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Low Risk, High Reward Trading Experiment

  • #2,081
  • Dec 3, 2006 4:09pm Dec 3, 2006 4:09pm
Quoting itme
Thanks, Aicccia, for a good answer. I have studied and reflected on these matters for many years, and have developed strategies to avoid the problems you described. I have stated on this and other threads that I have personal knowledge of some of the problems you mention, but there are obvious solutions that have been consistently employed by intelligent people for centuries to avoid the problems you describe. When the money is available, it should be invested in expert advise and consultancy services to manage the financial and legal aspects in a legal and professional way according to standard financial investment practises of wealthy investors.
whats a solution then besides off-shore?

Become a perpetual traveller?
  • #2,082
  • Dec 3, 2006 4:11pm Dec 3, 2006 4:11pm
Quoting aicccia
So what is the solution? I'm not entirely sure. Get rid of your US citizenship and move to out of the country? I believe if you keep money in a offshore bank account, its only taxable if you bring it into the US, such as using some to buy a car or house, but I'm not sure about that either. When my forex trading starts working out I'm going to have to take the next few years very carefully.
I've actually looked into this type of stuff, and awesome for us [sarcasm], the US is one of the only countries to tax worldwide income.

Taken from irs.gov:
"If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $82,400 of your foreign earnings."

Big whoop, 82K. If I'm gonna move to Monaco to trade forex, I'm hoping to pull in a couple mil a year, at least. If that is the case, excluding 82K ain't gonna do shit for my tax bill. So you have two options, 1. Drop U.S. citizenship, which I don't know if I could do, or 2. Get "clever".

I wish you the best,
andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #2,083
  • Dec 3, 2006 4:15pm Dec 3, 2006 4:15pm
Quoting andersenws
I've actually looked into this type of stuff, and awesome for us [sarcasm], the US is one of the only countries to tax worldwide income.

Taken from irs.gov:
"If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $82,400 of your foreign earnings."

Big whoop, 82K. If I'm gonna move to Monaco to trade forex, I'm hoping to pull in a couple mil a year, at least. If that is the case, excluding 82K ain't gonna do shit for my tax bill. So you have two options, 1. Drop U.S. citizenship, which I don't know if I could do, or 2. Get "clever".

I wish you the best,
andersenws
If I can get citizenship in the EU somewhere I wouldn't mind dropping US citizenship.
  • #2,084
  • Edited 9:03pm Dec 3, 2006 4:28pm | Edited 9:03pm
Dear Lenny,

How can you benefit from the success of another?

1) Most importantly, you will have been presented with convincing evidence that success is possible, and the degree of success that is possible, so that you will have good reason to make the requisite efforts to obtain a suitably high degree of success yourself.

2) You will gain understanding of many of the foundation principles through which success can be achieved, as well as some of the potential challenges and pitfalls on the path to success.

3) I or someone else may make available to you some or all of the information you require to help you achieve financial success, either in the form of a technique, method or theory, or the results of the theory applied to specific markets.

Regarding MM, I have dealt at length with this subject on this and my "From $7 to $7.7 Trillion in 10 Days Trading Program" thread, which was ridiculed and then relegated to a frozen status in the Readers Lounge Section - the dungeon of Forex Factory.

To understand the performance of a trading system, it is very helpful to learn the Itme Theorem of Capital Gains from Short Term Investments which is explained in detail in the above referenced thread, and which states that the return on a winning trade (as a percentage of initial capital) equals the Reward / Risk Ratio times the Risk Factor.

Thus my nominal goal is to develop a super high performance trading system where each trade has a minimum RRR of 5.0, and where the win rate is at least 50%. These two performance criteria, in combination with an even distribution of losses, will in turn allow a Risk Factor of 30% to be employed, which makes the return per winning trade to be 150% of capital, and the losses per losing trade to be 30%, and the return on 40 trades to be over 72,000 times multiplication of capital.

Lenny, I wish I could spell out for you a winning formula for turning you and everyone else here into a millionaire in a few months, but I don't have that information yet, as far as I know. And if I did, my ethics would prevent me from releasing it publicly and freely. I hope to one day be part of a process by which worthy, ethical people can liberate themselves from debt and galling poverty, and actualise their aspirations for a better quality of life for themselves and their communities, and help achieve the reduction of global poverty, disease, injustice, war, ignorance, cruelty, environmental disruption, and unnecesary interference by manmade institutions on individual rights and freedoms.
  • #2,085
  • Dec 3, 2006 4:34pm Dec 3, 2006 4:34pm
Quoting itme

Hi Sigmund,




Another definition of insanity is refusing to accept something to be true, in the face of overwhelming evidence.



