what if we try a so-called 100 win rate
strategy together with the rsi indicator
that's what we're going to explore today
so make sure to read the following
disclaimer and let's give this strategy
a shot
hi traders well do you believe in a
trading strategy that works all the time
i don't but according to basic
probability rules that's possible
but how
let me give you an example let's say you
decide to play a game with your friend
using a coin
there are two rules for this game you'll
flip the coin and if it's tails your
friend will give you a dollar
otherwise you need to give a dollar to
your friend
so you are risking one dollar in every
single round
that's the first rule but what about the
second one
well you can play as long as you want to
but if you lose the risk goes up to two
dollars
if you lose again the amount goes to
four dollars then 8
16 32
etc whenever you lose a round the
following one will have two times the
previous risk
this is the martingale system
let's suppose that you have ten thousand
dollars that you can afford to risk in
this game
if we do some basic calculations we can
realize that the only way to lose the
entire 10 000
is if we lose 14 times in a row
but imagine if we change the game a bit
and begin with one cent risk instead of
one dollar well the profit we'll make
will decrease for sure but we'll have
more chances to make a profit and
recover our loss
the only way to go bankrupt in this
scenario is if we lose 20 rounds in a
row
for a game where we have a 50 50 chance
to win we need to be extremely unlucky
to go bankrupt
to sum up the concept of martingale is
pretty simple you increase your bet
after every loss
so when you eventually win you get your
lost money back and start betting with
the initial amount again
it seems quite logical and is fairly
easy to understand and implement
no need to be a math wizard or strategic
mastermind to use this system
does that remind you of anything
well let's say forex trading for example
there are only two possibilities
regarding the price movement it could go
up or go down
we can either buy or sell
the same thing applies when we think of
the coin flipping experience
so what happens if we use the martingale
concept to trade forex and use an rsi
trading strategy to boost up the chances
of being on the right side of the market
so we go in when the rsi indicator gives
us a buy or sell signal and we'll double
our bet or trade size every time we have
a loser
as we continue losing we continue
doubling the trade sizes until we exit
the trades with profit
for example we go short with one
standard lot if the price goes against
us we immediately place a sell trade
with a volume of two standard lots if
the trend continues moving against us we
go short again with four standard lots
eventually that would probably take some
time but if we continually double our
bet or trade sizes all we'll need is one
winner to get back to profits
this will require a lot of automation
which is why we'll use an expert advisor
built according to this strategy
before we begin back testing let's
review the setup again so we will use
the rsi indicator to enter the market
i'm sure some of you have watched the
video where we back tested the rsi
trading strategy 100 times
i'll leave a link to that video at the
end of this one
but to sum up the rsi indicator has
three signal levels
30 50 and 70. the area above 70 is
called the overbought area which is
where we should sell
on the other hand the area below 30 is
the oversold zone where we should buy
that will increase the quality of our
entries
this is our expert advisor i'll set it
to 5 minutes to get as many trades as
possible the most important element here
is the initial balance
we'll run this strategy with a ten
thousand dollar balance and place both
buy and sell entries
no worries we'll do the same thing with
one thousand dollars and one hundred
dollars as some subscribers want us to
back test strategies using smaller
accounts
let's look at the other settings
to remain longer in the market i'll use
a volume size of 1 micro lot and opt for
70 pips as a fixed take profit
regarding the rsi indicator settings
i'll stick to the 14 periods and go
short when the price goes above 70 and
buy when the price crosses below level
30.
one more thing before we hit on start
i'll select a one year time interval
that's pretty much it let's hit on start
while waiting for the results don't
forget to give this video a thumbs up
and subscribe to the channel if this is
your first time here
many subscribers want to learn how they
can build an expert advisor to back test
their trading strategy
i'll leave you a link to a great udemy
course that teaches you how to build an
expert advisor from a to z
well we have just completed the back
testing process
the equity has tremendously increased
but only by looking at this i can
imagine how high the draw down would be
so basically the price has made a sharp
move against us in these three instances
and we needed to place many trades to
recover our loss
and yes we had a 72.02 drawdown which is
extremely high the strategy has a
success rate of 82.72
which seems great doesn't it
we ended up with a profit that exceeds
30 000
that's a massive return so imagine
beginning the year with a ten thousand
dollar account and end up with thirty
thousand dollars
that's probably better than any high
yield savings accounts
do i recommend this expert advisor or
strategy
well before i give you my opinion let me
run the same test with one thousand
dollars this time
simply return to the expert advisor
settings and change the balance from ten
thousand dollars to one thousand dollars
let's keep the other settings as they
are and hit on start to begin the back
testing process
we're done now we can see that the
balance has gradually increased but the
equity dropped at the end of the process
and yeah you might have guessed it right
the drawdown is extremely high 98.2
percent which means that trading this
strategy with 1 000 is extremely
dangerous and you could lose your entire
balance if the market goes against you
with an upward or downward spike
if we check the trades we'll notice that
we remained in the market for only 24
days which was enough to wipe out our
account
imagine if we do the same experience
with only 100
we can remain in the market for how many
days i'll let you guess i would say 5 to
10 days maximum
let me run the test again with a 100
balance before i share with you my
thoughts about this strategy
as expected we've lost our balance at
the end of the day despite the profit
recorded at the beginning of the
experience
the drawdown is 97.35 percent
i was wrong we remained in the market
for 24 days
now i would like to know what happened
on the 23rd and 24th of september 2020
as we wipe out our accounts on these two
particular days
well if we check the forex event
calendar we can see how spicy the two
days were
our balance wasn't enough to sustain our
positions during this period
it's important to monitor the event
calendar to avoid any negative impulses
this strategy is not profitable the way
it is now as it doesn't take into
consideration the fundamental events and
the times when the market is in high
volatility for other reasons
but i'm wondering what would happen if
we try this strategy during a low
volatility market and we avoid all major
events
are we going to be profitable
let me know in the comments section if
you want us to continue working on this
series and feel free to suggest any idea
you have in mind to optimize or
challenge this strategy
don't forget to check out the other
videos on this channel and subscribe so
you won't miss any updates in the future
happy trading