sorry i dont understand at all... picture tells thousands words... please make into chart

Hi, as promised I ran your scenario as described in your initial post through Wealth Lab.

The first thing that is obvious is that you do not in fact have a 50/50 probability (using 50pip target/50pip stop loss or any other combination for that matter).

Further, using a random entry would theoretically give you a 50/50 probability I suppose, but remember, you only use a random entry once to start the system rolling (and this is not even necessary as one can simply just start off with a long or a short on each test, it would not make a significant difference in the outcome at all), thereafter, entries are market based. This is where the divergence from your expected 50/50 probability comes into play because your entries are not randomly based then and the probabilities will align to the accuracy of your “theory of price reversal” instead, which has nothing to do with randomness.

You request help with money management, unfortunately the most creative money management such as Kelly formula, Fixed Ratio, and Rate Ratio etc. will NOT help at all, the rules/theory as it now stands has no positive mathematical expectancy, or at least that is what the test I have just run reveals, perhaps some other person can do similar test to compare notes etc, although I am pretty sure mine is correct.

Sorry that the reply is not positive, I have had many of these kind of theories only to be beaten down by the facts, it sucks big time I know !!!

Best wishes,

FX Sniper

__________________
"I do not need a compass to tell me which way the wind is shining."

What is the expected success rate then? What is your opinion as to why decisions based on price action would not produce at least 50% success? As one poster mentioned, complete randomness would allow for a long trade to occur in an obvious down trend. Yet, price action would not allow for this to happen. Why does this produce less than 50% success?

My idea was that there would be no stoploss, but that positions would continue to open (long above & short below previous positions), and that all positions would close only when a set profit is made. So, it would essentially hedge until there was a profit. I think an indicator that shows the strengths of currencies compared to other pairs.

Hi,

Excellent questions indeed, they also underline the reason for why you should perhaps temporarily step away from theory and get your hands dirty in some first hand experience and proper research.

To get you going, and to answer one of your questions so long.

Different price patterns identify different price action hence different probabilities hence not all would yield 50/50, some better, and some worse. The bottom line, simply assuming that jumping in at any point gives you an immediate 50/50 at the very minimum is ridicules, that would imply that all systems should at least have 50% in your favor which simply is not true. Your proposal to stop and reverse is as old as the mountains, a simplified version is basic PAR SAR etc, only diffs is PAR SAR for example, has a dynamic stop adjustment and your proposal a fixed one plus obvious diffs with take profit etc.

You might be under the impression that price moves randomly, the truth I suspect is that you would only be partially correct and this can actually easily be proven. Price has cycles of linearity and non-linearity which can easily be charted etc. Hence why I my experiments with R-Squared to name only one. This on it’s own is already a stone wall in the way of a system that assumes no-linearity (randomness) especially in linear cycles. This is the crux of the reason why simply entering anywhere you like will NEVER simply reveal a true 50/50 probability. You might get closer to 50/50 during non-linear cycles, but forget about it during the rest of the time.

I prefer not to get down and dirty with all the high tech statistical mumbo-jumbo, only because people fall asleep when I speak to them that way, not because of lack of practical and theoretical experience.

Not just that, but picture this, say you are correct, and you can enter anywhere you like, so you do go long, you have according to your theory a 50/50 shot at profit. The only way to continue expecting this probability based on that entry criteria would be to LONG all the time, so if you get stopped out, you long again and again etc etc…at random places of course… but NO, you say lets short now and then also, this wont work buster !!! To explain, it is like you say you have one coin and flip it each time with a 50/50 probability which is correct, when you also include short trades with longs or longs with shorts it is the same as if you now add another second coin and still expect the same probability. The more coins you add the less the chances, like the lotto, there is a good reason why there are so many balls Each added ball decreases the odds dramatically.

I notice you post all over the net and found an excellent reply earlier this afternoon over on Forex Factory, and will paste a small part there-off to remind you of the obvious mistake you are also making. This really sums up what would happen if you have 50/50 probability with equal stops and equal take profits, bottom line, you go nowhere slowly!

“It is great to fly on clouds of probability and odds etc, but like with all things that go up, they have to come back down, unless there is an opposing force keeping them up, in this case that would be a positive expectancy which is totally different than simple 50/50 odds etc.

