I have been look at into the development of a system that is totally indicator/ bar pattern free and fully probability driven, not an easy task, but once created you could in theory place it on to any pair any time frame any broker and achieve better than average results and it would not matter whether the broker alters the price or not so I started with a few “simple questions” what a joke.
The more you think about it the bigger the questions become, anyway here are the starting questions

Questions

(All based on the position entered on a new bar open)

How do you identify in which direction a bar is likely to move without using indicators?

What is the probability of the TP or SL being hit?

What is the maximum TP will be hit?

What is the maximum SL will be hit?

What can we control?

What is out of our control e.g. volume, price, Etc?

Some of the other things we need to keep in mind.

Should you treat your broker like your friend, or an actual broker or the house as in the casino house because as you all know the house always wins?

What the brokers edge (the house edge)?

The world is run by statistics if you don’t believe me just pick up a North, East, West, South Paper (News paper) and tell me there are no statistics in it.

Why not build a system that caters to that sort of thinking.
Some further reading

Wizard of Odds: The last word on gambling strategy
Casino game - Wikipedia, the free encyclopedia

Hey Beno,

Development on such a system would be based on parameters freely given, one would think we need to figure out a mathematical equation using the various aspects of a candle.

High, Low, Close, Open, Range, Time

By creating a foundation equation based on the six various aspects of a candle, the following probability models can be built off a single base.

I think this is a wonderful idea, and I hope to see other people who are much more gifted in statistics and math and Beno and I.

Cheers,

__________________
http://www.Vancouver-Forex.com

http://www.forex-tsd.com/general-dis...er-create.html

Want to ask a question about fundamental or technical trading? Shoot me a PM- but do your homework first.

You have no idea how deep the questions go. Keep going. The answer will automatically come to the correct questions. Very soon you'll find that just about all classical t/a is nonsense and everything needs to be properly redefined in its own light through scientifically & statistically measureable terms. From that moment, you will finally understand and, unfortunately, be on your own. Good luck!

Thanks Walander and oR4z0r for the replies.

oR4z0r I know that the question is a lot larger than it seems but we have to start somewhere using baby steps.
I don't know how much money is in the FX market (couple of trillion dollars or more) but as the majority of us are retail traders using MT4 there will only be a fraction of that available to us so all I want is a system that give a slight advantage to the people who choose to use it. If the system is ever developed and works.

It’s a bit idealistic I know but an idea not shared is just a thought .



Here is a somthing I have been working on i figure it's a start. it might be wrong but it's a start

OHLC stands for the 4 elements displayed on a typical price bar:
• opening price;
• highest price;
• lowest price; and
• closing price.

Look at the historical data.
You look at each bar and calculate the how many points are from the Open to the High (Long) and the Open to the Low(Short).
From that I look for the highest probable Take Profit (TP) and the highest probable Stop Loss (SL) for both the potential Long and Short positions
The starting point for the TP and SL calculations is 50 points so the idea is to run a program to find the probability of the price reaching both the TP and SL if the probability is very high I am looking for the system to add a point to the starting point. Then continue to add a point until the probability reaches a predefined point e.g. 0.75
So if I open a position I know I should have a 75% chance of either my TP or SL being hit or whatever I choose
Formula:
n = number of trials this is the number of bars i.e. days trading data
k = number of successes to see if the TP is hit by the Long
n – k = number of failures for the Long hitting the TP
p = probability of success in one trial for the Long
q = 1 – p = probability of failure in one trial for the Long


The formula above should be performed for both the Long and Short side and both the TP and SL

Welcome to 2009 I hope it will be a profitable year for you all.

I like this idea a lot. Everything is probability.

I am literally just getting into this so I will require help but I am very interested in creating an EA based on my own trading.

If we think about the overall function of what the EA must do to be worth while is that it needs to have more profits than loss. Expectancy should obviously be positive.

So far the EA's I have seen work backwards to me, but I assume they are written to be more consistently profitable.

During an average trading day when you look back on it it seems like there are such easy and well defined trends at points throughout the day.

