Low Risk, High Reward Trading Experiment

You gave quite comprehensive performance analysis early on in your experiment. Traders who follow your thread now may not trade in some of the pairs that are in your experiment and it would be informative to, at least, give some broad analysis that indicates the more successful pairs you have experimented with - and conversely, the least successful. If you have similar results statistically across all pairs, the system, when fine tuned, will be a worldwide success! I'll be watching!

Our original preliminary performance analysis was undertaken to determine whether the model we employed showed promise, which it did. Since then, we have been learning and experimenting to gain knowledge, not necessarily to optimise performance.

Throughout this experiment our performance has varied widely as a result of various known and unknown reasons. Lately, about two months ago, we began studying and trying to incorporate announcement trading information based on Thomas Yeoman's "Perfect Trading System". This destabilised us for a period, and caused some losses, but we gained a great deal of valuable insights about how major announcements interact with our two technical models. Then a few weeks ago we had a session with our mentor, who introduced a perspective on Elliott Wave analysis which we are in the process of learning and integrating. Our imperfect knowledge and lack of familiarity with how to apply his methodology caused the problems in mis-identifying the top of the last uptrend on the EUR/USD and GBP/USD, even though the model we had previously been using gave us a clear signal at the exact turnaround point.

Since the beginning, the large scale movements on GBP/JPY compared to GBP/USD caused us alot of problems, and we believe this pair deserves a period of deep research to see how our system should be applied to it in order to not consistently pre-maturely predict the trend endpoints.

Also some of our trades were deliberate experiments with a known high risk of failure, undertaken strictly for educational purposes.

These are a few of the issues we have been encountering lately. We hope to settle down soon to a more stable system with better performance.

Monday September 18 at 2:00 ET

Trade Signal #176 Sell EUR/USD at 126.97

Stop is 127.32

Target is 125.55

Risk is 37 pips

Reward is 141 pips

Reward : Risk Ratio is 3.8 to 1

For research purposes only.

I agree with what you are saying. Performance of a trading system should be based on
1. reward : risk ratio,
2. win : loss ratio,
3. frequency of trade opportunities, and
4. distribution of losses.

However, at this stage, I am just trying to look at
2. win : loss ratio.

Considering that this thread is 66 pages with very little analysis of either trading methodology OR ongoing actual trading results, I thought it would add a little "scientific rigour" to initially examine just the win:loss ratio.

I will then address the other aspects of your posts.

Again, I think that your thread is interesting and entertaining.

.

I have just read my post above and it sounds a little more "terse" than I intended.

Please accept my apologies, but I would still really appreciate it if you could give a quick and simple summary of your 176 trades to date.

.

Monday September 18 at 3:00 ET

Trade Signal #177 Sell EUR/JPY at 149.69

Stop is 150.03

Target is 147.00

Risk is 37 pips

Reward is 266 pips

Reward : Risk Ratio is 7.2 to 1

For research purposes only.

Note: In a situation like this, we would have to place the entry and stop in the region of 150.20 to 150.40. However, due to the impression that the uptrend had completed a five wave set, we predicted a turnaround on the rebound at about the top of that set at about 149.70. We realise now that this is based on false logic. This is an error that we have made many times in the past. The current wave is an upwards corrective wave that will therefore be an "abc" wave. The "c" wave can rise higher than the "a" wave, and often does. There is therefore a strong likelihood that EUR/JPY will rise to 150.10 to 150.30, thereby hitting our stop.

Monday September 18 at 3:00 ET

Successful trade: Trade Signal #167 sell USD/JPY at 117.98

As predicted, USD/JPY reversed at 118.13 and descended to 117.23 ("Our predicted low for this corrective trend is between 117.00 and 117.20"). It completed this corrective wave in an "a-b-c" complex wave pattern, by first descending in an "a" wave, then rising in a "b" wave to meet our entry price at 117.98 ( it rose to 118.11), and then went directly down in a "c" wave to our target at 117.25 (it fell to 117.23, only 2 pips past our target).

