12/15/2017:
For a better understanding I post here the basic rules.
The elementary thought of this system is the psychology behind moving the markets. Like Isaac Newtons 2. Sentence "Moved Mass will stay in moving", so the Market will stay in trends. You can call it "Dow Theory". And the Move will become stronger if there is a more adding push.
So look at the German FDAX or the little FDXM. In the Europe Session it is running alone. But after the US-market has found his direction, ca. 1,5 hour after opening, the US-indices pushes the German Indices once again in the favored direction.
And here is what I'm looking for:
For a buy-Signal the slope of a daily-SMA 30 is positive and the price must be up in relation to yesterday's close.
For a sell-Signal I use the opposite. But I use sell-Signals only at Thursday. It sounds stupid but there are the best results.
In my experience and the tests I have made, I calculate with approx. 500 points profit pa and a drawdown of 120 points. Of course that is not sure.
If we make some trades, I will write more about the very important money management.
I think, next year.
1/25/2018:
Again some informations
Money Management
Money management is for many traders a topic that is unfortunately disregarded and displaced. For me, money management is just as important as a big profit factor or a low drawdown on my strategy. With a good strategy, the money management is the turbo to succeed but also the hedge against the sinking.
For money management, there are different approaches with different objectives. The main methods are Fixed Fractional (FF) and Fixed Ratio (FR). I do not want to mention the Martingale System (MS), which is very often discussed here, as it only works in an ideal environment (infinite account and time).
I would not go into the FF here. If you understand the logic behind FR, you will never use FF.
Here is a brief description of the FR in which the position size determination ensures a good profit and also safety. The essence of this system is the risk. It does not mean the risk in the single trade. I am concerned with the risk of the strategy. It's called the drawdown. I determine this drawdown from a sufficient backtest. It is the biggest decline ever in equity. If I want to trade, I need to accept this drawdown. And since everything is associated with uncertainty, I have to be able to trade even if I suffer the double drawdown. For a simple writing:
Drawdown per one contract = D, double drawdown per one contract = 2D. It’s important to understand the meaning DRAWDOWN PER ONE CONTRACT = D
The system starts with only one contract and the information about the Drawdown D. You know now: D = Drawdown per Contract.
The simple rule is that 2D has been earned, another contract will be added. I Repeat: The 2D has been earned and then I increment the Size by one. However, if the account reduced by only D, the size is decremented by one contract. If the size is zero, it should be re-traded in the simulation account until the conditions for a real contract are met again. The following example shows the simple calculation:
I start with equity = 0, size = 1 and D = 100
size = 1: equity from 0 to - 100: next size = -1 (paper trading)
size = 1: equity from 0 to + 200: next size = 2
size = 2: equity from 200 to 0: next size = 1 (we have nothing lost, next game starts)
size = 2: equity from 200 to + 600: next size = 3
size = 3: equity from 600 to 300: next size = 2
size = 3: equity from 600 to + 1200: next size = 4
I will explain it:
We start with just one contract. In the case of loss, we have lost only D and we should reduce the size by one. In case of profit, we have earned 2D and we increase by one contract. Should we lose D now we will reduce it by one. But we still have one D save on the account. However, if we win and have 2D back in the account, we raise again and trade now with 3 contracts.
Ryan Jones, the master of FR has written over hundred of pages for this topic and I'll try it on one page. FR is …