In my last post, I describe how I carry out this interesting experiment on a strategy is selling for a few thousand dollars!

Haha, nope, I will not be revealing the strategy here, not allowed to and not worth to anyway.

Anyway, let me illustrate with the following…

At one point in time, the original strategy requires me to short at 99.70 with profit target at 99.54 and stop loss at 99.80. The actual orders placed will be:

Short at: 99.70

Profit target: 99.57

Stop loss: 99.83

Why plus 3 pips for the profit target and stop loss you may ask? Well, since we shorted, the profit target and stop loss are actually buy orders. The strategy is based on the bid price (aka sell price). When we execute buy orders, we have to factor in the spread, which in this case for the USD/JPY pair for my brokerage is 3 pips. I last discussed this here.

Ok, then I reversed the entire strategy, ie, sell becomes buy and buy becomes sell. So at the same point in time as the above, my modified strategy required me to long at 99.70 with profit target at 99.80 and stop loss at 99.54. Hey, I should make money right? BUT…The actual orders placed will be:

Long at: 99.73

Profit target: 99.80

Stop loss: 99.54

Now can you see why I still lose money after I reversed the strategy? Let me illustrate with a simple diagram below

Using the original strategy, I get 13 pips if I hit profit target and also 13 pips if I hit stop loss. After reversing the strategy, I get only 7 pips if I hit profit target and 19 pips if I hit stop loss!

Can you figure out why? Let’s discuss