"Luck is when opportunity meets preparation"
Ratios & Harmonics: a Different Way to Trade
- #32,783
- Oct 19, 2017 4:13am Oct 19, 2017 4:13am
Hi fellow traders, This is my humble attempt to pay something back to the thread that has given me so much. I won't go into charts as there are plenty of those already and Mr. Pip himself explains the flow regularly on his videos or live trading sessions. But instead I would like to talk about probabilities as I have noticed many new comers being worried about failed trades. I understand that a confirmation of reading the chart correctly is in place after a failed trade, but it will always be offered with hindsight and there will always be another...
I really like this post, keep them coming!
"Luck is when opportunity meets preparation"
- #32,785
- Oct 19, 2017 4:57am Oct 19, 2017 4:57am
- | Joined Dec 2014 | Status: Trader | 1,008 Posts
Hi fellow traders, This is my humble attempt to pay something back to the thread that has given me so much. I won't go into charts as there are plenty of those already and Mr. Pip himself explains the flow regularly on his videos or live trading sessions. But instead I would like to talk about probabilities as I have noticed many new comers being worried about failed trades. I understand that a confirmation of reading the chart correctly is in place after a failed trade, but it will always be offered with hindsight and there will always be another...
It's good that you brought this up. I think the simple formula to calculate the max winning/losing streak is this one: x = | ln(n) / ln(p) | , where n is the number of trades, and p is probability of winning (or losing probability if you want to calculate that). And it is given in absolute values.
Now, the thing is that, according to my opinion, this occurs if you take trades blindly at say 61.8% retrace and going with a probability between 60-70% you can calculate what would be your max losing streak after say 100 trades or 1000 etc etc.
But we are not robots. And the whole point with this thread is simply teaching what trades to avoid to not get hit, or as Damian puts it, to enter only at those with high probability. Which is why there is a lot of stuff here on strength and weakness, momentum of the market, depth and projection etc etc. If you put this on the "equation" the results would come totally different. That's the reason why Dam and professional traders like him have so few losing streaks and have been around here for years without any problem. I once heard about an Australian guy who after so many years of trading had a max losing streak of 3. Only three loses in a row after thousands of trades...u see?
To me, the highest risk for day traders like us could be the "black swan", u know; when after some news or whatever market crashes and it catches you trading in opposite direction and it doesn't give you the chance to get out. Like when market crashed in 2008 or when CHF pairs went nuts after swiss bank to remove EUR cap in 2015 if i remember it right... There is this book that i hear people recommend reading it from Nassim Taleb "The Black Swan: The Impact of the Highly Improbable". i haven't read it yet, but i will.
As for the book "trading in the zone" i've read it and it is a good book. It gets bit repetitive towards the last chapters but i also suggest anyone reads it.
Hi all,
I'm new to Forex factory.I was watching this thread for couple of weeks.Thanks for Mr pip & all other contributors to create this wonderful thread.i am still reading and learning this. i had done few trades which i like to share. If someone can give me a feed back on those trades would be wonderful.
Thanks all
NZD USD 1hr it work well.
USDCHF 1 hr hit my stop loss
I'm new to Forex factory.I was watching this thread for couple of weeks.Thanks for Mr pip & all other contributors to create this wonderful thread.i am still reading and learning this. i had done few trades which i like to share. If someone can give me a feed back on those trades would be wonderful.
Thanks all
NZD USD 1hr it work well.
USDCHF 1 hr hit my stop loss
Tesmy: Didn't allow me to upload the excel file. Sorry
Ujku: I know this is not a coin toss that we are doing, where as that simulation basically is (with skewed odds). And we won't probably have as long losing streaks as I brought up, but it could happen, without anything being wrong. Helped me a lot to understand.
Just wanted to point out that it isn't possible to avoid losses and they can and will come in streaks too, even if our method is sound and profitable. It's of course good to improve your winrate, but at some point it might hurt your expectancy. Being too afraid to lose will make high average RR difficult. Just have to find a balance with enough wins with high enough RR to make the system profitable. And live with it.
There are just too many variables in the markets and we can't take everything into consideration. Even with everything that's taught over here. Markets behave as they want to and we just try to scrape something out of them
And many times we fail to predict the right course, but in the long run, we will make profit.
Btw. higher winrate and lower RR makes your drawdowns smaller compared to low winrate and high RR, even if the end equity would be the same after a series of trades. Good to keep in mind for psychological reasons.
Ujku: I know this is not a coin toss that we are doing, where as that simulation basically is (with skewed odds). And we won't probably have as long losing streaks as I brought up, but it could happen, without anything being wrong. Helped me a lot to understand.
Just wanted to point out that it isn't possible to avoid losses and they can and will come in streaks too, even if our method is sound and profitable. It's of course good to improve your winrate, but at some point it might hurt your expectancy. Being too afraid to lose will make high average RR difficult. Just have to find a balance with enough wins with high enough RR to make the system profitable. And live with it.
There are just too many variables in the markets and we can't take everything into consideration. Even with everything that's taught over here. Markets behave as they want to and we just try to scrape something out of them
And many times we fail to predict the right course, but in the long run, we will make profit.Btw. higher winrate and lower RR makes your drawdowns smaller compared to low winrate and high RR, even if the end equity would be the same after a series of trades. Good to keep in mind for psychological reasons.
- #32,794
- Oct 19, 2017 7:15am Oct 19, 2017 7:15am
- | Joined Dec 2014 | Status: Trader | 1,008 Posts
Btw. higher winrate and lower RR makes your drawdowns smaller compared to low winrate and high RR, even if the end equity would be the same after a series of trades. Good to keep in mind for psychological reasons.
