Andreas Thiel
Silver Contributor
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Hi guys,
does anybody have experience with a trading strategy that revolves around limiting the downside while benefiting from outliers to the upside?
The big picture idea is that if you place 52 bets per year (roughly one per week) and if you get close to a 50% chance of succeeding then the exponential nature of the approach could be appealing.
Examples:
Say you limit the downside by placing a stop-loss limit 20% under the level you buy at ...
you increase that limit to the level you bought at if the position rises 10% ...
you increase the limit to 20% gains when the position rises 30%, to 40% when the position rises to 50% etc. ...
Then having 26 winning bets at an average (after subtracting losses of losing bets) of
The issues that I see with this approach are
Does anybody know how much the odds can be tweaked by analysing the charts?
Anything else that makes such an approach problematic?
does anybody have experience with a trading strategy that revolves around limiting the downside while benefiting from outliers to the upside?
The big picture idea is that if you place 52 bets per year (roughly one per week) and if you get close to a 50% chance of succeeding then the exponential nature of the approach could be appealing.
Examples:
Say you limit the downside by placing a stop-loss limit 20% under the level you buy at ...
you increase that limit to the level you bought at if the position rises 10% ...
you increase the limit to 20% gains when the position rises 30%, to 40% when the position rises to 50% etc. ...
Then having 26 winning bets at an average (after subtracting losses of losing bets) of
- 5% would triple your money (1.05^26)
- 10% would more than 10x your money (1.1^26)
- 20% would more than 100x your money (1.2^26)
The issues that I see with this approach are
- you would have to go for Knock-Out certificates with strong leverage - so 20% downswings would probably exceed the 50% probability
- 30%+ moves to the upside over the course of one week would have to be pretty common, so phases of low volatility would be problematic
- To break even after a 20% loss you need a gain of 25% ... so an average of 30% gains would be required for 5% of actual gains
- Big pre-markets moves can lead to losses significantly greater than the stop-loss barrier
Does anybody know how much the odds can be tweaked by analysing the charts?
Anything else that makes such an approach problematic?
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