I have stated since the very beginning of this thread, and repeated hundreds of times since, that the market predictions that I am performing here do not constitute a trading system, though as a trading system they may in fact perform admirably. (According to my spread sheet analysis, the first 39 predictions (which I generated in a 5 day period with very little sleep, which include about 30% total nonsense signals), with the maximum possible risk factor, would have produced a 15,000 times multiplication of capital, if they had been traded in sequence.) These "trade signals" are experiments to discover market behavior, from which I am gleaning information and insight which I am employing in the development of a trading system.


Which proves my point, a mechanical system is always flawed. When the dynamics change, what made you money, makes you lose money when the dynamics change.
  • #2,086
  • Dec 3, 2006 4:38pm Dec 3, 2006 4:38pm
C'mon guys, the man said in the begining of this forem that its an experiment,just leave him concentating & stop this nonesense talk about freud & insanity .
Itme do you think GBP/Usd could overshoot to 2.0100 & beyond .
money speaks all languages mine only says goodbye
  • #2,087
  • Dec 3, 2006 4:42pm Dec 3, 2006 4:42pm
How do you define a mechanical system?
  • #2,088
  • Dec 3, 2006 4:53pm Dec 3, 2006 4:53pm
Quoting itme
How do you define a mechanical system?
You posted the below about your system a few days ago. That would make your system a mechanical system, and when the dynamics change and you refuse to, that is it.



<TABLE class=tborder id=post150034 cellSpacing=1 cellPadding=6 width="100%" align=center border=0><TBODY><TR><TD class=thead>11-30-06, 16:04 <!-- / status icon and date -->


</TD></TR><TR><TD class=alt2 style="PADDING-RIGHT: 0px; PADDING-LEFT: 0px; PADDING-BOTTOM: 0px; PADDING-TOP: 0px"><!-- user info --><TABLE cellSpacing=6 cellPadding=0 width="100%" border=0><TBODY><TR><TD class=alt2>http://www.forexfactory.com/forexfor...ine=1162487649</TD><TD noWrap>itme http://www.forexfactory.com/forexfor...ser_online.gif<SCRIPT type=text/javascript> vbmenu_register("postmenu_150034", true); </SCRIPT>

Senior Member

</TD><TD width="100%"></TD><TD vAlign=top noWrap>Join Date: Aug 2005

Posts: 1,380



</TD></TR></TBODY></TABLE><!-- / user info --></TD></TR><TR><TD class=alt1><!-- message, attachments, sig --><!-- icon and title -->http://www.forexfactory.com/forexfor...cons/icon1.gif No re-evaluation permitted

<HR style="COLOR: #d1d1e1" SIZE=1><!-- / icon and title --><!-- message -->According to my trading system we always adamantly adhere to a particular viewpoint, regardless of conflicting evidence and new developments. That is the secret of success.

<!-- / message --><!-- sig -->__________________
Readers are encouraged to respect the ideas of those who have been kind enough to contribute to the forum and treat one another with civility and respect.

</TD></TR></TBODY></TABLE>
  • #2,089
  • Edited 6:20pm Dec 3, 2006 5:05pm | Edited 6:20pm
If you had read this entire thread, wwwin, then you would know that my previous remark was facetious, and that in the course of this process over the past 7 months I have made many, many discoveries, adjustments, and refinements to my theories about market behavior.

For instance, I have introduced radical adjustments to my approach to Elliott Wave theory, as well as made many changes and refinements to my Q model - including the concepts of overshoot and multiple timeframe congruence. I also spent several months intensively studying news trading systems and learning how news releases influence market behaviour. I have also noted the difference in behavior between range bound and trending markets, markets leading up to a major news release, markets moving under the influence of a sequence of influential news releases, and markets effected by holidays and other causes of low trading volume. I have also noted the difference in behavior between markets that are approaching, hemmed in by, or finally clear of major support and resistance lines, trendlines, and other price benchmarks. My recent developments involve multimarket "neural network" type analysis which factors the circumstances and anticipated behavior of all other currency pairs into the behavior of each currency pair.

By making literally hundreds of precise predictions about the market's future behavior I have been forced to acknowledge, assess and discover many of the major factors influencing market behavior, especially through assessing my failures.

To the best of my knowledge, the trading system I am developing is several degrees of magnitude more complex than any other trading system that I am aware of, and highly adaptive to many changing circumstances of the market.

Due to the comprehensiveness, complexity, and inclusiveness of the trading system I am developing, it will probably require 5 to 10 full time highly qualified analysts with different specialised skills to implement.