When USD/JPY got down to the bottom of the c wave, it had completed its downwards corrective wave, so this was a perfect time to buy USD/JPY, with a target of 118.32, for an anticipated reward of 105 pips. A stop of about 20 pips would have been adequate, so the reward : risk ratio would have been about 5:1.

I just noted that I did enter a buy trade at the approximate time that the bottom of the corrective wave was reached, which I had forgotton about. Here is the Trade Signal, which is quite similar to the analysis I just did a few minutes ago:

Friday September 15 at 10:30 ET

In accordance with the following quoted analysis we did yesterday, and considering a clear Elliott Wave completion pattern just formed, we therefore find that our system gives us a buy at 117.30 for USD/JPY.

Trade Signal #175 Buy USD/JPY at 117.30
Stop is 117.06
Target is 118.40
Risk is 26 pips
Reward is 136 pips
Reward : Risk Ratio is 5.2 to 1

For research purposes only.

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Previous comments and trade signal: <hr style="color: rgb(209, 209, 225);" size="1"><!-- / icon and title --><!-- message --> Thursday September 14 14:00 ET

Although our trading model identified the point of 118.13 as a likely trend reversal point on USD/JPY, we only noticed this after the fact. We hoped for a rise to close to this level, to achieve a mediocre trade opportunity by trading down the "c" wave of this corrective trend. Careful inspection indicates that the top of the "c" wave occured at 1:20 ET on September 13 when USD/JPY rose to 118.00. This would have offered a fair low risk: high reward trade opportunity. However, we missed this opportunity.

Since then USD/JPY has fallen 70 pips to an interim low of 117.31. Our predicted low for this corrective trend is between 117.00 and 117.20, which will present a good opportunity to trade up the next impulse wave towards a target at about 118.40.
______________________________________________

Previous comments and trade signal:

Wednesday September 13 12:00 ET

Yesterday when USD/JPY rose to 118.13 at 14:20 ET it fulfilled our system criteria for a trend reversal point. If it rises again to this level or near to it, then we will have a low risk / medium reward trade opportunity. This downwards trend is only a corrective four wave. We would be trading the "c" of a complex corrective fourth wave. It is thus not an optimum trade, but we will enter it here to test our model.

Trade Signal #167 sell USD/JPY at 117.98
Stop is 118.26
Target is 117.25
Risk is 29 pips
Reward is 70 pips
Reward : Risk Ratio is 2.4 to 1

For research purposes only.

Monday September 18 at 3:45 ET

Exit the following trade at 1.1165 - 1.1180:

Friday September 15 at 5:00 ET

Trade Signal #174 Sell USD/CAD at 1.1200
Stop is 1.1222
Target #1 is 1.1115
Target #2 is 1.1088
Target #2 is 1.1015
Risk is 26 pips
Reward is 81 / 108 / 181 pips
Reward : Risk Ratio is 3.1 / 4.2 / 7.0 to 1
For research purposes only.

As speculated earlier, USD/CAD completed a five wave set up when it reached 1.1235 on September 13 (" USD/CAD rose 55 pips in a vertical line to 1.1235 at between 7:39 and 8:22 ET this morning, and has now technically fulfilled a complete upwards Elliott Wave pattern on the one hour chart, as well as meeting its minimum target of our second analytical model. So it is possible for it to reverse and begin its descent from this point. "

At the time it hit 1.1235, USD/CAD had reached the top of the first leg "a" of a complex upwards corrective wave. USD/CAD then fell about 110 pips down in an "abc" pattern to our system predicted target of 1.1116, at which point it reversed and began the upwards "c" leg of its complex upwards corrective wave, targetting about 1.1300.

One could enter a buy trade now at about 1.1175 and expect to meet the target without too much retracement, but that would not fulfil the criteria for a low risk / high reward trade in our particular trading system.

