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Trading Myths and Some Forex Math

  • #41
  • Aug 26, 2018 6:02pm Aug 26, 2018 6:02pm
The problem with using R/R (reward/risk BTW when expressing it as 2/1, 3/1, 4/1 etc) is that price doesn't know or care where any one individual trader's stop loss, trailing stop or profit target is. Profit targets are determined by what price does obviously, not where a line on a chart is placed.

Its all well and good to shot for a 2/1, 3/1, 4/1 ratio but what it really comes down to is to have price go the direction you expect it to - for as long as possible. How far is anyone's guess. If it hits a target good. If it doesn't so what, and what a trailing stop is for.

"Guess" right enough times direction and stop placement you'll come out ahead.

Now as for squiggly line moving averages, don't get me started.
  • #42
  • Aug 26, 2018 8:19pm Aug 26, 2018 8:19pm
One reason most wanna-be traders consistently lose is because they ignore the valueof R:R or they do not understand it. R:R works magic in conjunction with market structure and is the key to long term profitability. Simply said if the market structure does not provide a favorable R:R then one should pass. The following statement reveals a basic lack of understanding of market structure and R:R : "The problem with using R/R (reward/risk BTW when expressing it as 2/1, 3/1, 4/1 etc) is that price doesn't know or care where any one individual trader's stop loss, trailing stop or profit target is. Profit targets are determined by what price does obviously, not where a line on a chart is placed."
  • #43
  • Aug 26, 2018 9:20pm Aug 26, 2018 9:20pm
Quoting Winston Reed
Simply said if the market structure does not provide a favorable R:R then one should pass.
This logic has a loop. So you mean you can predict what the market will do next based on the market structure. If you can, why you need this magic RR?
  • #44
  • Aug 26, 2018 9:31pm Aug 26, 2018 9:31pm
Quoting Retep
{quote} This logic has a loop. So you mean you can predict what the market will do next based on the market structure. If you can, why you need this magic RR?

It is like in poker, you should bet if the probability are there, it does not mean you have a crystal ball and you will still loose more hands than win.
LDFX Trading Ltd
  • #45
  • Aug 26, 2018 10:40pm Aug 26, 2018 10:40pm
Quoting Winston Reed
One reason most wanna-be traders consistently lose is because they ignore the valueof R:R or they do not understand it. R:R works magic in conjunction with market structure and is the key to long term profitability. Simply said if the market structure does not provide a favorable R:R then one should pass. The following statement reveals a basic lack of understanding of market structure and R:R : "The problem with using R/R (reward/risk BTW when expressing it as 2/1, 3/1, 4/1 etc) is that price doesn't know or care where any one individual trader's...
However, your expected R:R which involves your tp and sl isn't nearly as important as your actual R:R which is a product of the traders system and discipline.
  • #46
  • Edited Aug 27, 2018 9:57pm Aug 26, 2018 11:15pm | Edited Aug 27, 2018 9:57pm
Quoting AntiCre
{quote} Of course not - but that wasn't the point here. The question is: Can you prove that the markets are not random at all?! I think we shouldn't discuss if the one or the other is true because we can't prove it. And as neither the one nor the other can be proved, I stick to the worst case scenario (for me the more probable scenario) that markets behave random most of the time. If we can beat randomness, we should be able to trade successfully, too. It may be worthless to prove the market's randomness by generating random patterns fitting the...
Markets are not random. That is fact. A market that can be manipulated cannot be random.

However, just because a market is not random, does not mean it can be predicted to always do the same thing. Consider this example.

I throw a ball in the air 10 times, and the ball hits the ground 10 times. So it is predictable. So I throw the ball in to air again to test this theory. On the fifth throw, a little boy runs up and catches the ball and runs away with it? What happened to my results?

This is easy, little boys love to catch a ball and play keep away from you. Very predictable! My original prediction changed because someone changed the game in a predictable way.
Ecclesiastes 1:9
  • #47
  • Aug 26, 2018 11:19pm Aug 26, 2018 11:19pm
Quoting MrW
{quote} However, your expected R:R which involves your tp and sl isn't nearly as important as your actual R:R which is a product of the traders system and discipline.
That's why in my personal opinion and experience I have always advocate to build a trading system with a minimum 50% WR and a RRR >2 in order to prevail in this very difficult business of forex. Ofc there are other ways/methods to circumvent this by applying position sizing, cross asset classes hedging, basket averaging etc but these methods are complex and not easily understood by retail traders let alone applying them.
The other important aspect to know beside a robust trading system is to build an indicator to identify when price is topping or basing which is a definite added incentive to maximise your rewards and minimise your risks.
Just sharing my trading thought and experience.