Saying that 50/50 odds will equal an equal amount of events to make or loose equal amounts of money is just a complicated way of saying that you start with say $1000-00 today, you do 5000 trades and in 4 years time you still basically have $1000-00 excluding brokerage which would eat away at the capital after each trade and possible carry trade interest.

The only way to make profit is to say sure, we have 50/50 chance of having and equal amount of events make or loose an UNEQUAL amount of money ( the loosing side HAS to be smaller than the winning side ) It is as simple as that.

The worse the probability, say 30/70, the larger the winning side needs to be in proportion to the loosing side (not per trade basis, but on average).

It is this balancing and adjusting to the one side if the other side of probabilities increase or decrease that give the edge to move forward, the and not remain stagnant no matter how many trades get’s placed.”

I think there is no point in me posting a 3000 word essay as a reply as no one gives a crap most of the time about truth and reality in any event as I have discovered via first hand experience on this and many other forums.

So I just pop in now and then, lend a hand here and there to a newbie or two to get them going with some basic indicator or whatever and now and then venture to risk revealing a thought or two, which usually ends up in some kind of mess in any way for reasons already stated.

Best of luck in your endeavors, hope you understand what I tried to explain and I promise not to interfere any further.

Seasons Greetings !

FX Sniper

__________________
"I do not need a compass to tell me which way the wind is shining."

I would actually prefer that you keep posting since you have shown to be very experienced on the topic.

I'm not sure if what you just posted answers my questions though, and a lot of the confusion stems from my idea of randomness. I'd like to clarify that the first entry is random, but the subsequent orders are not as they are defined by the price action. This is so when in an uptrend, the system recognizes that and only places trades in the direction of the trend.

"You might be under the impression that price moves randomly, the truth I suspect is that you would only be partially correct and this can actually easily be proven. Price has cycles of linearity and non-linearity which can easily be charted etc."

Actually I am under the opposite impression. I recognize that price is not necessarily random. That is the whole basis for the system. I make the expectation that if price moves in a certain direction x amount of pips it is likely to continue for x amount of pips. Price has momentum. The system is assuming a 50/50 shot on the initial trade to enter the market. On the trades following the first, the market will give the edge of showing you what direction you should be going. In an uptrend you should only be making long orders, in a downtrend only short. The idea of the 50/50 shot on the first trade was to emphasis my point that pips are available anywhere on a chart and that to wait for an indicator to tell you when to enter the market is not necessary.

I replied to the poster you quoted on FF by asking, well what happens then when we make our TP/SL unequal? Having different TP/SL levels is a form of money management. Is price action still useless in determining a direction for our trades? That's the biggest question I have right now. Why can't we just use price action to trade efficiently? Like I said, in an uptrend it would allow for only long trades. In a downtrend only short trades. The problem is when it ranges. I then make the observation that if it ranges, we can make our TP/SL zone large enough that it does not whipsaw trades and only enters one or two losing trades just as it would on a reversal. That's another idea to the system is it enters many consecutive trades in a trend, but only a few in a ranging market. Or, as mentioned, our zone is small enough that it can profit in ranging markets.

Again that's my biggest problem understanding right now. Why can't we use simple price action? It would trade almost like other systems, yet allow you to always be in the system. For example, say you're watching a S/R system. Price bounces off a resistance level. You would enter short since price reversed. Would it be wise to go long in this instance since resistance has been confirmed? If it rallies again it could just confirm resistance again to form a double top or it breaks resistance in which case this system corrects itself and puts you long again. Meanwhile the person playing S/R was betting that it would not break resistance again and therefore is short while price rises. Then, what S/R levels are important? That depends what time frame you're looking at. Two people can look at the same currency and have different opinions on where it's going to go. Why not just let price determine where your trades say it should go? Matt

Oh boy !

These are my opinions of which I am convinced and they do not imply that you should be. At the very least I would like for them to highlight the divergence between your theory and reality.

This is so wrong I do not have words to describe it. The market will give you NOTHING, simply stopping you out is not a sign to go the other way, it could mean a myriad of different things, such as volatility is high at the moment, way higher than your stop levels give it credit for to name but one. I think what you are trying to get to is that there is a “golden figure” that the market will turn against you which would signal a reversal, this is simply NOT possible for reason stated below.

First off, trends are not of the same length each time, one is 30 pips, other is 150 pips, there is no predictable order to that unless you start with patterns etc and price projections, but I really do not have time to go into all that now. Bottom line, you can not categorize them into 50 or 100 or whatever boxes by limiting your orders and stops.

Secondly, the time frame that you choose to do this on has a big role which as far as I can tell you have ignored. To demonstrate, it is common knowledge and can easily be proven that the lower the time frame the smaller the trends and visa versa.

Your stops and TP’s need to within the range of the time frame you pick I really have trouble explaining this clearly, but bottom line, the wider your spread that you create between your stop and tp, the more chance the market has to prove you wrong you on the other hand see this as a blessing. If your spread is 100 pips, that already is more than say the range for the Euro (currently about 80 pips per day) on a daily time frame. Say you enter short at the open and get stopped out 50 pips higher up, there is probability for another 30 pips more or less or more if you are lucky some times. The trouble is you are trading within the daily noise (volatility, range whatever) and not outside it as you think you are.

Thirdly, intraday trends do not run continues from the one day to the next, although on the daily chart there might be successive higher bars or lower bars, what goes on inside them is a different story, every new day in FX is a brand new ballgame, new news new everything. If you base your entry on a 1 hour chart, that price action has nothing to do with what happens tomorrow. The 1 hour price action is within the daily possible range and your risk and reward is smack bang in the middle of that, again you are actually trading trend following inside consolidation and any newbie here can even tell you what the result of that is over the long run…

This is why I keep on insisting you get practical and look at this from a market perspective and not theory, your theory needs to be based around what it possible in the market, not what is supposed to be, the market will not give you an edge NEVER EVER, forget it, you need to create one by identifying entry points that has the least amount of risk of turning against you PLUS if they do turn against you, the entry position should be such that you could identify your mistake at the soonest time and at the least cost. If you need the market to fall 50 points against you before you realize you are wrong and your reward is only 50 pips, good luck ! Simply assuming that that can be solved my making the TP higher to say 60 is a fools game you are entertaining your mind with, reality if you knew it, does not work like that. If you had experience in real trading and building systems, you’d know this. If you need to make 50 per trade and your system is such that the market only need to turn 30 for you to see clearly and statistically that your trade is a bummer you’re in business.

In my thread I started about stats, I mentioned research I did on the 5min Euro for example. This research showed clearly that I can safely put a stop loss x amount away from the high of the bar just before my entry. The research shows that 93.4% of the time, when my trade is correct, the market will never breach level x (including spread cost and offset cost for both entry and exit). My average profit on my 5min trades are about 2.5 times the maximum that my level x can be set to and my accuracy rate or odds or probability whatever you want to call it is 67%. This system is about price action and repetitive occurrences of certain conditions.

The edge of this system which is feeding me and my household is divided between the statistical significant stop loss and the dynamics of the entry mechanism. Money management is the magnifying glass as it only affects the trade size, adding more lots later on is not really money management in the true sense of the word. Those are simply new trades, each with their own story and need their own money management. Entries and stop losses determine when you win and loose, money management determines how much you loose, do not confuse the two concepts.

From your expectations it is clear that your definition of price actions has gone horribly wrong somewhere, price moving in a preset block of say 50 pips is not price action. Back to the drawing board !!!

Get practical, look at the market, see what it does, what it can do, how many times it does it etc, statistics can help in this regard, what you are chasing now warrants no further attention from my side at least as I think and have explained as simple as I could that it is a total waste of time because you do not have a link between your theory and reality and there is none, I have given you many reasons, other people have tried also, read what we have said, we have made clear points or me at least. I can not render more input until you display some factual research to prove your theories; it seems all you do is go around starting threads all with the same old story, different people bla-bla-bla. You are simply to lazy to figure this out for your self, or just looking for attention, if it was help you were looking for, you have had a crap load off that passed your way to straighten your thoughts out, you have then deliberately decided to ignore that, which brings me back to the foot note on my previous post of why I do not bother explaining stuff to much, people simply get something in their heads, and truth and reality simply does not exist or becomes their number one enemy.