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Previous comments and trade signals: <hr style="color: rgb(209, 209, 225);" size="1"> Wednesday September 13 12:00 ET

USD/CAD rose 55 pips in a vertical line to 1.1235 at between 7:39 and 8:22 ET this morning, and has now technically fulfilled a complete upwards Elliott Wave pattern on the one hour chart, as well as meeting its minimum target of our second analytical model. So it is possible for it to reverse and begin its descent from this point. We are not sure whether a straight line on the five minute chart can constitute an entire five wave component wave, though we suspect it can.

So USD/CAD may continue down from 1.1235, or it may continue to rise much more towards our reversal target of 1.1315. We shall watch and learn.

_________________________________

Previous prediction:

USD/CAD update <hr style="color: rgb(209, 209, 225);" size="1"><!-- / icon and title --><!-- message -->
Tuesday September 12, 2006 11:00 ET

There were some mixed economic data releases for the CAD economy during the night, which should not introduce too much directional bias into the USD/CAD market. This pair completed its downwards complex Wave 4 corrective wave, descending to 1.1155. It should now rise to complete its last upwards impulse wave, targetting 1.1315.

Monday September 18 at 3:45 ET

Our TS#170 shorting USD/CHF hit our adjusted stop by 5 pips and failed in principle because it was tied in to the error we made on Friday concerning the wave count on EUR/USD and GBP/USD. Knowing the strong positive correlation between EUR/USD and USD/CHF, and seeing what we thought was a complete Elliott Wave on both EUR/USD and USD/CHF, we shorted USD/CHF at the same time that we went long on EUR/USD.

However, the last Elliott Wave count was off on both currency pairs (we were thrown off by the new counting methods we had recently learnt) and what we thought was a complete 5th upwards wave on USD/CHF was only the first component wave within the upwards 5th wave. So USD/CHF charged on up to 1.2622, slightly passing our adjusted stop, and has still only finished the 3rd wave up. We should have been buying USD/CHF with a system-generated target of 1.2610, which was met and exceeded by 12 pips. A stop in this case if we had shorted USD/CHF at 1.2610 would have needed to be more than 10 pips higher than our anticipated target, given that USD/CHF is prone to strong overshoots.

USD/CHF is now descending in a large complex downwards corrective 4th wave, has reached a low of 1.2516, and it has a potential bottom target of 1.2475.

When USD/CHF reaches the bottom of this downwards "abc" corrective wave, then there will be a potential low risk, high reward impulsive wave trading opportunity to buy USD/CHF targetting 1.2650 or higher - for a potential reward of over 150 pips.
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Previous comments and trade signals:

Adjust stop for Trade Signal #170 Sell USD/CHF at 1.2560 <hr style="color: rgb(209, 209, 225);" size="1"> Friday September 15 at 8:00 ET

According to our analysis, USD/CHF is in the last (fifth) minor upwards wave, and should reverse its upwards direction at or about 1.2600 - 1.2610. Therefore adjust stop to 1.2616 from the current stop of 1.2603.

According to our predictive model, 1.2578 and 1.2585 were likely reversal points, and if the price proceeded past those values, then 1.2597 is the next likely reversal point. After that comes 1.2606, which is actually a high probability reversal point. We have learnt that an overshoot factor of about 10 pips must also be factored in.

After studying this situation in greater depth, we should have waited longer and risked missing out on the trade, or placed the stop above 1.2610 from the start.
_____________________________________________

Friday September 15 at 6:15 ET

For safety the stop on Trade Signal #170 Sell USD/CHF should be raised to 1.2603.

