A SIM with a variation of 100 pips per re-adjustment and using historical data for 10 years will show all the hidden warts in this fallacious contraption.
No offense, but if you just bought and held $, it would be worth $1000 ! What makes your assumption of long term profits holding ? I took only the movements you did. But we can go ahead with the movements of your choice. Masteratwork
Let's go ahead with the movements. The next 2 movements are up. We have $562.5, we buy euros with half of them = â¬1125 and keep the other half = $281.25 4. eur/usd = 0.5 Our portfolio is $281.25 and â¬1125. It is worth 281.25+1125/2=281.25+2500=$843.75 We buy euros with half of them = â¬843.75 and keep the other half = $421,875. 5. eur/usd = 1 Our portfolio is $421,875+â¬843.75 = $1265.625 Summary: The price was 1 in the beginning and at the end was again 1. Our portfolio went from $1000 to $1265.625. I have written these kind of calculations countless times only in this topic. I have given a link to a spreadsheet with these calculations in my first post, here is a link again - http://rapidshare.com/files/372675452/eur-usd_example.xlsx.html You can simulate random price movements by pressing F9 in Excel and see what happens with the portfolios. I'm tired of explaining the same thing over and over again, so if you have more questions, please first read the whole article and the whole thread here.
"No offense..." Cooldown, that was just a joke . What I see is just that you're averaging your position. It's just like to say : guys, you could buy 10 shares of this stock, but just buy 5 of them and invest the rest of your money in a cash account. If the stock drops, buy 2 more shares and if it soars to the initial price, you'd make money. And if it keeps going down, you'd lose less money that if had bought the initial 10 shares. There is nothing new with that. It's called "averaging". The point is that the risk is smaller, right, but the payoff is too.
Similar ideas for your consideration: http://www.amazon.com/gp/product/04...=1789&creative=390957&creativeASIN=0451204417 And a commercial system: http://getfolio.com/ Lots of food for thought without buying. Also consider: http://finance.groups.yahoo.com/group/ScaleNet/
Sambian- Fantastic discussion! I maintain that this is a Martingale Mean Reversion strategy because you increase your wager on a losing bet and you only make money when the underlying goes back towards your starting point. If the underlying trends against you, you do not make money on that trend, only on the small reversals and retracements back towards the mean. After having slept on it, I think the real genius is this strategy is that it looks like it is optimal game-theory for a random walk market. And that has great value. I would rate this thread a win, it has given me lots to think about in both the arguments for and against your strat. Thanks for sharing.
I have to correct a semantic problem with this game regarding bet size. Your game confuses "bet" with "tying up capital". Bet is the total amount you can lose on a given event's outcome. If I am going to bet $10, and if I lose you are going to keep half of that, then all I have at risk on each event is only $5. Let's say I I walk into your gambling hall with $10 in my pocket, play your coinflip game once and walk out. If I bet $10, lose, then walk away with $5. If I bet, win, then walk away with $20. So this example is really coinflip game with a 4:1 payoff, which I don't think is what you want. Of course that has a positive expectation for the gambler; I would play that game all day long!
If you go long EUR/USD and long USD/EUR at same time, you can make money for example if EUR/USD goes from 1 to 2, a 10.000 pip move up then USD/EUR naturally goes from 1 to 0.5, a 5000 pip move down. One trade will make double the pips the other one loses, and then you make 5000 pips profit on this trade. A complicated version of this strategy is going long USD/GBP, long GBP/EUR, and long EUR/USD, threeway trade. This is equal to three seperate trades in one!:eek: