Howdy all,
I am sorry but I like open talks around theories of trading. I am not going to provide you a system saying when X currency is over this MA here buy 3 lots, blah blah blah. Here is.
How KISS can a trading system get? How about if I told you everything you needed to do was place on order at the open of a new candle with no consideration of any past price movement? Imagine if I told you the system was at the very least 80% right? You'd say get out of town right? It can be, although its not that easy!
It hit me d3vil submitted a thread about a egy that he was considering. You may read about it
http://www.egybuilderfx.com/showthread.php?t=17439
My idea is nearly exactly the same except one thing. The system of d3vil demands that a currency transfer 50 pips to activate a trade in that way. My notion is wait to the 50 pips? I say, at the open of a new candle on a daily or weekly chart open a trade in almost any way using a take profit of just 10 pips or so. No thought required, simply enter a trade.
Look at a daily and weekly chart. There's a lot of motion in those candles. This system doesn't care about that motion however. This system cares only about several pips, 10 perhaps. What do you find in each individual candle about those charts? Rarely, very rarely would you find a candle go and open without any kind of shadow in the opposite direction in 1 direction. Meaning, if a candle is a long white candle, there is still usually a shadow of a couple pips below the open.
That's what got me thinking. Imagine if when a new candle on a weekly or daily chart is shaped you input a long or short trade for just 10 pips profit. Do I mind taking 10 pips? Well examine the chart. How often did a new candle shape not and where you would have entered a position made the 10 pips? (I must note I am looking at GBP/USD, EUR/USD, and USD/JPY) I would say the win/loss ratio is 80/20. That.
Also note the Issue with this 80/20 number. Out of the trades that would have gone wrong, how many of those would you've been on the bad side of? When the trades were chosen randomly we can presume you would have been in those shedding 50 percent of the time and 50 percent of the time to situations on the wrong side on the ideal side. So the win loss ratio would likely be 90/10. Not sure how much better actual judgement could help, but then consider if you were able to utilize some chart reading expertise to place yourself in the winning position of the potential losing trades better then 50 percent of this time. Becomes up of 95/5.
I just got back from a trip to the SEMA conference in Las Vegas so that I have not looked at the charts to affirm those win/loss numbers. I would say on a weekly chart those numbers will stand up well.
This is another thought that came from this. What is risk/reward? Why do most of us measure our benefit in pips instead of by how risky the play really is? I see the egy really safe considering the pip goals and higher frequency of being right. It's up for discussion, but I would feel really safe putting more than two% of my account towards a trade. Once you're making $100 a pip consistently would you mind taking 10 pips per week? $52K a year is a lot more than many make here trading. The idea is to keep reinvesting and incorporating more money to gradually build the value of your pips. When we attempt to take pips, in almost any egy, our odds of success starts to fall dramatically.
At this time I'm having difficulty determining an exit egy to get a stop loss system however. With such long time frames we allow plenty of motion and don't need to wipe out our 10 pip profits with a single long candle of 100 pips. There are plenty of occasions when a currency will retrace 60 pips to provide us our profits as well though. This makes me wonder just how many of those good trades that are 80% did this and would be eliminated by means of a stop loss to decrease our likelihood of succeeding to just 80.
The take profits and shedding depart egy nevertheless need to get worked out. I have been thinking about taking just 5 pips out of a daily candle to ordinary 25 pips . The success rate would be increased on a daily candle whilst still giving us more pips than taking just 10 on a weekly chart. The machine might also be applied to different currencies at once to provide a potential 100 pips per week if just 4 currencies are used. The further volitile with reduced spreads the better. Is not that cool? A system that works with volatility. EUR/USD would work nicely also. We are in need of currencies .
This thread was also to get folks thinking about different forms of trading. Systems attempt to be successful based on how many occasions the thought process is accurate. This system is based off of how many occasions in a time frame currencies really do something. Do you understand what I am saying, although I am having trouble putting it into words? It's like, as soon as a candle opens to a long time frame chart it's 100% certain that it will move from the direction or another. What certainties do we base a system off of? I will have a look at a egy, but with entrances near the very end of a candle to find out whether the candles later it often float the preceding closure by some pips. Can we increase the probability of succeeding with that?
I'll finish by saying the previous benefit of this system. It's so easy even an EA could do it! (Thinking of the geico caveman commercials, haha) Truthfully. No indiors. No thought procedure. Trades for long/short might be arbitrary and be in situations where it wouldn't matter which place you take and be upwards of 80% right. Simple egies could be entered. For instance, when the preceding candle was red then put in a short on the open to the next candle. When it had been green go into a long trade. This would add some decision and might help remove those losing trades better than 50% like the win loss is off the bat.
What do you think? The beginning would be gradual, but once you start making $50 or more a pip, the profits will probably add up fast. Matt