If the predictive experiments I am entering here seem to be non-productive, then there are several possible explanations. First of all, low risk / high reward trading cannot be judged by the standards of other trading systems, because one winning trade can counterbalance the losses of five or even ten losing trades. Thus even a tiny increase or decrease in the success rate has a huge impact on the "performance".

Also, I am constantly expanding my research by trying to predict more challenging currency pairs like GBP/JPY and GBP/CHF in order to test the limits and discover more about my models, as well as trying different kinds of trading strategies.

I am also performing more experiments in order to test various hypotheses, and more experiments that are more likely to fail - by entering into unknown and uncharted territory, or by trying to achieve greater accuracy or a higher RRR.

Sometimes I have modified my protocol in such a way that I have introduced fatal flaws into my system, which I discover through testing. At other times I am tired, distracted, hurried, sloppy, overconfident or impatient, and thus make alot of errors which cause trade failures. Sometimes I focus excessively on one aspect to the exclusion of other important aspects, forgetting to include all relevant tests and qualifications into a trade decision. Sometimes I am correct, but due to a minor error or oversite I "lose" a trade by a pip or two, but my system has actually achieved a success.
  • #2,090
  • Dec 3, 2006 5:19pm Dec 3, 2006 5:19pm
hey itme, I want to have a competition with your system and mine. lol. Your systems is very exact, but it's very complex which can be a drawback. My system is the KISS idea. you game?? lol
  • #2,091
  • Edited 5:43pm Dec 3, 2006 5:27pm | Edited 5:43pm
Thanks, aiccia, for the offer. I will consider it. Competition can be invigorating and motivating. But as you can see I am engaged in a very serious scientific experiment to better understand this complex market, and I'm not yet at the stage where I have a completed trading system to test out. So I think it would not help me to try to patch something together for the purposes of a contest. Due to the complexity of my approach it is taking me alot of time to develop my trading system, because I have to first of all learn how to analyse using Elliott Wave theory, and simultaneously I am discovering and inventing an entirely new theory, plus learning about all the other things I mentioned above like how fundamental macroeconomic factors influence the strength and duration of trends, which in turn effects the wave behavior and Q model behavior, plus the interactive intermarket dynamics which defiinitely shape the behavior of individual currency pairs.

Anyways, with your parabolic stop in place, you would have an unfair advantage. My stop strategy is totally primitive. I've barely even started to develop my stop strategy. Plus, you have a trading robot that is perfect and unrelenting. I haven't had a holiday in over 6 months, and my brain is starting to malfunction.
  • #2,092
  • Dec 3, 2006 5:43pm Dec 3, 2006 5:43pm
Quoting itme
If you had read this entire thread, wwwin, then you would know that my previous remark was facetious, and that in the course of this process over the past 7 months I have made many, many discoveries, adjustments, and refinements to my theories about market behavior.

For instance, I have introduced radical adjustments to my approach to Elliott Wave theory, as well as made many changes and refinements to my Q model - including the concepts of overshoot and multiple timeframe congruence. I also spent several months intensively studying news trading systems and learning how news releases influence market behaviour. I have also noted the difference in behavior between range bound and trending markets, markets leading up to a major news release, markets moving under the influence of a sequence of influential news releases, and markets effected by holidays and other causes of low trading volume. I have also noted the difference in behavior between markets that are approaching, hemmed in by, or finally clear of major support and resistance lines, trendlines, and other price benchmarks. My recent developments involve multimarket "neural network" type analysis which factors the circumstances and anticipated behavior of all other currency pairs into the behavior of each currency pair.

By making literally hundreds of precise predictions about the market's future behavior I have been forced to acknowledge, assess and discover many of the major factors influencing market behavior, especially through assessing my failures.

To the best of my knowledge, the trading system I am developing is several degrees of magnitude more complex than any other trading system that I am aware of, and highly adaptive to many changing circumstances of the market.

Due to the comprehensiveness, complexity, and inclusiveness of the trading system I am developing, it will probably require 5 to 10 full time highly qualified analysts with different specialised skills to implement.
That sounds like quite a project. I commend you for trying it. To make it complete, may I suggest also incorporating how planetary alignments affect sun spot activity, which in turn afftets investing patterns.
  • #2,093
  • Dec 3, 2006 6:30pm Dec 3, 2006 6:30pm
WWWinnn, admit it's an extremly serious project that doesn't need sarcasms. ITME needs help at this and i fully understand what he is at, he's far beyond you and me and surely could throw some simple winning ea and comptent of it. Instead he's trying to truly have an understand the W5 of markets movement. It's of a beautyfull complexity only superior mind is able to understand and all these experimental trades are there to helps his comprehension of it.

