Successful Stop & Reverse - Semi Martingale Trend Following Strategy

Discussion in 'Strategy Development' started by jones247, Jun 21, 2008.

  1. I'd like to introduce a strategy that I've had success with in the forex market. I received the essence of this strategy from another individual to whom I'm very grateful. Thus, I'm willing to pass this blessing on...

    This strategy is based upon the premise that one does not KNOW where the market will go in the short term, especially when intraday trading. It's designed to be successful regardless of where the market goes. You can be wrong and still win with this positive expectancy system.

    I'm interested in transitioning this strategy to the equity market via a prop firm (for leverage purposes). I am sharing it with members of this forum for feedback, especially if someone has experience with it in the equity or futures market.

    Constructive comments/criticisms are welcomed...

    In summary the strategy is as follows:

    At the opening of the market enter in a given direction. It is not critical to be right on your initial entry. Therefore, you may choose any indicator or fundamental as your preference for direction at the opening of the market. If the trade goes against you by 10% of the ATR, then reverse the direction by stopping out the existing order and entering a new order in the current direction. Continue this stop & reverse trend following sequencing until either 7 sequences are exhausted or you reach your profit target. The profit target is about 50% of the ATR for the given instrument. The "semi-martingale" aspect comes into play by increasing your order size for each stop & reverse sequence.

    Depending upon the leverage, a $25k account can easily earn over $100k per year in profits.


  2. StkWiz


    Care to explain a little more about your strategy.

    1) what is the maximum loss incurred if you get all 7, trade as a loss without hitting the profit traget first.
    2) what is your win/loss ratio.
    3) what is the exact money management rules.
    4) how long have you traded this strategy.

    Best wishes
  3. I use a similar strategy in that I walk into the market on each and every day NOT knowing or caring where the market is going. I do not try to catch a move -- ever. I wait until a move occurs and then fade it. If it doesn't work I do one of two things -- add more to the trade (average in) or stop out and size up on the next trade (semi-martingale). When I do which would take a while to explain but suffice it to say, if the market is very oversold and goes even more oversold I will increase the position. If it goes oversold and goes sideways without offering me a profit then I will stop out and increase my size on the next trade ONLY if I believe the probability of the subsequent trade is a higher probability setup.

    I like your money management strategy but you're going to get caught in one of those chop opens and it's going to eat you up. I've gotten caught on the wrong side of a trend thinking "this" setup has a much higher probabilty than the last and continue to lose.

    Every strategy comes with a weakness. Be sure you know what the weaknesses of yours are. What is your worst case scenario?

    Good Luck!!
  4. If I lose on all 7 sequences, which is the Worst Case scenario, while trading a stock worth $135 having an ATR of about 2, my max loss is about $2600.
  5. That's not bad. What I have found is you have a tendency to either keep going or you get to the end of your string of trades and you can't pull the trigger. In my case I fixed that by being very patient on the first trigger so the likelihood I'd need a 6th or 7th is very low. The largest string I've gone on recently has been 3.

  6. I've been testing this strategy, in one variation or another as I try to perfect upon MM and probability, since last year.

    Although my max gain, whether I close on the 1st or the 7th sequence, is a little more than $1k per intraday trade, one can enter into multiple trades during the day. However, I believe the trends with minimal whipsaws, barring news events, occur during the first hour of the trading day.

    The expected win/loss ratio is at least 80%; although I'm entering new territory with the equity markets. Specifically, I will test it with the ETFs having tight spreads. As I forward test it, I'll be more certain...


  7. You will NEVER be able to turn $25,000 -> $100,000 year using a random system with a martingale.

    Think about it - 'nothing comes from nothing.' Your system is completely random, you have no market knowledge, therefore out of no knowledge comes minimal profits - though you will profit slightly with the martingale because the trends do exist in the stock market
  8. Epiphany & Traderzones,

    I respectfully disagree with your position and assumptions. I am not a newbie, as I've been trading for over five years. Moreover, Don Bright's Open Order strategy is based upon trying to align oneself with the specialists at market open while placing orders for either direction at the open of the market, and ultimately catching/scalping minor morning trends. I don't think there's anyone on this forum who can argue with Don's success and knowledge.

    Dr. Nassim Taleb is absolutely right, many are "fooled by randomness" and thereby having deluded themselves into thinking that they "know" and can "predict". There are many VERY intelligent Quants and Analyst assoicated with Hedge Funds and Investment Banks that have achieved utter ruin because they "didn't know that they don't know, but thought they knew". Ask Victor N. and LTCM, as well as a host of other victims of the Black Swan.

    In addition, the simple and proven edge with this system is the "Capturing of Short Term Trend" while deploying proper MM. Failure is certain if one is unable to manage both. Do you criticize Don the way you have criticized me on this thread?

    If you don't mind, please keep your responses civil and respectful...

  9. hooold on. not so fast....

    his idea may be a bit stupid in the sense that it's very random.. BUT

    going with the daily trend and using the average range as a marker for trades in the direction of the trend may not be a bad thing... it's a variation worth looking at...

    however, the daily trend must be truly sepparated from chop and so, instead of using a moving average or some idiot trend indicator, i advise using an intraday ATR based strategy when daily support or resistance is broken and we have the "pure" trend going on. no trading when it's consolidating... just when there's momentum going on.

  10. you are totally wrong. EVERY entry is RANDOM, although it has the ILLUSION of not being random. YOU think ( wrongly ) that yuor system isnt random, and it may not be but it is entering a random system--the market--therefore the entry is random.

    you, my friend, are FOOLED BY RANDOMNESS

    #10     Jun 21, 2008