Opposite trading?

[sr3d]

Hello everyone,

I'm a total newbie to Forex wih less than 4 weeks of trading experience. What I have learned from this period is: 1) trading is not a hobby to take less seriously. 2) it's exciting and rewarding but devestating also. 3) it's expensive to make mistakes. However, after reading many posts across this forum and other forums about forecasting the market with signals and every possible ways, I have this one idea. I just want to present it here and people can put their comments on.

Say the market always have 2 directions (3 if you may for sideway). It's either going up or going down. So say we start with one order, we either lose of gain. If the choice we make is good (we're lucky), we win. Otherwise, we just forgo the lose and move on (or quit the market).

So my idea is: we trade 2 lots at the opposite directions at the same time. At one moment, we put one sell order at 50, one buy order (opposite direction) at the exact point. Both of which we set the stop loss to be equal. If the market either goes up or down, we still break even at all points. Then based on the trend and other indicators, we will cancel the losing trade to pursue the winning one. For example, if the price goes up to 80 (+30 pips) and we know it will go up, we cancel the sell order as it hits our stop loss. At the same time, the buy order gains 30 pips and still going gaining. After making a minimal of 10pips profit, we exit the trade to secure that amount.

If we consistently pursue this strategy, I think it is possible to gain quite a bit of profit in one day. So my question is: is there any fault in this strategy besides the fact that we may not break even after cancelling the losing trade (say the market turns against us). If there is an automate system to place 10 opposite orders perday, it's 100 pips profit already.

So anyone, give your rational about the strategy. It's more than welcome.

Cheers!

Alex Le.

 

[crystalo]

forex market is too volatil to do that

all you will have is lost positions


because the prices goes un and down quickly,the 2stops will be broken and you will lose
2*spread+2*stop margin


huh

 

[Bigbusiness]

So my idea is: we trade 2 lots at the opposite directions at the same time.
Alex Le.

If you think about it, that is the same as having no position at all. The only difference is, you are paying a fee for the spread. Why not wait for the move that you think will continue and then place one trade in that direction?

 

[sr3d]

So we have to make a choice to cancel out the losing one to break even at that moment, then follow the winning trade. of course we have to take into account the spread. That's why it's good to have a good technical anylysis system to determine the chance that price will continue to go in one direction. Because we always break even besides the fact that we have to cover the spreads, i think it is less likely that we will be losing. The chance to get a minimal 10 pips is also increased, don't you think?

 

[G-Man]

sr3d,

I wiah you well with your concept but I would stongly advise against it.

G-Man

 

[sr3d]

i'm just thinking about it and wonder if it is ever profitable, that's it. What i need is to actually do some kind of testing on real data, which I have no clues how to do. I wouldn't not try my system with real money either, too much risk i think. But what if it does work?

Can anyone suggest a way so that I can test my idea? Is there anykind of back-testing system with real data-feed? I wouldn't mind spend sometime programing the test cases and post the report.

 

[Bigbusiness]

So we have to make a choice to cancel out the losing one to break even at that moment........

What is the difference between doing that and just taking one trade at that same moment? The only difference I can see it that is costs a bit more doing it your way. I can understand what you are trying to do but it is something that looks good in theory but doesn't have any real benefit. I know because I had the same idea a few years ago and tried it. I soon realised that all I was doing was paying some extra on the spread.

 

[FetteredChinos]

right.. not the most sensible advice i will offer. BUT...

this method does have something of merit.

let me explain.

apparently, according to FX engines, about 85% of breakout moves will retrace within one day. this is kinda similar to what i have found, with my albeit slightly wonky daily data.

anyway. as i have posted elsewhere..

you can , for example, trade 2 markets. the spot and the future.

when you get an upside breakout, go long, with a target price enough to cover the spreads on both trades. and simultaneously hedge with a short on the other market..

take profit at X, and trust that the breakout will retrace enough for you to get out of the hedge at breakeven. or vice versa.

the only problem is deciding what level the Target Price should be.

and also having a large enough account to ride out the big trend that will inevitably happen.

alternatively you could fade the breakouts for a slightly higher % of winners, that should reduce the drawdown.

this is largely hypothetical, and not the ideal way to trade in the slightest..

but, if you want to pursue this kind of idea, then it can be done.

and the main reason for doing it is the psychological benefit of banking a profit each day.

