Hi Traders,
Beginning this year I conducted the following Forex experiment in Demo mode using FXCM trading platform.
I have some theoretical knowledge but almost no practical knowledge of the workings or underpinning of the Forex market. Using a bit of Forex theory and my small experience at BF trading I created a very simple forex strategy.
The basic idea was to test that if I were to select the pair and direction
entirely Randomly could I achieve a result close to breakeven or perhaps even slightly positive?
Pairs:
EUR/USD
USD/JPY
GBP/USD
USD/CHF
EUR/CHF
AUD/USD
USD/CAD
NZD/USD
EUR/GBP
EUR/JPY
GBP/JPY
GBP/CHF
Trade Entry:
- Randomly select 1 major pair per/day from the list above.
Randomly select Long or Short Entry
Trade size - 1 lot (I know it's small but it's ok for an experiment)
Entry Adjustment:
Ask for a price if possible - i.e. do not place trade at the best available price, but rather place the entry a few pips out the money because the average 5 to 15 minute volatility would get me in at a slightly better price more often than not.
Trade Exit:
- Profit target: 100 pips
Stop-loss: 50 pips
Thus giving us a roughly 1:2 Risk:Reward per trade
Thought Process:
Before deploying this strategy I looked at the Average Daily Range for the major pairs and found that they all had roughly at-least 100 pip range, if not more. So that gave me the basis to place my Entry & Exit orders within this range to ensure I can get in and out of trades in a matter of day or 2 at max.
Also, being aware of the massive time lag retails traders experience compared to Prop desks I thought I might go for a swing trade, because if I attempted scalping they would beat me to the trigger every time.
PS: The trades were done commission free since the experiment was carried out in Demo mode. Commissions have often have a significant impact on the net PL.
There are a couple of things that can throw this basic strategy into a consistent negative returns if done with real money in live mode:
- The dealer or broker can see your Stop-loss (and take advantage of it).
Slippage may be much higher than quoted.
Would like to hear what traders make of it (Betfair traders or Forex traders). I've attached the spreadsheet of the trades.
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