I’m out of here, period !

FX Sniper

__________________
"I do not need a compass to tell me which way the wind is shining."

FX Sniper

I could write at considerable length in response to your previous post, but I wont, other than to say that it was a truly great and thought provoking post, and Im sure many others appreciated it too.

regards
mick

[quote=FX_Sniper]Oh boy !

These are my opinions of which I am convinced and they do not imply that you should be. At the very least I would like for them to highlight the divergence between your theory and reality.

This is so wrong I do not have words to describe it. The market will give you NOTHING, simply stopping you out is not a sign to go the other way, it could mean a myriad of different things, such as volatility is high at the moment, way higher than your stop levels give it credit for to name but one. I think what you are trying to get to is that there is a “golden figure” that the market will turn against you which would signal a reversal, this is simply NOT possible for reason stated below.



First off, trends are not of the same length each time, one is 30 pips, other is 150 pips, there is no predictable order to that unless you start with patterns etc and price projections, but I really do not have time to go into all that now. Bottom line, you can not categorize them into 50 or 100 or whatever boxes by limiting your orders and stops.

This is why I state that the TP/SL range should either be small enough to profit on the most of the move or be large enough to not make any trades in a ranging market. If you can take profits on a 30 pip trend then why would you not be able to take profits on a 150 pip trend using the same system? Conversely if you're only looking for 150 pips you will miss out on the 30 pip trends.

Secondly, the time frame that you choose to do this on has a big role which as far as I can tell you have ignored. To demonstrate, it is common knowledge and can easily be proven that the lower the time frame the smaller the trends and visa versa.

There is no reason for a time frame. Time frames are only necessary when looking at charts using indicators such as MA's, RSI, and the like to create values from. Price moves up 20 pips in 5 minutes on a 2 hour chart just like it does on a weekly chart. Time frame for a chart is irrelevent. The only reason you would want to look at time frames is based on your TP/SL range since you can easily monitor trades on a 1 minute chart versus a monthly chart. Otherwise it has nothing to do with how the trade goes.

Your stops and TP’s need to within the range of the time frame you pick I really have trouble explaining this clearly, but bottom line, the wider your spread that you create between your stop and tp, the more chance the market has to prove you wrong you on the other hand see this as a blessing. If your spread is 100 pips, that already is more than say the range for the Euro (currently about 80 pips per day) on a daily time frame. Say you enter short at the open and get stopped out 50 pips higher up, there is probability for another 30 pips more or less or more if you are lucky some times. The trouble is you are trading within the daily noise (volatility, range whatever) and not outside it as you think you are.

That is why I have said that the numbers I give are for example only. Perhaps on the euro we would use a range of only 20, 30 or 40. Or you could place the range at 180 pips so it requirses significant movement by the euro to one direction and therefore has momentum in that direction. Although as already mentioned, a smaller zone will allow you to lock in winners more often since the movement required is less to hit TP.

Thirdly, intraday trends do not run continues from the one day to the next, although on the daily chart there might be successive higher bars or lower bars, what goes on inside them is a different story, every new day in FX is a brand new ballgame, new news new everything. If you base your entry on a 1 hour chart, that price action has nothing to do with what happens tomorrow. The 1 hour price action is within the daily possible range and your risk and reward is smack bang in the middle of that, again you are actually trading trend following inside consolidation and any newbie here can even tell you what the result of that is over the long run…

That's why I've said, again, that the TP/SL range might have to be small enough so that you don't require a days worth of movement in on direction to cash in on profits. Depending on your goals you might want to trade for only 20-30 pip profits so you can cash in on the intraday moves. If trading trend in consolidation doesn't work, then increase your TP/SL range. Either way, we're not trying to create a 100% successful system. Every system has it weak points.