FC

 

[Bigbusiness]

That is slightly different but has the same problem. When you say "take profit at X", you will have an equal loss on your other trade, so there is no profit. It would be exactly the same to just opening one trade at point X. The only difference is that you don't have to pay two spreads. As for the psychological benefit, that wont help when you close one position at point X and the other one does not go back to break even but just continues making a bigger loss.

 

[commanderco]

This is a concept that I wasted a great deal of time upon in my early days when I thought that I could out think the market.

I still believe that it is possible in futures on the RTH only. Do not try it on the combined glbx as it can backup to retest the direction and take out your stops.

To be honest, I think that it is a complete waste of time.
You are better off with a well constructed strategy based on simple chart analysis and having the courage of your convictions.

Spending too much time on trying to eliminate the risk in the World´s riskiest business should tell you that you are not ready to trade yet. You need more understanding of the fx game and of yourself and I mean that in the most sincere way, since I have been standing where you are now.

Goodluck, with T2W you have certainly come to the best University to ask questions and learn.

 

[crystalo]

To be honest, I think that it is a complete waste of time.
You are better off with a well constructed strategy based on simple chart analysis and having the courage of your convictions.

yes i totaly agree,it s a method to lose for sure.

regards

 

[tradewinds]

I understand the general idea behind the original posters strategy. I think hes on the right lines and I thought he was actually describing a system that I am trying to develop.

However I would advise against doing this also. The main reason being that the markets is too volatile and moves as great speed. The stops will be hit. The actual automation of it would be rather complicated as I don t think you could find a set of parameters that would suit the moves made in the FX market.

YOur right in saying that the market will either move up or down on any given day. We would all be millionaires if we only knew what direction the market would take. Thats the crux of trading. Either being able to predict movement or join in when a moves underway. However the problem with your idea is that the a currency may move up 20 pips then down 30 pips,before moving up another 25pips. All this and you ve just finished eating breakfast.

As I say I am working on a system that is similar in approach to yours, insofar as the system assumes the market can go in either direction,and tries to take this into account. Infact I am going to talk about my system in a seperate post as my only problem at the minute is knowing what is the best automated platform to launch it on.

 

[trendie]

EDIT: message deleted due it being unhelpful, and unnecessarily critical.

 

[commanderco]

I gather that we have sunk the " one each way" theory and have swung back to the careful planning and" big kohonas" approach.

Funny how it always comes back to this.
Damn clever fellows those Hawaians!!

 

[rkzeta]

Hello

I would like to start by saying that everyone who has dismissed this idea completely knows nothing about trading any sort of financial instrument. The strategy has a lot of merit. But implementing strategies without knowing when or where to do so produces no positive results. Opposite trading can be beneficial only if one bet can cover the spreads of the 2 bets, and further, make a profit. I.e. it has to be combined with technical analysis in order to correctly decide stop losses and limits. This is just one of many prerequisites of trading with this strategy.

Alex, you are on the right track. Think more, follow the markets and you'll figure out the correct procedure for implementing this strategy. There are also other strategies that offset the risk of the bet on one currency by making an opposite bet of the same currency against another, which is very successful and widely used amongst professional traders, however extremely complicated to learn.

Don't know if you will read this or even require this advice since I am replying to a 4 year old post. Nonetheless, I felt my point should be asserted to those who are irrationally overconfident of their opinions.

And remember, NEVER hold on to a trade using this strategy past 1 trading day.......

Best Regards,