Risk Averse Approach to DuettoFX Trading 11


Ciao a Tutti,

in this post I’m going to describe an exit strategy for DuettoFX which is based on fixed SL and TP levels. As you know we are already working on an automatic strategy based on DuettoFX. Starting from the “basic” strategy explained in these post

our aim is to come up with an exit strategy that captures more pips, or more money 😉 This not a play on words, so let me first explain this point. Imagine you can choose to open one of the following EURUSD trades having the exact same winning probability:

  • trade A: risk 200 pips and profit potential 400 pips
  • trade B: risk 20 pips and profit potential 100 pips

Seemingly trade A has a profit potential 4 times bigger than trade B, but for sure I’d personally go with trade B :D. In the end it is not important how many pips but how much money I can make. I could open trade A with 1 minilot risking 200 bucks, or trade B with 1 full lot risking the same 200$. However the potential profit from trade A is 400$, while the potential profit from trade B is 1000$ (2.5 times bigger).

The exit strategy I’ve come up for DuettoFX does not always allow to capture more pips, but it works very well on some pairs since it limits drawdowns and makes the equity curves look nicer. As explained above this can be considered a good result, since we can increase the lot size on these trades and make more money.

The following is a picture of the last closed trade on EURUSD using DuettoFX:

The first yellow line is the entry and the second yellow line is the exit. This short trade was closed with a loss of 76 pips (see the red line from entry to exit) which is a ridiculous outcome if we consider that price moved more than 170 pips in our favor. My empirical observation on the last few months of DuettoFX trades on EURUSD is that recent price action gives a good hint on the possible take profit level. I watch the last 60 bars before the trade is entered, then I choose a TP which is specular to the latest recent high or low. For the short trade in this example the recent high of the last 60 bars is 139 pips above the entry level, therefore I choose a 139 pips TP level. Doing so the PL of this trade is +139 pips instead of -76 pips. The SL is 139 pips as well. I’ve tested this idea starting from January 2010 and I’ve seen it actually works on three pairs: EURUSD (traded against USDCHF), AUDUSD (traded against USDCAD) and USDCAD (traded against AUDUSD).

Just compare this chart:

to this chart:

The overall Profit and Loss goes from +6400 to +6900, but the most important thing is that the slope of equities on the second charts is much better (the system reaches new equity highs much more regularly). On the second chart EURUSD is traded with a lot size 50% bigger than on the first chart, while AUDUSD and USDCAD are traded with the exact same lot size. This approach works especially well with USDCAD (when traded against AUDUSD).

Of course my quest for a smart exit strategy for DuettoFX is not over, this is just a first step, but I consider it a good one :-) Good luck with your trading 😉


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11 thoughts on “Risk Averse Approach to DuettoFX Trading

  • Paul

    Hi Andrea,
    I like the look of this but don’t understand where you got 139 pips from as the last significant high looks higher than the highest achieved by Duetto before the close?
    Is there a method you are using to get this high such as fractals or similar ??
    I’d really appreciate the answer to this as will other readers I’m sure as it seems unclear where you got that figure from.

    Also, is there any plans for an audio/pop up alert when the -2.00/+2.00 is hit? Maybe the figure could be adjusted by the user to suit his/her risk tolerance for entries etc..

    Love the indicator,

    Paul

    • Paolo Post author

      Hi Paul, as explained in the post I look at the highest high (for a short trade) or at the lowest low (for a long trade) over the last 60 bars. It is the number of bars that does the trick 😉 This is the most simple approach that can be implemented into an EA. We will release an update with some sort of alert. Thanks for your support.

  • Todd

    Paolo
    That exit stratigy looks like it could be programed in a EA and calculate lot size based on a set percentage of ballance for each pair. I like how you are thinking.
    How are you coming with Potenza EA exit statigy? And when might we expect it’s release date?
    Pip On
    Todd

    • Paolo Post author

      Hi Todd, yes the SL and TP levels described can be easily implemented into an EA and therefore a risk% money management could be easily implemented too. However I’m not sure we are moving exactly in this direction. The exit strategy I envision for DuettoFX is much more sophisticated, but I need other time to test these ideas. The SL-TP based exit strategy described in this article is a good approach for the people who want to trade DuettoFX manually. Regarding PotenzaFX, this EA is already complete (both entry and exit strategies are clearly defined and implemented) but we perfectly know that the exit strategy suffers during price consolidation and price reversals. We are tackling this aspect and trying to introduce other exit strategies. The updated version should become available in the next few weeks.

      • Todd

        Paolo
        I can wait. After all the EA is doing great for me as is. I am very happy with it. I am also starting to see how building a strong base is a good thing, one that I could never do before in forex because of the unsertiny of the system that I was useing(lack of faith) till now.
        It is making me a beter trader. Keep up the great work.
        Pip On
        Todd

  • Eric

    Hi,
    I was wondering if you could ellaborate a little more the entry signal? I don’t really get it why Duetto triggered there a short (I mean at this point in time and why not earlier)

    Thanks for hint!
    Eric

  • Ralph

    Hello,

    how can we use the Indicators to different pairs than EURUSD and USDCHF ?
    I changed the symbol names in the settings – but got no indication.

    Thank you.

    • Paolo Post author

      Hi Ralph, the pairs DuettoFX works on are claerly displayed in the textual interface. As an example if you want to look at the “duetto” AUDUSD vs USDCHF you can open an AUDUSD chart, then apply the DuettoFX indicator with instrument1=AUDUSD and instrument2=USDCHF in the settings. Both AUDUSD and USDCHF should appear in the textual interface. Send an email to our support if you have further problems. Ciao, Paolo