Note: USD/CHF just rose to 1.2578, which is the price our model projects as the most likely reversal point. Obviously, if we had been more carefull we would have placed the stop more than 4 pips above this point.
_____________________________________

Friday September 15 at 4:15 ET
Trade Signal #170 Sell USD/CHF at 1.2560
Stop is 1.2582
Target is 1.2300
Risk is 25 pips
Reward is 257 pips
Reward : Risk Ratio is 10.3 to 1

For research purposes only.

itme,

On a very quick look at your trading record in this thread, it appears that your trading win rate is approx 30%. (which is worse than flipping a coin)

Now, given a very tight money management structure, you may (?) still be profitable.

However you would definately need to improve your win rate to be awarded any kudos as a good trader.

.

As I understand it this is a journal for Itme's (and his team's?)very own experiment. I don't think he's running this journal to get compliments, but to have a record for the trades themselves and to allow others to see/participate/witness how it progresses.
It's declared as an experiment and should be taken as such. It's not a signal service or advice or in any way a trading recommendation.
So there's nothing to judge here and success or failure isn't a fitting criteria.
The experience he gets from it is the point, not people copying the signals and getting rich from them or something of the like.
Just my take on it. I think sometimes people are giving Itme a hard time because they're looking for something they can trade off and are looking to others for that instead of trying to learn how to rely on themselves...

There are working, proven and tested systems(has anyone heard of these guys called Vegas or James16? *smiles*), but this is a journal thread and surely nothing to trade with.

Just my opinion, I don't want to be confrontational, just trying to write a sort of my version of a "disclaimer"...

I personally think learning and experimenting should be encouraged and not attacked. There's no transparancy to what/how/why he's calling these trades so there's no real basis for possible criticism. It's just "there". No harm done. That's about it


Best of luck to all of you =)


P.S. Sorry to see the other thread got closed, would have been interesting to see how if it would have developed without others interjecting and questioning the idea. Like I've posted before, I know these "supertraders" exist and can basically trade without any real losses (< 10 pips before a 100 pips winning trade e.g.) and it would have been really intriguing to see if you could have also mastered this sort of thing. Not everyone is cut out for it though and I believe it's more about talent than the actual knowledge...I doubt ALL the seminar folks turned into millionaires
It would have helped to get a name for finding the seminars though

Well said SeekingLight...

That is exactly the point, this is just a journal, an experiment of learning and improving. There seems to be too many people here not willing to "learn" but to scab off of others coat tails. Itme has spent an incredible amount of time and effort posting his knowledge, ideas, and experiments, without hiding anything...good and bad, he should be hailed for that.

Instead of criticizing ones results, the critics may want to spend some time developing a trading system, honing trading discipline, and learning money management, then share your knowledge with other traders...give! Don't take! Just my two cents!

Keep up the great work Itme.

Northpro

Yes indeed thanks northpro. I would like to point out that his post has surpast me by 15k in views, And is the most viewed one in this section. And in less time than me.
I tend to post more winners, but I only trade one pair and I'll change methods on a regular basis. While Itme trades many pairs giving more chances for loss and he sticks to the same thing all the way.

I have much respect for itme.


I must point out that because of his low risk and small s/l and huge profit targets it is not nessasary to have great accuracy. He can win 35% of the time and make more money than I can winning 65% of the time.

Its all about money management. Not winning %'s Soon as people realize this they might make money in forex.

Dave

Thanks Jacko, SeekingLight, Northpro, DavidxS and everyone else. You have all been marvellous. I fully understand your curiousity and desire to assess the performace of this trading experiment. But it is premature, it seems. My focus is currently on learning and developing a trading system, not on measuring my performance. To stop and assess at this time would take me a day or more of intensive work, and I am busy with learning and assimilating new knowledge. For me to assess I would need to make many fine distinctions. For instance, between predictions and trades where the reversal pattern was already evident. Between close misses and totally erroneous trade concepts, etc

Yes, this is my laboratory, where I perform experiments and learn. It is through the systematic trial and error method that the scientist proceeds towards greater knowledge, and that the craftsman improves his or her skill. You get to watch as I experiment, flub, try to learn lessons from my successes and failures, try again, revise my theories, etc. in the effort to achieve a systematic methodology which can deliver a winning trading system which lends itself to a signal service. By my posting my trade experiments here, I force myself to be objective, to commit, and I create a permanent record of this experiment. If I succeed, then there will be undeniable evidence of that success.