The thing about probability is you have to look at expectancy of risk to reward. If we are able to write something that attempts to open a trade and target 100 pips with a stop loss of 10 pips, we can be wrong 90% of the time and make money. This seems like a backwards way to look at trying to take something based on probability but it has an edge and in the long run should be profitable. If you could make it to profit 30% of the time you would be very happy. This is how I currently trade, get in at a support or resistance, so that if it breaks I know to exit, have a tighter stop and use say a 1:4 risk reward ratio.

Non of the above is revolutionary but the problem is when manually trading as much as I try to not let my emotions matter, sometimes they do. If I could program something to detect what I look for to enter or exit I would rather have it automated, if I have a positive expectancy then it should be profitable. I am sure this has all been discussed before but I am just laying this out to try and organize and maybe others can help with this.

What one obviously needs to do is determine the probability of a duration of a trend and look to capture a portion of it or all of it if possible.
For example, lets say we have a downtrend breaking(signaled by a higher low and higher high) once this happens what is the probability of that uptrend continuing and for how long?

If we look at a specific chart(unfortunately it seems like MT4 doesn't have tick charts?) we could try and determine how long a trend lasts in ticks. If a bullish bar on a 133 tick chart is generally followed by 4 more bullish bars we could look to capture this trend.

I am using general and completely fabricated estimations but if the above scenario occurs 70% of the time you would want to enter a trade when this happens with a logical stop loss each time. The above scenario may run into problems during a time of consolidation but maybe could be filtered to avoid most instances of overtrading.

The other scenario again uses probability but instead uses time frames. If you use X time frame once a trend begins what is the length and probability it continues for a certain period of time? You could use bars or a OHLC scenario to determine trend reversal then say filter it with the 30 min trend and enter a trade with a stop loss with a close below the low created before reversal or as a trailing stop below each higher low.

Sorry this is long and I don't mean to hijack just trying to get thoughts out there. Again this is probably already been thought of but this is my first attempt to learn and try and program an auto trading program and I am sure this community is very knowledgeable.

If anyone knows how to code the above scenarios or has code for the general idea I would love to hear about it or collaborate on it.

Ben

Gidday Ben

That is a big first post LOL welcome to the forum.

There are plenty of people that are able to code your system but most are very busy on other projects so good luck.

I have attached an excel sheet that contains my mm system and a probability sheet. it has data from gbpusd to use.

Entry is on the open of a new bar.

I am looking for ideas to move forward as the only thing all time frames have in common from my limited experience is OHLC Volume/Volatility.

So the system should be able to pick the best TP based on TF ie if the 1m tf moves 12 pips on average per bar what is the optimum TP for that time frame on a bar by bar basis.

Probability based systems are very new to me as well, but I do think this is the way forward as you could in theory use them to trade anything from FX to Stocks futures ETC.


Cheers

Beno

Attached Files

mm.zip (600.5 KB, 85 views)

yes I agree in probability system we should pay attention to risk reward ratio , min.1:1 (tp=30 SL =30) sometimes big drawdown happened if u used wrong risk reward ratio (tp =30 SL = 60)

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Forex Indicators Collection

Thanks for the warm welcome Beno!

Sounds like we are on the same page trying to go off of duration of trend(ie how many pips on average can you expect in the direction of trend).

I am wondering if Average True Range would be useful at all? I personally have not used it in my trading but seems kind of like what we would be looking for in terms of determining what the volatility is on any instrument.

Depending on the system and how frequently it trades, it may be more advantagious to go with a more volatile moving instrument to increase chances of capturing a decent portion of a trend.

I am going to try and do some more research and learning so may be I can help out but hopefully others can chime in with info and ideas.

Ben

Thats where the mm system comes into play as the TP is based on how accurate the system becomes ie the more accurate the more the profit it takes and vice versa. but the risk is alway the same as you have a max DD that your comfortable with because you set it to what you want.

This is all theory apart from the mm system I know that works but the hard part is getting the probability part correct. ie what are the chances of the TP being hit if a open either a buy or a sell based on history.

The higher the prob will determine the trade direction, it sounds logical to me.

Cheers

Beno