Cheers.
  • #48
  • Aug 26, 2018 11:42pm Aug 26, 2018 11:42pm
Quoting newbegger
{quote} Markets are not random. That is fact. A market that can be manipulated cannot be random. However, just because a market is not random, does not mean it can be predicted to always do the same thing. Consider this example. I throw a ball in the air 10 times, and the ball hits the ground 10 times. So it is predictable. So I throw the ball in to air again to test this theory. On the fifth throw, a little boy runs up and catches the ball and runs away with it? What happened the my results? This is easy, little boys love to catch a ball and play...
Please. I already wrote that I don't think that the market is purely random. However, it is hard (at least for me) to identify when the market shows some repeatable patterns and thus I have to stick to the random assumption (although the market may be more pseudo-random, i.e. deterministic but hard to predict due to missing info).
  • #49
  • Aug 27, 2018 12:05am Aug 27, 2018 12:05am
Quoting AntiCre
{quote} Please. I already wrote that I don't think that the market is purely random. However, it is hard (at least for me) to identify when the market shows some repeatable patterns and thus I have to stick to the random assumption (although the market may be more pseudo-random, i.e. deterministic but hard to predict due to missing info).
I understand your dilemma becos anything that's in a constant flux can ever be random or not random. So my next best way to look at this constant flux of PA is whether it is a orderly flux which is identifiable or a inorderly or erratic flux which is unreadable.
My personal contention is PA is in an orderly flux and therefore identifiable to be optimally traded despite its random nature.
Cheers.
  • #50
  • Aug 27, 2018 12:42am Aug 27, 2018 12:42am
Quoting AntiCre
{quote} Please. I already wrote that I don't think that the market is purely random. However, it is hard (at least for me) to identify when the market shows some repeatable patterns and thus I have to stick to the random assumption (although the market may be more pseudo-random, i.e. deterministic but hard to predict due to missing info).
Very late for me so a quick reply. The market makers will try to make the trade appear random (or pseudo-random as you prefer) but it's not that way at all. I have a few threads you can visit where I give my thoughts, to get your mind straight. And there are lots of youtube videos on the the M and W patterns.

Its not easy to be full time trader, most fail.
Ecclesiastes 1:9
  • #51
  • Aug 27, 2018 8:12am Aug 27, 2018 8:12am
Quoting sol4live
{quote} Then do yourself a favour by registering for agea.com's streamster platform, and locate a username by the name Joshfx96. Follow his postings. You will understand my point.
There is no user with that name...
  • #52
  • Aug 27, 2018 8:27am Aug 27, 2018 8:27am
Forget to put in my previous post this topic has long needed to be started so thanks AntiCre.
  • #53
  • Aug 27, 2018 9:51am Aug 27, 2018 9:51am
Quoting SunTrader
Forget to put in my previous post this topic has long needed to be started so thanks AntiCre.
Thanks. Which topics do you like to discuss in the future?

Here is my agenda:

  1. The myth "buy above an MA" and "sell below an MA".
  2. The recurrency of markets.
  3. Equivalence of common indicators, i.e. DC = Stochastic = Williams %R = ZigZag = Semaphor).
  4. A simple way to estimate the average prize within a candlestick - the prize path (based on OHLC and the fact that highs/lows are usually visited once be prize while open and close are usually visited at least twice)
  5. My personal view on tick volume - tick volume is activity and may be used to determine areas with excess activity in conjunction with the prize path concept

You (and everybody) are very welcome to start a new topic ...

  • #54
  • Aug 27, 2018 10:02am Aug 27, 2018 10:02am
Quoting emicovi
{quote} There is no user with that name...

