Ciao a Tutti,
in this post I’m going to reveal a feature of One4All that we’ve not discussed much so far. One4All is actually able to invert the trading signals produced by any EA or manual strategy. When the Client opens a Long trade, our Server opens a Short trade. And vice versa when the Client opens a Short trade, our Server opens a Long trade.
Of course this feature can be useful only if we are confident that a given strategy (either automatic or manual) is really able to consistently lose money. This is usually much more difficult than it seems. The ugly truth is that the vast majority of losing EAs and strategies fall into a category that makes them losers also when we invert their trading signals. The problem is they don’t lose enough! 😀
There is a mathematical rule that can tell us if inverting a losing strategy results in a winning strategy or not. This is an important point to understand for every trader and I’ll explain it starting from a simple example.
Let’s suppose I have a trading strategy that enters the following trade:
- time t1: EURUSD bid=1.2676, ask=1.2678: buy EURUSD @ 1.2678
- time t2: EURUSD bid=1.2650, ask=1.2652: sell EURUSD @ 1.2650 (close the previous trade)
The profit&loss of this losing trade is -28 pips. For the sake of simplicity I’ve considered a fixed spread of 2 pips for EURUSD. Now let’s suppose I’m running the inverted strategy, so I know exactly what will happen at time t1 and time t2:
- time t1: EURUSD bid=1.2676, ask=1.2678: sell EURUSD @ 1.2676
- time t2: EURUSD bid=1.2650, ask=1.2652: buy EURUSD @ 1.2652 (close the previous trade)
The profit&loss of this winning trade is +24pips. The good news is I have now a winning trade, however the profit&loss is considerably smaller than +28 pips! From this simple example we’ve learned that inverting a strategy has a “hidden cost” of 2 times the spread on each and every trade.
If we know that a strategy can lose 300 pips on EURUSD after 50 trades (with an average 2 pips spread), then we can expect the inverted strategy wins only 100 pips after the same number of trades. Here is the formula: 100 = 300 – 2*50*2. If our broker has an average spread of 1.6 pips then the inverted strategy would make +140 pips: 140 = 300 – 2*50*1.6.
If a strategy loses X pips after N trades and the average spread is S, then the inverted strategy is a winner only if X>2*N*S (the bigger X is the better). The P&L of the inverted strategy is (X-2*N*S).
And finally here is the “trick” for configuring One4All client EA so that it sends inverted trades to the Server: just put a negative number in the “multiplier” input field. When you do that you will notice that on the textual interface of the Client the 2 lot sizes listed for each currency pair under “Total Open Positions” have opposite sign. The first lot size refers to the trades actually opened on the Client, the second lot size (between brackets) is the information sent to the Server.
I’d like to remind that One4All is a new software we designed and implemented keeping in mind NFA rules and the optimal workflow of serious Forex traders. We believe the result of our efforts is the most versatile and useful trading tools we’ve developed so far.
We wish you success with your trading
Andrea and Paolo