I am also learning alot from other traders. I have been studying Elliott Wave Theory for one year now, and announcement trading for several months. I am starting a new study with another trader who is using a very similar method to my own.

So far, we have not demonstrated adequate results. To me, adequate results might be a long run of minimum 3:1 reward : risk trades with a 70% or better win rate. To develop such a facility could take months or even years. The consequences of success would be a highly marketable and valuable product.

We have been deliberately shooting for much better than 3:1 reward : risk ratio trades in order to push our initially two, and now three models to their limits. That is how one grows and improves at everything one does. If we were more selective, stopped trying to call the endpoints of trends on GBP/JPY and GBP/CHF (and other crosses which move in larger sized and longer duration cycles), and we increased our stop sizes and reduced our target lengths, then obviously our performance in terms of win rate would improve dramatically. We have had many near misses. Also, many of our trades were entered into in haste, while severely overtired, or without adequate analysis, and these trade concepts incorporated fundamental flaws.

Although it may not look like it at times, especially lately when we have been introducing new conceptual components into the model with which we are very unfamiliar and inexperienced, we have improved steadily in our facility to achieve the kind of results we are striving for. We are satisfied. We beg your indulgence, request your patience, and invite you to check in every month or two to see how we are doing. We will report our performance when and if the time comes when we have stabilised in a successful, winning formula.

took the words right out of my mouth....

Normally in a situation like this, we would have to place the entry and stop in the region of 150.20 to 150.40. However, due to the impression that the uptrend had completed a five wave set, we predicted a turnaround on the rebound at about the top of that set at about 149.70. We realise now that this is based on false logic. This is an error that we have made many times in the past. The current wave is an upwards corrective wave that will therefore be an "abc" wave. The "a" wave rose to 149.85. The "b" wave fell to 148.06. Now the "c" wave can rise higher than the "a" wave, and often does. There is therefore a strong likelihood that EUR/JPY will rise to 150.10 to 150.30, thereby hitting our stop, before reversing.

Thus it is necessary to exit this trade.

Exit Trade Signal #177 Sell EUR/JPY at 149.69 at current market price, approximately 149.75, for a small loss of about 8 pips.

_________________________________

Previous trade signal:

Monday September 18 at 3:00 ET

Trade Signal #177 Sell EUR/JPY at 149.69
Stop is 150.03
Target is 147.00
Risk is 37 pips
Reward is 266 pips
Reward : Risk Ratio is 7.2 to 1

For research purposes only.

EUR/USD Update Monday September 18 17:00 ET

Last week we predicted a turnaround or reversal of the EUR/USD uptrend at 1.2750, which is what happened. However, due to problems counting the Elliott Wave on the one minute chart with a new system we have been learning, we doubted this conclusion. EUR/USD then descended 120 pips from the top of the swing wave at 1.2750 in a five wave set to 1.2630. On the upwards corrective wave my partner and I predicted a reversal point of about 1.2700, which is why I posted a prediction trade yesterday as quoted below. Now EUR/USD has risen to 1.2708. While I watched this I would have recommended in real time shorting this pair at this price ( 1.2708 ), with a stop at 1.2733 .

This shows the difference between a prediction trade and a pattern recognition trade. It is possible to enter at a more precise level and thus reduce the risk and increase the reward when the detailed pattern leading up to the entry opportunity has already been formed.

_____________________________________________

Monday September 18 at 2:00 ET

Trade Signal #176 Sell EUR/USD at 126.97
Stop is 127.32
Target is 125.55
Risk is 37 pips
Reward is 141 pips
Reward : Risk Ratio is 3.8 to 1

For research purposes only.