Sorry
It is joshfx5796
He doesn't come online all the time.
You can even get his e-mail if you search him on google with joshfx
  • #55
  • Aug 27, 2018 7:45pm Aug 27, 2018 7:45pm
Quoting Retep
{quote} This logic has a loop. So you mean you can predict what the market will do next based on the market structure. If you can, why you need this magic RR?
No loop. No prediction. I prefer projection. Based on one's understanding of the market and market structure that should make up one's method one can make a logical conclusion of where the market might be heading. This is where R:R comes in. Since no one can predict or project the direction of the market 100% of the time no matter how "good" we use R:R to lessen the losses and maximize wins.

1:1 means you must win at least every other trade to break even
1:2 means you can lose twice for every win
1:3 means you can lose three times for every win

I personally use 1:3 for the vast majority of my trades. In certain cases I'll use 1:2. Anything less I will pass.
  • #56
  • Aug 27, 2018 7:47pm Aug 27, 2018 7:47pm
Quoting MrW
{quote} However, your expected R:R which involves your tp and sl isn't nearly as important as your actual R:R which is a product of the traders system and discipline.
I think I understand you. R:R should actually be built into your preferred method and in fact if it is it will be the way you analyze if your method is long term profitable.
  • #57
  • Aug 27, 2018 7:53pm Aug 27, 2018 7:53pm
Quoting AntiCre
=== The myth of risk:reward ratios === I guess everybody who starts studying the markets may have heard one platitude: "Only open trades with high rewards and low risks!" What does it mean? It means that you should only enter a trade where your predefined prize target is more distant to your entry than your exit level. Sounds great, doesn't it? I mean, you will always win more than you lose. Not bad?! Hell no! Let's analyze it. Although this may be not the full truth, let's consider that the market is random, i.e. you have no idea on where/when...
First it is my sincere belief is that the market is not random so I must respectfully reject this premise as flawed logic. The market is absolutely not random. It has readily identifiable structure and once one understands this structure one can develop a method and a R:R. If the market were truly random I guess I would just play Black Jack or Craps.

Your example of a potential "set-up" is in fact no set-up at all. I would suggest that the term "set-up" is the myth. There are no setups. There is however understanding.
  • #58
  • Aug 27, 2018 8:02pm Aug 27, 2018 8:02pm
Quoting AntiCre
{quote} Thanks. Which topics do you like to discuss in the future? Here is my agenda: The myth "buy above an MA" and "sell below an MA". The recurrency of markets. Equivalence of common indicators, i.e. DC = Stochastic = Williams %R = ZigZag = Semaphor). A simple way to estimate the average prize within a candlestick - the prize path (based on OHLC and the fact that highs/lows are usually visited once be prize while open and close are usually visited at least twice) My personal view on tick volume - tick volume is activity and may be used to determine...
MAs and all other indicators are the myth and this has actually been demonstrated over and over. Trading one candlestick is a myth. Tick volume using VSA is a starter but not how I approach trading. But those interested can start by looking up Hidden Gap's material.
  • #59
  • Aug 27, 2018 8:22pm Aug 27, 2018 8:22pm
Take a look at this 30 minute GU chart.
Gap 1 is bearish effort. Gap 2 overcomes the effort in Gap 2. Price returns to the area where this effort occurred. So far price has moved 2:1 and if price makes a new high based on this chart it will easily achieve 3:1 or more. The SL is readily identifiable and not difficult to accept in this context. I know many like "set-ups" but a set-up was not my objective. A "pattern" was not either. Patterns and setups presume probability which is somewhat of another myth IMHO. Understanding what the market is doing is the key. Understanding what "THEY" are doing is the key. R:R is the stop loss for when we are wrong.
Attached Image (click to enlarge)
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  • #60
  • Aug 28, 2018 6:44am Aug 28, 2018 6:44am
Quoting AntiCre
I'd like to use this thread to discuss some trading myths and forex maths/statistics that will destroy some concepts that "the gurus" preach day in and day out. Please discuss these myths here with us and back up your words with evidence. The two topics I willl start with are the myth of risk:reward ratios and trading with moving averages. Happy discussion!
Hi AntiCre,

Have a look on Fractalfreak's thread and you will get all your answers. You will quickly understand why the markets are not random at all. From the contrary.

The same for all myths regarding moving avg, breakouts, supply and demand etc.

Cheers
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