then pulls back. I buy the 2nd contract (short) in the opposite direction. The pullback has a 50% retracement and drops to 105 then the original trend resumes (in the direction of the 1st contract). I wait for the price to reach 110 before selling the 2nd contract. In this way I have only lost the 2 points spread. However I will be able to reach the break on the higher TF, lets say around 120 with 20 points profit, without risks.




OK. When you short please say "sell" or "short" instead of "buy". And when you close your short say "buy back" or "cover" instead of "sell".  

So let's put some real numbers into your scenario *(in bold)*.



> You buy the 1st contract (long) on the lower TF break at 100, it rallies up to 110 and then pulls back *to 105*. I *short at 105*the 2nd contract (short) in the opposite direction. The pullback has a 50% retracement and drops to 105 then the original trend resumes (in the direction of the 1st contract). I wait for the price to reach 110 before *covering/buying back* the 2nd contract *at 110*. In this way I have only lost the 2 points spread *(you've lost 5pts on contract 2 + spread)*. However I will be able to reach the break on the higher TF, lets say around 120 with 20 points profit, without risks *(after your 2nd contract is closed, the risk is still there - you still have 1 contract open)*.




So 
Contract 1, long, open at 100, close at 120. 20 pts profit. 2pt spread paid on entry and exit = 18pts net.
Contract 2, short, open at 105, close at 110. 5 pts loss. 2 pt spread paid on entry and exit = -7pt net.

Total = +11pts.

Compared to the alternative of just closing your contract 1 at the same price levels as above. In stead of opening a 2nd contract as short at 105, you close contract 1. And at the price level where you close the 2nd contract (at 110), you re-open contract 1.

Contract 1a, long, open at 100, close at 105. 5 pts profit. 2pt spread paid on entry and exit = 3pts net.
Contract 2a (re-entry), long, open at 110, close at 120. 10 pts profit. 2pt spread paid on entry and exit = 8pts net.

Total = +11pts.

It's the same. And doing what you suggest doesn't change anything wrt risk.


----------



## azioni (30 August 2011)

skc said:


> OK. When you short please say "sell" or "short" instead of "buy". And when you close your short say "buy back" or "cover" instead of "sell".
> 
> So let's put some real numbers into your scenario *(in bold)*.
> 
> ...




I think you are missing the point. I have never said that the strategy allows you to make more money. On the contrary you can manage the risk without stops and still make a profit when the break doesn't work.

The fact that both options give the same gain actually confirms that the strategy works. With my strategy I can enter the break at the very bottom and I don't need to use any stops. If I am right I get all the way to the top, if I am wrong I'm still getting some profits. I don't think that it is possible with a standard stop loss strategy.

Plus as I said to Sky before, if you re-entry long at 110, you are an extra 10 points away from the real break at 100 and that sounds like a higher risk/reward ratio to me.


----------



## skc (31 August 2011)

azioni said:


> I think you are missing the point. I have never said that the strategy allows you to make more money. On the contrary you can manage the risk without stops and still make a profit when the break doesn't work.
> 
> The fact that both options give the same gain actually confirms that the strategy works. With my strategy I can enter the break at the very bottom and I don't need to use any stops. If I am right I get all the way to the top, if I am wrong I'm still getting some profits. I don't think that it is possible with a standard stop loss strategy.
> 
> Plus as I said to Sky before, if you re-entry long at 110, you are an extra 10 points away from the real break at 100 and that sounds like a higher risk/reward ratio to me.




But that IS the point exactly. It is no different if you simply close contract 1 and re-enter. We both agreed that the P&L is the same (aside from any difference in interest but let that pass for now).

Now how does your approach reduce risk? After you close your contract 2, where do you put the stop for the still-open contract 1? Where ever that is, do the same for the re-entered contract 1 and you have the exact same risk.

Again - none of the benefits you've stated are valid. And the only potential benefit you have is avoid your stop being hunted. Although you still need a standing order to open that 2nd contract - may be they will hunt that?

Seriously... it's not that hard to see.


