In this thread I only want to focus on Law of Numbers. Is this profitable or not? What do you think?
Law of Numbers:
- The ichimoku system only allows 1 position at a time and maximum 1% risk on a 100K demo account. RR is 1:1, partial 1:2 and 1:3.
- In this example, say, on 5th January 2017, I opened my first position with this system. Every day I always open only one position until 5th January 2018.
- My Law of Numbers rate is 50%. Every position that ends up in a win, increases this rate by 1: so after 1 winning trade the rate becomes (50%+1) 51%. Naturally, if my trade is a loss, then 1% is taken from this rate. A rate of 1% means 0.01 lotsize.
For example:
Start rate is 50%
Order 1 with lotsize 1.00 = win --> rate 51%
Order 2 with lotsize 1.01= loss --> rate 50%
Order 3 with lotsize 1.00= loss --> rate 49%
Then Order 4 will have a lotsize of 0.99. Can you follow it? By using this rate I reduce losses and increase winners.
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Now to the main question of this thread:
- Does using this rate, make this system more profitable? Yes or no? And why?
- Even if I use a losing trading system, could this rate make it more profitable?
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Ichimoku trading system:
Once a trading bias is established, chartists will wait for a correction when prices cross the Base Line (red line). An actual signal triggers when prices cross the Conversion Line (blue line) to signal an end to the correction.
This trading strategy will set three criteria for a bullish signal. First, the trading bias is bullish when prices are above the lowest line of the cloud. In other words, prices are either above the cloud or remain above cloud support. Second, price moves below the Base Line to signal a pullback and improve the risk-reward ratio for new long positions. Third, a bullish signal triggers when prices reverse and move above the Conversion Line.
As you can see, the three criteria will not be met in just one day. There is a pecking order to the process. First, the trend is bullish as defined by the cloud. Second, the stock pulls back with a move below the Base Line. Third, the stock turns back up with a move above the Conversion Line.
Buy Signal Recap:
- Price is above the lowest line of the cloud (bullish bias)
- Price moves below the Base Line (pullback)
- Price Moves above the Conversion Line (upturn)
http://d.stockcharts.com/school/data...02-abs-buy.png
There are also three criteria for a bearish signal. First, the trading bias is bearish when prices are below the highest line of the cloud. This means price is either below the cloud or has yet to break above cloud resistance. Second, price moves above the Base Line to signal a bounce within a bigger downtrend. Third, a bearish signal triggers when prices reverse and move below the Conversion Line.
Sell Signal Recap:
- Price is below the highest line of the cloud (bearish bias)
- Price moves above the Base Line (bounce)
- Price moves below the Conversion Line (downturn)
Ichimoku cloud trading: Step by Step
Step #1 Wait for the Price to Break and close above the Ichimoku Cloud
Ichimoku cloud trading requires for the price to trade above the Cloud because that’s a bullish signal and potentially the beginning of a new up-trend.
The cloud is built to highlight support and resistance levels and it’s supposed to highlight several layers deep because support and resistance are not a single line drawn in the sand, but several layers deep.
So, when we break above or below the Ichimoku Cloud that signals a deep shift in the market sentiment.
https://bx7k1461uo2zwebm3r86zw14-wpe...5-1024x462.png
A high probability trade setup requires having more layers of confluence before pulling the trigger.
This brings us to our next requirement for a high probability trade setup.
Step #2 Wait for the Crossover: The Conversion Line needs to break above the Base Line.
The price breakout above the Cloud needs to be followed by the crossover of the Conversion Line above the Base Line. Once these two conditions are fulfilled only then we can look to enter a trade.
https://bx7k1461uo2zwebm3r86zw14-wpe...6-1024x467.png
As you can notice the Ichimoku Cloud indicator is a very complex technical indicator that can be used even as a moving average crossover strategy.
Now, we’re going to lay down a very simple entry technique for the Ichimoku Kinko Hyo trading system.
See below…
Step #3 Buy after the crossover at the opening of the next candle
Ideally, any long trades taken using the Ichimoku strategy are taken when the price is trading above the Cloud. Our team at TGS website has adopted a more conservative approach and added an extra factor of confluence before pulling the trigger on a trade.
So, after the crossover we buy at the opening of the next candle.
https://bx7k1461uo2zwebm3r86zw14-wpe...7-1024x463.png
The next important thing we need to establish is where to place our protective stop loss.
See below…
Step #4 Place protective stop loss below the breakout candle
The ideal location to hide our protective stop loss is below the low of the breakout candle. This trading technique accomplishes two major things.
Firstly, it’s minimizing significantly the risk of losing big money and secondly, it helps us trade with the market order flow.
https://bx7k1461uo2zwebm3r86zw14-wpe...8-1024x464.png
Since this is a swing trading strategy we’re looking to capture as much as possible from this presumably new trend and we’ll be looking to trail our stop loss level below the Cloud or exit the position once a new crossover happens in the opposite direction.
The next logical thing we need to establish for the Ichimoku trading system is where to take profits.
See below…
Step #5 Take Profit when the Conversion Line crosses below the Base Line
We only need one simple condition to be satisfied for our take profit strategy.
When the conversion line crosses below the base line we want to take profits and exit our trade.
https://bx7k1461uo2zwebm3r86zw14-wpe...9-1024x464.png
Alternatively, you can wait until the price breaks below the Cloud but this means risking to lose some parts of your profits. In order to gain more sometimes you have to be willing to lose some.