(By the way, magnetic storm electromagnetic wave can affect electrical distribution browning out big area, also Sun spot can affect weather wich can affect country total production ultimatly causing fluctuation to market...)


Regards.

Quoting wwwin
That sounds like quite a project. I commend you for trying it. To make it complete, may I suggest also incorporating how planetary alignments affect sun spot activity, which in turn afftets investing patterns.
Harmonics and Pitchfork using korHarmonics from TradingArsenal
  • #2,094
  • Edited Dec 4, 2006 2:32am Dec 3, 2006 11:08pm | Edited Dec 4, 2006 2:32am
Monday December 4 at 00:00 ET

On Friday December 1st GBP/USD rose to 1.9846, slightly higher than my conservative prediction from earlier that day ("GBP/USD uptrend is headed for 1.9830/35 (hit 1.9846)", a point which I interpret as the top of Wave 3.3.5 (the top of an extended Wave 3). Following an extended Wave 3 comes a medium sized complex A-B-C Wave 4. This downwards Wave 4 will be completed we believe at about 1.9742, to be followed by an impulse Wave 5 up to at least 1.9900.


Trade Experiment #269 Buy GBP/USD at 1.9742

Stop is 1.9707

Target is 1.9900

Risk is 39 pips

Reward is 154 pips

Reward : Risk ratio is 4.0 to 1

For research purposes only.

Note: Because this is a strong upwards trend, the corrective waves are not very large. Furthermore, because we are nearing the end of the large upwards trend, the last Wave 5 impulse wave may not be very large. Thus the RRR of this trade is only 4.0:1, which does not meet the minimum standard for our evolving trading system.

p.s. - GBP/USD just fell to 1.9739 at 3:10 ET December 4, 2006

p.p.ps. - GBP/USD fell in a tortured pattern (check the 1 minute chart) to 1.9724 as of 3:30 ET. 1.9725 is a triple timeframe confirmed high probability reversal point.
  • #2,095
  • Dec 4, 2006 2:38am Dec 4, 2006 2:38am
Monday December 4 at 3:30 ET

Exit Trade Signal #268 Sell EUR/JPY at 1.5368

Upon further reflection the risk of this trade is a little high. It is best to take 40 pips of profit and wait for a new high. There is a good chance that there may be a new high put in before this upwards trend reverses.

________________________________________________________
________________________________________________________

Previous trade signal and comment:

Trade Signal #268 Sell EUR/JPY at 154.00 <hr style="color: rgb(209, 209, 225);" size="1">Friday December 1 at 10:00 ET

 Trade Signal #268 Sell EUR/JPY at 154.00
Stop is 154.26
Target is 153.00
Risk is 29 pips
Reward is 151 pips
Reward : Risk ratio is 5.2 to 1

For research purposes only.

This is a retroactive trade, to test our wave theory. The wave count is somewhat confusing, but the entry point is a very precise and strong high probability reversal value. We are not sure, but this may be a corrective fourth wave down.
__________________________________________________ _______
__________________________________________________ _______

EUR/JPY Update for Tuesday November 28 at 4:30 ET

The upwards wave three just completed (presumably) was somewhat larger than expected, because USD/JPY rose in tandem with the strong rise in EUR/USD, instead of falling as is the usual behavior of USD/JPY while EUR/USD rises.

We expect next on EUR/JPY a large Wave 4 A-B-C downwards corrective wave followed by the final upwards impulse wave to about 155.00
  • #2,096
  • Edited 3:15am Dec 4, 2006 2:47am | Edited 3:15am
Monday December 4 at 3:30 ET

On Friday December 1st EUR/USD rose to 1.3367, slightly higher than my conservative prediction from earlier that day ("EUR/USD predicted high is 1.3330 )", a point which I interpret as the top of Wave 3.3.5 (the top of an extended Wave 3). Following an extended Wave 3 comes a medium sized complex A-B-C Wave 4. This downwards Wave 4 was completed we believe at about 1.3280, to be followed by an impulse Wave 5 up to at least 1.3400.<o></o>

Trade Experiment #270 Buy EUR/USD at 1.3280

Stop is 1.3256

Target is 1.3400

Risk is 27 pips

Reward is 117 pips

Reward : Risk ratio is 4.3 to 1

For research purposes only.
  • #2,097
  • Dec 4, 2006 4:14am Dec 4, 2006 4:14am
itme what do you think of the bounce up to 9822-9847 area instead of 9900's then bounce down to 9660's on the cable
  • #2,098
  • Dec 4, 2006 4:27am Dec 4, 2006 4:27am
GBP/JPY update for Monday December 3 at 5:00 ET

Our Trade Signal #257A Sell GBP/JPY at 226.74 would normally have been a successful trade, trading down from the top of Wave 3, but in this case the market was trending very strongly, so the corrective wave was proportionally smaller than usual, so it didn't reach our target because it was not adjusted to the strength of the trend.

