فوركس ساتو

COMPOUNDING GAINS
Compounding Gains is a simple technique that can be used when you are
dealing with a very nice trend (like that trend that I showed you in the section
talking about S.E.X. lines). This isn’t a technique about how to enter or exit
trades, but rather a technique that you can use magnify your profits by adding
on additional lots. This does pose a bit more risk, but pulled off successfully
can mean a much bigger pay off for you. For example, (this is just
hypothetical numbers), on a trend that lasts say 100 pips you might be able to
extract the equivalent of 200 or even 300 pips!
The concept is simple. You simply use more relaxed exit rules and add more
trades for each successive wave. Done properly the worst that can happen is
that the most recently added trade will lose a few pips, but all the previously
added trades will have varying profits.
You need a nice micro trend to scalp along first of all. This technique can
only work on a nice trend. You enter into your first scalp in the normal
way. Once the market has moved up enough for you to replace your stop
order securing at least a 5-pip profit, and assuming that it was a large enough
wave to not stop you out then you could employ the compounded gains
technique.
So now you have a trade with your stop placed to secure at least a 5 pip
profit. At the next scalpable entry point you simply place another scalp
trade. For this second trade you either leave your stop set for 10 pips loss, or
you change it to match the stop of the first trade (if the first trade’s stop is
farther than 10 then leave it at 10, but if it is closer than 10 then set it for the
same price).
At this point you employ the trailing stop method you’ve learned in “Forex
Sailing”, trailing your stop set at the price of the base of the waves.
You are allowed to add other trade to your series of trades ONLY IF the last
trade you’ve entered into has already had it’s stop order increased to at least a
breakeven point or preferably securing a profit. If the last trade you’ve
entered into hasn’t met that criteria (of your stop being equal to or greater than
your entered price) then you are simply not allowed to enter into another trade
yet.
You keep on trailing your stops of all trades to the base of each wave as taught
in “Forex Surfing”. Thus all your trades have the same stop price, except for
perhaps the newest trade added to your series.
Basically you keep following the set of rules described above like a loop,
repeated over and over and over until eventually you get stopped out, and
when you get stopped out you’ll be stopped out on all the open trades, so it’ll
be like a house of cards all tumbling down instantly. The only loss that can
happen is from the last entered trade (unless you stupidly traded this through a
huge FA like “Non-Farm Payroll” on the “First-Fridays-of-the-month” when
your stop might not be honored), but generally the profits of all the other
trades will leave you with a handsome profit overall.
Think about it. Here is a hypothetical situation. Let’s say you entered a trade
at 1.1000, at 1.1010, at 1.1015, at 1.1027, at 1.1040, at 1.1048, and at 1.1058,
all using the above rules. Let’s say you finally got stopped out at
1.1050. You made 7 trades, 6 of which were profitable, but 1 was a loss. So
the profits of that series of trades would be 50+40+35+23+10+2=160 minus 8
(for the loss) = 152 pips total profit on just a 50+ pip trend (the trend must
have been a bit larger than 50 pips for you to catch the 50 pip range). So I ask
you, is it worth using a compound gains approach when you’re scalping???
How is this “riskier”? Well, as a scalper you normally try to exit at the end of
each petit trend to maximize the pips gained during that petit trend, but since
you are using trailing stops your exit strategy has thus changed. The risk is
that you might make fewer pips if the first trade or two doesn’t work out, but
once you’ve succeeded in stringing along a series of trades your profit
potential grows exponentially. Trading is all about risk/reward, and the
rewards of compounding your gains, done properly, far outweighs the
risks. So go ahead and try it.
Here is an exercise for you to do. Please actually do it (this “homework” is to
help you). Go to your charts and find the biggest micro trend you can see on
one-minute charts. See what your profits would have been had you done it to
that micro trend. Every day for the next week repeat this exercise using the
most recent chart data. You’ll be impressed with some of the gains you could
have made on a few of those micro trends you’ve simulated compounding
against.
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