----------



## azioni (31 August 2011)

skc said:


> But that IS the point exactly. It is no different if you simply close contract 1 and re-enter. We both agreed that the P&L is the same (aside from any difference in interest but let that pass for now).
> 
> Now how does your approach reduce risk? After you close your contract 2, where do you put the stop for the still-open contract 1? Where ever that is, do the same for the re-entered contract 1 and you have the exact same risk.
> 
> ...




I thank you for your feedback however I am not trying to convince anybody to use this strategy. If trading with a stoploss doesn't bother you simply don't use the strategy.

_Repetita iuvant _
Again the main benefit is that the 2nd contract allows you to get a profit also when you have traded a false break. Plus while you are trading the 1st contract you are risking only the difference btw the 2 positons, rather than 2/3 ATR.

I think anybody can see that the risk would be much lower If you compare this to a standard stop loss strategy.


----------



## barney (31 August 2011)

azioni said:


> AFAIK the 2 positions are standalone and of course the balance at the end would be the gap between the 2. That's what I use in my strategy to know exactly how much I will lose/gain. In the 2nd scenario I have a loss of 2.5 points+2spread on the 1st position and a gain of 12.5-2spread on the 2nd. Balance +6 points in case the break doesn't work.




Hi there Azioni,  Just a couple of quick things you may or may not have factored in.

Do you have a contingency plan if the market starts whipsawing your position?  (ie your short covering postion gets triggered ..... market recovers and you buy it back .... then the market falls back and triggers that price point again ....... This could happen many times over before it breaks in either direction)

Do you have a contingency plan if after your first entry, the market simply starts to go down ....... Do you cover at a loss or simply close the trade.

The theory is ok, but implemetation is not that easy in the "heat of battle".   I assume you are looking at the SPI with this idea ...... hopefully not Forex

Cheers.

ps   I like to try out new ideas as well, but I have those two little yellow guys at the bottom of the page to remind me to behave myself according to the amount of time I have spent testing it live ..... if you do that, you won't get into too much trouble.


----------



## nomore4s (31 August 2011)

I'm really confused

1) I still don't see how this reduces your risk on the original trade, especially if it moves against you straight away - you have no protection against this because you have no stop. All it does is lock in your open profits which is no different from exiting & re-entering the position. You're kidding yourself if you think the market can't move against you quickly especially with the current volatility.

2) I see no advantage over closing the original position and re-entering where you would enter & exit the second position in the opposite direction. Infact there would appear to be a number of disadvantages.

3) What happens if you get the entry wrong on the 2nd position, all you are doing then is stopping the trade moving into further profit.

I personally think that you would be better off spending time trying to find a strategy that lets you pyramid into the trade so you have 2 contracts moving the same way.

As far as the stop hunting thing is concerned, of course during after market hours there is more chance of you stops getting hit due to lack of liquidity causing spikes again especially with the volatility around in overseas markets atm. This is the market doing what the market does not your broker hunting stops, if they did hunt stops in that manner they would open themselves up to arb trades.


----------



## azioni (31 August 2011)

barney said:


> Hi there Azioni,  Just a couple of quick things you may or may not have factored in.
> 
> Do you have a contingency plan if the market starts whipsawing your position?  (ie your short covering postion gets triggered ..... market recovers and you buy it back .... then the market falls back and triggers that price point again ....... This could happen many times over before it breaks in either direction).




Hi Barney thank you for joining in,

In general when the swings are overlapping it becomes clear that you are trading a correction rather than an impulse wave. Therefore if the market falls after you buy back you may decide to exit all together and wait for the end of the correction. However If you feel confident and you are experienced with patterns I think you could trade the correction keeping the 2 positions till the market breaks in one direction.



barney said:


> Do you have a contingency plan if after your first entry, the market simply starts to go down ....... Do you cover at a loss or simply close the trade.




That would mean that you entry setup didn't work at all. Using a dual TF momentum strategy and assuming that you set your indicators correctly, you should be able to filter false breaks as much as possible. However if you experience a quick turnaround I would close the position asap, especially when you are trading intraday.  

Usually in trading you go for the higher probability scenario and I don't think a flash crash happens that often. Plus with a flash crash a normal stop strategy wouldn't save you from extra cost for slippage as well.  



barney said:


> The theory is ok, but implemetation is not that easy in the "heat of battle".   I assume you are looking at the SPI with this idea ...... hopefully not Forex.




