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

[jorxster]

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]

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]

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?

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]

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?

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]

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]

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]

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?

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]

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.

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]

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

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]

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]

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?

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]

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]

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

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]

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

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]

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]

I am confused...

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

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.

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]

I am confused...

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



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

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]

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.

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]

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]

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