Low Risk, High Reward Trading Experiment

Itme's trades have a smaller sucess ratio but a high risk to return ratio.

One good trade easily can make up for 4 or 5 bad ones and then some. Right Itme? lol. Or is it more like 2 or 3? I'm not sure.

The trade experiments aren't really crafted as practical trades, because I am still doing basic research, but nevertheless the performance of these experimental trades is starting to become more stable and probably profitable.

I would suggest someone study my notes and develop some trading system incorporating some aspect of my information and strategy with other procedures and strategies that they are already familiar with.

One person mentioned that they entered on or about my stop prices and did well, which makes sense. Exiting at a smaller reward level, more in the range of 100 pips would increase the success rate, because I often catch the reversal point, but not of the fifth wave, but of the third wave, or a subwave of the fifth wave, so there is solid movement, but not all the way to my ambitious target. So would expanding the stop sizes.

By filtering out dangerous currency pairs like GBP/CHF and GBP/JPY and obviously daredevil trades, by entering at a more favorable price, increasing the stop size, and reducing the target, a much higher success rate would arise, though not necessarily a higher rate of return. Exiting when an adverse strong news release happens will also improve performance significantly, as news releases have caused quite a few losses.

Yes, one winning trade balances out three to five losing trades, depending on the reward : risk ratio, and risk factor.

On December 6 I said, "Our trade experiment Trade Signal #260 Sell CAD/JPY at 103.00 was highly successful, with the exception that we placed the entry price 2 pips higher than the current price when the trade was entered, which was ridiculous. The updated target of 100.30 was reached on December 5. The cumulative Reward / Risk Ratio for this two part trade is 14.5 to 1, meaning that for every $1,000 risked, the return was $14,500. With a 20% risk factor, this one trade would counter the influence of 12 losing trades."

This isn't correct, however. The truth is that with a 20% risk factor, this one trade would almost counter the influence of 5 losing trades.

The target for Trade Signal #266 Sell USD/JPY at 1.1624 of 1.1540 was hit on December 1 at 11:00 ET, only 7.5 hours after the trade was entered. This is ideal!

The ultimate low was 114.43, 100 pips lower
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Friday December 1 at 3:30 ET
Trade Signal #266 Sell USD/JPY at 1.1624
Stop is 1.1641
Target is 1.1540
Risk is 20 pips
Reward is 81 minimum pips
Reward : risk ratio is minimum 4.0 to 1
For research purposes only.

We are trading here from the top of the fourth upwards wave to the expected bottom of the fifth downwards wave, which is the end of the larger Wave and the beginning of an even larger upwards WAVE.

________________________________________________
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Post trade analysis:

The entry for Trade Signal #266 Sell USD/JPY at 1.1624 was spot on, as the high reached was 116.36, 12 pips above our entry price, which is within the approximate tolerance we are aiming for. The stop was fine.

As far as the target goes, I specified a very conservative target for some reason. According to our targeting system, the correct conservative target was 115.04, not 115.40, which is 36 pips lower, and would have increased the RRR to 5.9, and brought it into the range of a system compliant trade. The low reached was firstly 114.94, and then later 114.45 after another minor retracement.

The exact Q target is 114.50, only 5 pips higher than the actual ultimate low before the major Wave 4 correction began.

Friday December 8 at 6:30 ET

Trade Experiment #280 Sell USD/JPY at 1.1566
Stop is 1.1581
Target #1 is 1.1450
Risk is 18 pips
Reward is 113 minimum pips
Reward : risk ratio is minimum 6.3 to 1

For research purposes only.

Post trade experiment analysis:

This trade experiment Trade Experiment #280 Sell USD/JPY at 1.1566 was a failure in trading terms, but rich in valuable lessons.

First, the entry wave count was incorrect. We entered on a market order, and should have employed a limit order at a higher price, at the top of the five wave set. The general count was right, being the fifth wave of an upwards 1-2-3-4-5 Wave A of Wave 4. However, the minor wave count was only 1-2-3, and not a complete 1-2-3-4-5. I thus entered the trade at the top of the minor wave 3 instead of the top of the minor wave 5. It went up again in another minor wave up, and went 5 pips past our tight stop.

In the equivalent GBP/USD trade, I estimated the end of the "as yet unfinished" Wave A which was a successful strategy.

