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:
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 😉