This is why I keep on insisting you get practical and look at this from a market perspective and not theory, your theory needs to be based around what it possible in the market, not what is supposed to be, the market will not give you an edge NEVER EVER, forget it, you need to create one by identifying entry points that has the least amount of risk of turning against you PLUS if they do turn against you, the entry position should be such that you could identify your mistake at the soonest time and at the least cost. If you need the market to fall 50 points against you before you realize you are wrong and your reward is only 50 pips, good luck ! Simply assuming that that can be solved my making the TP higher to say 60 is a fools game you are entertaining your mind with, reality if you knew it, does not work like that. If you had experience in real trading and building systems, you’d know this. If you need to make 50 per trade and your system is such that the market only need to turn 30 for you to see clearly and statistically that your trade is a bummer you’re in business.

Why do you keep insisting that the market will not give you an edge? Does price not carry momentum? In that logic then no system has any edge since past movements are useless in predicting future movements. In this system I'm saying since price is moving in this direction it is more likely to keep moving instead of reversing. It's the same concept of a system using tools like RSI. "When RSI crosses 50 from below it, price is most likely to keep rising."

In my thread I started about stats, I mentioned research I did on the 5min Euro for example. This research showed clearly that I can safely put a stop loss x amount away from the high of the bar just before my entry. The research shows that 93.4% of the time, when my trade is correct, the market will never breach level x (including spread cost and offset cost for both entry and exit). My average profit on my 5min trades are about 2.5 times the maximum that my level x can be set to and my accuracy rate or odds or probability whatever you want to call it is 67%. This system is about price action and repetitive occurrences of certain conditions.

The edge of this system which is feeding me and my household is divided between the statistical significant stop loss and the dynamics of the entry mechanism. Money management is the magnifying glass as it only affects the trade size, adding more lots later on is not really money management in the true sense of the word. Those are simply new trades, each with their own story and need their own money management. Entries and stop losses determine when you win and loose, money management determines how much you loose, do not confuse the two concepts.

From your expectations it is clear that your definition of price actions has gone horribly wrong somewhere, price moving in a preset block of say 50 pips is not price action. Back to the drawing board !!!

So then define price action for me. Is price action only channels, trend lines, cup and handles, triple tops/bottoms, etc.? What is price moving x amount of pips from a certain point? If it's not price action then what should I refer to it as?

Get practical, look at the market, see what it does, what it can do, how many times it does it etc, statistics can help in this regard, what you are chasing now warrants no further attention from my side at least as I think and have explained as simple as I could that it is a total waste of time because you do not have a link between your theory and reality and there is none, I have given you many reasons, other people have tried also, read what we have said, we have made clear points or me at least. I can not render more input until you display some factual research to prove your theories; it seems all you do is go around starting threads all with the same old story, different people bla-bla-bla. You are simply to lazy to figure this out for your self, or just looking for attention, if it was help you were looking for, you have had a crap load off that passed your way to straighten your thoughts out, you have then deliberately decided to ignore that, which brings me back to the foot note on my previous post of why I do not bother explaining stuff to much, people simply get something in their heads, and truth and reality simply does not exist or becomes their number one enemy.

I don't understand why you have to be so rude about everything. You know why I have to talk theory? I don't know how to program EA's. I can't have a computer compile years worth of data onto a simple screen for me to look at. I also haven't been in forex very long. I had been trading stocks for several years before. Forex is a whole new ball park that allows for many different strategies. That is what I am exploring right now. All because I ask questions does not give you the right to come in here as a know it all and disrespect me. I even mentioned in my previous post that I would appreciate it if you would post. Now you end your post with the garbage that does absolutely nothing with the thread. Saying all I do is go around starting the same theory threads. "Bla bla bla." Gee thanks. Excuse me for trying to understand why a system works instead of just asking for someones EA to trade.

Gidday Cardio

I like your approach it is very similar to the one attached. Risk based on 2% of your free margin would be my preference rather than equity only because it takes into account what is left after you are leveraged on open positions. I was just thinking would it be able reverse the risk calculation and to add a profit percentage e.g. If your position gains 5% a profit stop is triggered and then moved for every 2% gained after that. Or what ever percentage you choose. I think this approach incorporates a bit of both money managment (Cash at risk) and trade managment. (The way out of a position and the protection of profit)

How many times have people seen a good profitable position turn sour on them due to poor trade management?

Money management is much like raising kids you encourage the good behaviour but you will have a limit on how much misbehaviour you can stand.

Attached Files

Money Management Experiment.zip (107.0 KB, 262 views)