By employing our trading model, I would have estimated the top of wave A to be at between 115.73 and 115.84. In fact, the high of wave 5 of wave A was at 115.86. Therefore, by using a limit entry and employing the most conservative estimate of the top of wave 5 we would have entered the short trade only 2 pips from the top.

The stop size (15 pips) was obviously way too tight for a non-farm payrolls predictive trade. What was I thinking? (Or not thinking?) No wonder it went 5 pips past our stop!

As far as targeting goes, the downwards movement fell considerably short of our target, reversing at 114.87 instead of our target of 114.50. We assumed a flat corrective wave, which is normal, thus assuming a USD negative announcement directional bias. However, the corrective consolidation pattern so far at the time of the trade was quite upwards leaning so, we should have suspected an upwards zigzag correction, which is what happened, and thus suspected a USD positive directional bias.

According to the Q targetting system the target (most probable reversal value) was 115.07. The actual bottom was 114.87. Our target was 114.50, based on a flat correction hypothesis, and a USD negative directional bias. So the Q system gave us good guidance here, instead of arbitrarily assuming a flat corrective pattern, which is not what happened.

What followed after the upwards spike to the estimated top of wave A and the downwards spike to the Q target at the bottom of wave B was a strong move upwards to form a wave C of the Wave 4 upwards corrective wave. Assuming an upwards zigzag Wave 4, wave C carried the price of USD/JPY slightly past our conservative Q target at 116.40, reaching 116.47, which is the exact Q system calculated most probable reversal value.

The size of the downwards B wave was 115.86 - 114.87 = 99 pips. This would not have offered a viable system trade for us, as the reward was too small relative to the risk. The upwards wave C movement went from 114.87 to 116.47 which is 160 pips, which might have been a system compliant trade if the entry point could have been defined very accurately, and the risk thus reduced sufficiently. In this case, this would not have been possible, due to the particular configuration and the speed of analysis which would have been required. The better strategy would be to wait for the top of wave C, and trade the next (and last) larger impulse Wave 5 down.

Friday December 8 at 6:30 ET

Trade Experiment #281 Sell USD/CHF at 1.1978

Stop is 1.2005

Target #1 is 1.1875

Risk is 31 pips

Reward is 99 minimum pips

Reward : risk ratio is minimum 3.2 to 1

For research purposes only.

Friday December 8 at 7:00 ET

Trade Experiment #282 Buy GBP/USD at 1.9550

Stop is 1.9509

Target #1 is 1.9680
Target #2 is 1.9740

Risk is 45 pips

Reward #1 is 126 minimum pips
Reward #2 is 186 minimum pips

Reward : risk ratio is minimum 2.8/4.1 to 1

For research purposes only.

We are now optimally positioned to take advantage of some USD depreciating NFP data at 8:30 ET, should it occur.

<table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" width="100%"><thead><tr><td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Nonfarm Employment Change</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">125K</td> <td class="alt2" align="center">92K</td> <td class="alt2" id="collapsecal_eventanalysis_3227" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3227" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Investica Analysis</legend>

Revisions to previous data will be important

</fieldset> <fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the number of new jobs created in the previous month, excluding the farming industry. A rising trend has a positive effect on the nation's currency. The number of new jobs being created is one of the most important indicators of the economy's health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Unemployment Rate</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">4.5%</td> <td class="alt2" align="center">4.4%</td> <td class="alt2" id="collapsecal_eventanalysis_3228" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3228" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Average Hourly Earnings m/m</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">0.3%</td> <td class="alt2" align="center">0.4%</td> <td class="alt2" id="collapsecal_eventanalysis_3229" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3229" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Investica Analysis</legend>

The Fed will be watching the earnings data closely.

</fieldset> <fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the rate of inflation found in the wages paid to nonfarm jobholders. A rising trend has a positive effect on the nation's currency. When businesses pay more for labor, they are likely to pass the higher costs to the consumer, so traders view wage inflation as a leading indicator of consumer inflation.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 10:00am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Consumer Sentiment (p)</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">92.0</td> <td class="alt2" align="center">92.1</td></tr></thead></table>

The dollar traded narrowly before the release of U.S. November jobs report. Non-farm payrolls are forecasted to increase to 113,000 from 92,000 a month earlier. Unemployment rate is expected to rise from 4.4% to 4.5% in November. Since ADP Employment Services yesterday reported the private sector added more jobs than expected, investors tend to wait for an upward surprise on tomorrow¡¦s job report from Labor Department. If the payrolls report comes out better than expected, the dollar is likely to benefit from that.