You are completely right. Thats why I am writing on the forum and I need your help guys. Although I trade indices and I don't have experience with forex, I am assuming that you know the market you trade and you understand the dymanics of that market.

Cheers


----------



## azioni (31 August 2011)

nomore4s said:


> I'm really confused
> 
> 1) I still don't see how this reduces your risk on the original trade, especially if it moves against you straight away - you have no protection against this because you have no stop. All it does is lock in your open profits which is no different from exiting & re-entering the position. You're kidding yourself if you think the market can't move against you quickly especially with the current volatility.




Hi there,

As mentioned in the previous reply you should have enough time to exit your position. You may have a big problem only if you are scalping or trading a very low TF, which I've never suggested to do.  

In case you experience a flash crash, which doesn't happen very often, a normal stop wouldn't save you anyway unless you are keen to pay extra commission and points for a guaranteed stop.




nomore4s said:


> 2) I see no advantage over closing the original position and re-entering where you would enter & exit the second position in the opposite direction. Infact there would appear to be a number of disadvantages.




I have never said to close and renter the original position, that was SKC suggestion. I would keep the original position till the pullback drops lower than the entry level, closing the short position with a profit.



nomore4s said:


> 3) What happens if you get the entry wrong on the 2nd position, all you are doing then is stopping the trade moving into further profit.




If I get the 2nd entry wrong I close it asap, while I'm still in profit from the 1st position. 



nomore4s said:


> I personally think that you would be better off spending time trying to find a strategy that lets you pyramid into the trade so you have 2 contracts moving the same way.




I think there is a bit of confusion about the strategy objective.

My strategy objective is to enter a break on the lower TF in order to get to the higher TF break without risking the standard 2/3 ATR used in most stop loss strategy.

For example if the lower TF break is 100 and the higher TF break is 120 I want to make sure I am already in the trade when the price breaks the 120 level with no losses.

I am really not interested in how much I am going to make before I get to 120, I am not looking for a profit btw 100 and 120, I just want to risk as less as possible or at least less than 2/3 ATR. I am just using that range as a buffer that allows me to control how much I am going to risk and the 2nd position is the insurance I am paying. 

The main difference with a normal stop is that I can use my insurance to make a profit if the trend goes against me.   

Cheers


----------



## skc (31 August 2011)

I feel like this guy...


----------



## skc (31 August 2011)

azioni, you seem like a nice polite guy so I really wanted to try this one more time and show you what you are missing. But I've tried to draft a response a few times now and I haven't been able write something that I am happy with. It's like trying to explain something so simple and fundamental that it is actually more difficult than if you are explaining something more complicated.

It's not a matter of opinion or us failing to see your point of view. The undisputable fact is that, what you are doing has NO ADVANTAGE over just closing and re-entering the single contract. Not in P&L, not in risk, not in win rate. NOTHING. But with very real additional costs.

By opening contract 2 in the opposite direction, it is the COMPLETE EQUIVALENT of closing contract 1. And when you close contract 2 in the opposite direction, it is the COMPLETE EQUIVALENT of re-opening contract 1. Except for the additional costs. Again these are undisputable.

I am sorry that I can't articulate the facts any better in order for you to understand them. And I don't know if the fact that I trade more CFDs this month than you would for the next 5 years matter to you or not. I just hope you can investigate for yourself and see the light. 

Good luck.


----------



## azioni (1 September 2011)

skc said:


> I feel like this guy...




that's good to know, I am not the only one then 

I keep in mind your advice and I'll do a bit of backtesting on the DOW 1H and daily. Ultimately, the market is the best judge.

Cheers


----------



## skc (1 September 2011)

azioni said:


> that's good to know, I am not the only one then
> 
> I keep in mind your advice and I'll do a bit of backtesting on the DOW 1H and daily. Ultimately, the market is the best judge.
> 
> Cheers




You are still missing the point... It's not about backtesting, your entry/exit strategy or your expectancy. 

It's something way more rudimentary.

You somehow think that doing something that is completely equivalent to each other can reduce your risk. This indicates that somewhere in your understanding of your strategy's risk is incorrect / incomplete.


----------

