Forex Trading - View Single Post - Conservative LR/HR (low risk, high recovery factor) Forex trading concept

Forex LR/HR · #1 (**permalink**) 07-22-2007, 09:57 PM

Conservative LR/HR (low risk, high recovery factor) Forex trading concept (Description Part I)

What are the basic characteristics for the system ?

• It’s a highly conservative concept combining 4-6 diversified low risk strategies.
• Is composed of several modules combining concepts from quantitative stochastic analysis and probability based modelling and statistics with technical analysis. The quantitative stochastic analysis part is basically used for forecasting significant price cycles. It identifies low risk entries and follows them till the end of the forecasted cycle.
• The system is composed of several components. Some of them are automated and others are followed rather manually. The rather complex set of rules though allows no discretion. The only discretional part is referring to whether to re-enter a trade after an important news release. This requires experience for judging whether and to what extent the market reaction to a particular news release is going to destabilize the models used by this concept.
• A position is entered only when there is a high chance forecast for at least a 30 pip (or 30 “eur/usd” equivalent pip units) price movement.
• Trades can last from several minutes till some times many hours but usually less than 24 hours.
• Makes use of partial profit taking and money management for locking profits.
• Trades currently 8 pairs (those with the lowest spread) for keeping the costs as low as possible: aud/usd, eur/chf, eur/gbp, eur/jpy, eur/usd, gbp/usd, usd/chf, usd/jpy. Though the concepts apply very successfully to all possible currency pairs.
• The concept is behaving pretty stable during almost all market conditions (trending or ranging). Though during trending conditions the average profit per trade tends to be higher contributing to a higher profit factor.
• Positions are usually splitted in 4 parts (tp1, tp2, tp3, tp4).
• The system exits all open positions during important news releases as those can considerably destabilize the models used.
• On average there are about 3-4 trades per day to expect. Sometimes there will days with 6-7 signals and during other days maybe only 1 or even none.
• Risks are kept at the lowest possible level and the alternative to this concept would be just not to trade.
• System results do not necessarily depend on whether market is moving fast or slowly. Even slow market conditions can turn out to be at least moderate or sometimes very profitable.

What are the basic principles or criteria used to design the system ?

• The system has been designed based on following principles and criteria:

Keeping the risk as low as possible
Consistency (the system performs at least acceptable or even very well, during almost all market conditions) even if at the cost of absolute pip profit number
Targeting a very high turnover and recovery factor instead of a high profit in terms of absolute pip number

What are the expected results and important ratios ?

• Is targeting 10-20 pips on average daily for each lot traded. Sometimes it will be significant more than that but on other days maybe less or even a small loss.
• Estimated monthly profit on average 200-250 “eur/usd” equivalent pip units per lot traded.
• Average profit/ average loss = 1.5-2
• Average loss is about 5-8 pips
• Win ratio: there are market conditions (weeks) with % win ratio of up to 90% and others with up to 60-65%. But what is much more important than the win% is the very high turnover or recovery factor on average losses which tends to be up to 40 per month. Applying that to a system working with let’s say a 25 pip average the monthly profit would be equivalent to 1’000 pips.
• Profit factor: 2.5-4
• Expectancy is 0.05 % (0.5%) per trade when using a 1:1 (10:1) leverage
• Worst drawdowns with a 95% confidence interval is 10% (5%) when using a 20:1 (10:1) leverage. Some examples:

For a 10’000 USD account and a 10:1 leverage, the monthly expected profit gets about 2’000-2’500 USD (20-25% monthly performance), with the worst expected drawdown being 5% (500 USD)
For a 10’000 USD account and a 20: 1 leverage, the monthly expected profit gets to 4’000-5’000 USD (40-50% monthly performance) with the worst expected drawdown being 10% (1’000 USD)

Which are the trading hours ?

• Trading hours are basically from 6:00 to 22:00 GMT and sometimes extended into the asian session.

How to follow the suggestions ?

• All trades in the room are supported from their entries till their final exiting. Though there are several other ways on how this service can be followed:

Following the signals exactly as suggested
entering the market as suggested and use your own rules for exiting
Use the signals suggestions as general market trend or momentum and enter the market according to your own criteria or studies
for confirming your own approaches
for diversifying your own concepts