Another U.S. data worth noting is the University of Michigan consumer sentiment. It is expected to slightly improve from 92.1 in the previous month to 92.5 in December.

Actuals:
<table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" height="253" width="597"><thead><tr><td class="alt2"><table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" width="100%"><thead><tr><td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Nonfarm Employment Change</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">132K</td> <td class="alt2" align="center">125K</td> <td class="alt2" align="center">92K</td> <td class="alt2" id="collapsecal_eventanalysis_3227" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3227" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Investica Analysis</legend>

Revisions to previous data will be important

</fieldset> <fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the number of new jobs created in the previous month, excluding the farming industry. A rising trend has a positive effect on the nation's currency. The number of new jobs being created is one of the most important indicators of the economy's health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Unemployment Rate</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">4.5%</td> <td class="alt2" align="center">4.5%</td> <td class="alt2" align="center">4.4%</td> <td class="alt2" id="collapsecal_eventanalysis_3228" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3228" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the percentage of the total work force that is unemployed and actively seeking employment. A falling trend has a positive effect on the nation's currency. Working people tend to spend more, and consumer spending is a major driver of the economy. However, unemployment usually draws little attention because traders view it as a lagging indicator.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 8:30am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Average Hourly Earnings m/m</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">0.2%</td> <td class="alt2" align="center">0.3%</td> <td class="alt2" align="center">0.4%</td> <td class="alt2" id="collapsecal_eventanalysis_3229" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3229" style="display: none;"> <tr> <td class="alt1" style="background-color: rgb(240, 254, 237); padding-bottom: 11px;" colspan="9" width="100%">

<fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Investica Analysis</legend>

The Fed will be watching the earnings data closely.

</fieldset> <fieldset class="smallfont" style="padding: 4px 10px 2px; width: 70%; margin-bottom: 9px;"> <legend>Definition</legend>

Measures the rate of inflation found in the wages paid to nonfarm jobholders. A rising trend has a positive effect on the nation's currency. When businesses pay more for labor, they are likely to pass the higher costs to the consumer, so traders view wage inflation as a leading indicator of consumer inflation.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt2" nowrap="nowrap">
</td> <td class="alt2"> 10:00am </td> <td class="alt2" align="center">USD</td> <td class="alt2">Consumer Sentiment (p)</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">90.2</td> <td class="alt2" align="center">92.0</td> <td class="alt2" align="center">92.1</td></tr></thead></table></td><td class="alt2" align="center">
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This trade worked exactly as planned. The first target was hit. Exit trade and wait to re-enter after A-B-C retracement. Exercise caution. The retracement could be quite small.

p.s. - The bottom of the retracement was at 1.9662, after a small a-b-c down.

p.p.s - The second target of 1.9740 was not met. However, when I checked my work, I found an error. The second target for Wave B of Wave 4, according to our targetting system, should have been set at 1.9722, the conservative target, not 1.9740, the ultimate target. The high reached was 1.9726.

So if I had executed my trading system properly, we would have had a picture perfect trade experiment here today. In fact, our return on capital would have been very high, for we would have sold at 1.9726 and enjoyed the ride back down to 1.9520, another 206 pip trade with an acceptable Reward : Risk Ratio. However, I was not monitoring the market at the time that the top of Wave B was reached, which formed a good A-B-C completion pattern.

Due to the complexity of predicting the end of Wave 3 of a strong announcement-produced spike type of fast, volatile move ahead of time, I believe it is better not to attempt a two part trade in this type of maneuver in the future.

Friday December 8 at 7:00 ET

Trade Experiment #282 Buy GBP/USD at 1.9550

Stop is 1.9509

Target #1 is 1.9680
Target #2 is 1.9740

Risk is 45 pips

Reward #1 is 126 minimum pips
Reward #2 is 186 minimum pips

Reward : risk ratio is minimum 2.8/4.1 to 1

For research purposes only.