Monday September 18 at 17:45 ET

USD/CAD reached the top of the first "a" upwards wave of a swing complex "abc" corrective wave when it rose to 112.35 on September 13. This entire upwards "abc" corrective swing wave is targetting the 1.1300 region. Since then USD/CAD has fallen 120 pips to 1.1114 in a downwards "b" wave and then risen 111 pips up to 1.1225 this morning at 7:00 ET. This may complete the entire "abc" upwards corrective wave, 75 pips short of its target.

This large upwards corrective wave might have proceeded all the way up to about 1.1300, but fundamental and technical factors did not favor such a large rise, at least yet. Another, also quite likely interpretation, is that the "c" wave has only progressed part way up, and is still going to make it to at least 1.1250, if not 1.1300. The current pattern is not conclusive.

Our guess is that the movement will be essentially downwards from here (current price is 1.1177) because the trendline from the September 15 high is too strong to penetrate, which has truncated the upwards "abc" corrective wave . If this is the case, then a rise to about 1.1210 - 1.1220 in a corrective wave of the current downtrend would provide a good low risk / high reward trade opportunity, targetting 1.1100 and lower.

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Previous comments and trade signals:

USD/CAD update Monday September 18 <hr style="color: rgb(209, 209, 225);" size="1"> <!-- / icon and title --><!-- message --> Monday September 18 at 3:45 ET

Exit the following trade at 1.1165 - 1.1180:

Friday September 15 at 5:00 ET
Trade Signal #174 Sell USD/CAD at 1.1200
Stop is 1.1222
Target #1 is 1.1115
Target #2 is 1.1088
Target #2 is 1.1015
Risk is 26 pips
Reward is 81 / 108 / 181 pips
Reward : Risk Ratio is 3.1 / 4.2 / 7.0 to 1
For research purposes only.

As speculated earlier, USD/CAD completed a five wave set up when it reached 1.1235 on September 13 (" USD/CAD rose 55 pips in a vertical line to 1.1235 at between 7:39 and 8:22 ET this morning, and has now technically fulfilled a complete upwards Elliott Wave pattern on the one hour chart, as well as meeting its minimum target of our second analytical model. So it is possible for it to reverse and begin its descent from this point. "

At the time it hit 1.1235, USD/CAD had reached the top of the first leg "a" of a complex upwards corrective wave. USD/CAD then fell about 110 pips down in an "abc" pattern to our system predicted target of 1.1116, at which point it reversed and began the upwards "c" leg of its complex upwards corrective wave, targetting about 1.1300.

Monday September 18 at 18:15 ET

GBP/USD and EUR/USD are both very close to the tops of their upwards corrective waves. So far EUR/USD has risen to 1.2708, and GBP/USD has risen to 1.8810. GBP/USD has a fiesty character, and may jump up another 25 pips, while EUR/USD may rise a much smaller amount.

Our targets for the top of the upwards corrective wave for GBP/USD are 1.8823 and 1.8832. To be safe we will enter a trade signal assuming the higher figure. The stop is 1.8873 and first target is 1.700 - we are trading the downwards 5th or else the 3rd wave of the 3rd wave of a downwards wave pattern which is the "b" wave of an upwards corrective "abc".....

Trade Signal #178 Sell GBP/USD at 1.8832

Stop is 1.8873

Target #1 is 1.8700

Risk is 44 pips

Reward is 129 pips

Reward : Risk Ratio is 2.9 to 1

For research purposes only.

Monday September 18 at 19:00 ET

Our system predicts a reversal of EUR/JPY at between 150.07 and 150.29 . As a conservative strategy, we will advise entry at 150.22, and place the stop at 150.52 and our first target is 148.10

Trade Signal #179 Sell EUR/JPY at 150.22

Stop is 150.52

Target is 148.10

Risk is 35 pips

Reward is 209 pips

Reward : Risk Ratio is 6.0 to 1

For research purposes only.