I’ve been looking at the maths behind pyramiding postions (adding equal lots to more positions, whilst moving stop loss).
Seems to increase reward for trend following systems whilst minimizing risk.
Let’â„¢s take a look at the best and worst case scenarios for each step of this trade.
First block of 40,000 units
Worst case: 2% loss
Best case: 12% profit
Second block of 40,000 units
Worst case scenario: Break-even (+2% from the first block and -2% from the second)
Best case scenario: 20% profit (+12% from the first block and +8% from the second)
Third and final block of 40,000 units
Worst case scenario: 6% profit (+6% from the first block, +2% from the second and -2% from the third)
Best case scenario: 24% profit (+12% from the first block, +8% from the second and +4% from the third)
As you can see from the figures above, the worst case scenario at any point in the trade is a 2% loss, while the best case scenario is a 24% profit. This makes pyramid trading not only extremely profitable, but vastly more favorable compared to most other trading strategies out there.
Seems to make mathematical sense. Unfortunately with SQ we cannot produce this effect as it only ever opens one trade at a time.
Any thoughts? Is this something SQ4 can handle?
I have several systems that use pyramiding and while the profit usual goes overall down compared to if the system would use a single order for each entry, the return/dd ratio increases (and hence it is more profitable since you can just increase risk per trade for the decreased overall profit and still have a better system) as well as does the smoothness of the equity curve. So I also hope SQ4 can support this, in the way that we can specify something like “max orders” when generating strategies, just like we can for the stop loss etc.
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