We identified the top of Wave 3 correctly which occured at 226.93, only 19 pips past our short entry price. The bottom of Wave A of Wave 4 was at 225.71, which would have given us 94 pips of profit. However, we didn't notice that we had reached the bottom of Wave A of Wave 4 to exit at that point, which would have been the correct strategy, because we are trading too many currency pairs to stay on top of them all.

Wave 4 was forward leaning, so Wave B went higher than the top of Wave 3 by 23 pips to 227.16, but still short of our stop. Downwards Wave C only descended to 226.17, not as low as Wave A. The bottom of Wave C of Wave 4 at 226.17 on November 30 at 21:00 ET would have been an excellent re-entry opportunity for a long trade. (Of course, now that we have observed strong trend behavior, we realise that in this case the bottom of Wave A is the best entry price for this kind of trade.) Our Wave C bottom location procedure worked precisely to pin this price.

Our system would have given us a target of 228.97 for the Wave 1-2-3 impulse trade, and the price has since risen to 229.03, only 6 pips higher, on December 1 after tracing out a 1-2-3 pattern, a rise of 280 pips. Our stop in this trade would have been at 225.89, giving us a risk of only 37 pips, so the RRR would have been a healthy 7.3:1.

Since then we have witnessed the fourth corrective wave of the Fifth Wave, tracing out a medium sized A-B-C pattern with a forwards tilt. The inverted plateau at 228.20 which corresponded to the reversal price for GBP/USD would have been the perfect entry price at the bottom of Wave C, with a target of 230.00 to 230.50, for a profit of between 171 and 221 pips, with a risk of 50 pips considering a stop of 227.79, and therefore a RRR of between 3.4 and 4.4, making this a less than stellar trade opportunity.
__________________________________________________________
__________________________________________________________
Previous trade signals:

Tuesday November 28 at 19:00 ET
Trade Signal #257A Sell GBP/JPY at 226.74
Stop is 227.21
Target is 224.00
Risk is 56 pips
Reward is minimum 265 pips
Reward : risk ratio is 4.9 to 1
For research purposes only.

We are trading a Wave 4 down, following what we believe is a completed extended Third Wave.

The upwards wave three just completed (presumably) was larger than expected, because USD/JPY rose in tandem with the strong rise in GBP/USD, instead of falling as is the usual behavior of USD/JPY while GBP/USD rises.<!-- / message --><!-- sig -->

p.s. - an extended third wave carried the price up to 227.15, slightly short of our stop at 227.21, after which GBP/JPY fell to 226.20.
__________________________________________________ ____________
__________________________________________________ ____________

Tuesday November 28 at 4:00 ET
Trade Signal #257 Sell GBP/JPY at 226.06
Stop is 226.51
Target is 224.00
Risk is 54 pips
Reward is minimum 197 pips
Reward : risk ratio is 3.6 to 1

For research purposes only.

This is not a system compliant trade because the R:R ratio is too small. But it is a good experiment to learn from. We are trading a Wave 4 down, following what we believe is a completed extended Third Wave.
  • #2,099
  • Edited 5:24am Dec 4, 2006 4:48am | Edited 5:24am
What is your wave count for GBP/USD, fixme1too? I will post mine for comparison. I believe we are trading an impulse fifth wave of the complex upwards Third Wave, so my target makes sense to me. Unless the fourth corrective wave is not yet complete. We should be attentive in case this turns out to be the case, but the corrective wave that just occured, in the context of this pattern, seems adequately complete to me.

"itme what do you think of the bounce up to 9822-9847 area instead of 9900's then bounce down to 9660's on the cable"
  • #2,100
  • Dec 4, 2006 5:22am Dec 4, 2006 5:22am
GBP/CHF update for Monday December 3 at 5:00 ET

GBP/CHF is heading up now in a large Wave B of a downwards corrective Wave 4 of an even larger upwards impulse THIRD WAVE. We put the top of this upwards Wave B at about 2.3800, which will be a good low risk : high reward short opportunity, with a target at about 2.3300.
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