Quoting itme

Disliked

EUR/USD prediction : rise from current price about 1.3275 to target 1.3355 to 1.3420 (if this is Wave B in a three wave Wave 4 correction, the target will lean towards the lower value)

Ignored

Even though these 2 currency spiked up after NFP news time, they eventually dropped as itme predicted to a very close predicted area.

Expect the upwards prediction come next week - towards the predicted price itme placed in the previous post.

* EUR/USD went up to 1.3364 then as predicted down to 1.3205 at12:45 pm Pacific Time

* GBP/USD went up to 1.9726 then as predicted down to 1.9540 at12:45 pm Pacific Time

Monarch

Hi Itme,
You had a very good result of trading bbp/usd in volatile nfp news.
I follwed your trading call with 2 lots having 2 limits target 1 and target 2.
Get 207 pips .
Good works Itme. Thanks a million.

Did i miss something? I thought GBP-USD will keep rising from 1.9560 upto 1.9880 or 1.9950, after getting the first target around 1.972x zone.
I'm just asking the experts, NOT complaining.
Anyway, it was an EXCELLENT performance getting 160 pips on bullish move + 170 pips on bearish.
Great work also on GBP-JPY, adding another 160 pips from long @ 226.10.
It was a very profitable day thanks to your accurate signals on this thread

THANK YOU VERY MUCH FOR SHARING YOUR THEORIES WITH US.

Hi blondy101,

I hope that everyone is working very hard to form their own theories about the movements, and not trusting and believing in anyone else.

According to the basic Elliott Wave theory as explained in the educational thread in the Beginners Section, a corrective wave is A - B - C, and either flat, zigzag, or triangular. The challenge is to recognise the bottoms and tops of the A, B and C waves.

In this case, at the time of my predictions I thought that we were either at or near to the bottom of Wave A or the bottom of Wave C.

In the first case we were due for a largish Wave B up followed by a Wave C down to either a higher low or a lower low. In the second case we were due for an upwards impulse Wave 5.

This is why I offered two upwards targets in my prediction.

The actual trade experiment was based on the more conservative hypothesis - which is that we were trading Wave B upwards, which is what happened. The insightful trader would have realised this and traded Wave B upwards, and then reversed and traded Wave C downwards. They would now be preparing to enter the long trade as described above.

Trade experiment from earlier today:

Friday December 8 at 6:30 ET
Trade Experiment #280 Sell USD/JPY at 1.1566
Stop is 1.1581
Target #1 is 1.1450
Risk is 18 pips
Reward is 113 minimum pips
Reward : risk ratio is minimum 6.3 to 1

For research purposes only.

Post trade experiment analysis:

This trade experiment Trade Experiment #280 Sell USD/JPY at 115.66 was a failure in trading terms, but rich in valuable lessons.

First, the entry wave count was incorrect. The general count was right, being the fifth wave of an upwards 1-2-3-4-5 Wave A of Wave 4. However, the minor wave count was only 1-2-3, and not a complete 1-2-3-4-5. I thus entered the trade using a market order at the top of the minor wave 3. It went up again in another minor wave up, and went 5 pips past our tight stop, which was only 15 pips above our entry price. In the equivalent GBP/USD trade, I estimated the end of the "as yet unfinished" wave A, and employed a limit order, which was a successful strategy.

By employing our trading model, assuming one more minor wave up, I would have estimated the top of wave A to be at between 115.73 and 115.84. In fact, the high of wave 5 of wave A was at 115.86. Therefore, by employing the most conservative estimate of the top of wave 3 we would have entered the short trade trading wave B down only 2 pips from the top.

As far as targeting goes, the downwards movement fell considerably (37 pips) short of our target, reversing at 114.87 instead of our target of 114.50. We assumed a flat corrective wave, which is normal, thus assuming a USD negative announcement directional bias. However, the corrective consolidation pattern so far at the time of the trade was quite upwards leaning so, we should have suspected an upwards zigzag correction, which is what happened, and thus suspected a USD positive directional bias.

According to the Q targetting system the target (most probable reversal value) of the downwards movement (wave B) was 115.07. The actual bottom was 114.87, 20 pips lower. Our trade target was 114.50, based on a flat correction hypothesis, and assuming a USD negative directional bias. So the Q system gave us good guidance here, instead of arbitrarily assuming a flat corrective pattern, which is not what happened.

What followed after the upwards spike to the estimated top of wave A and the downwards spike to the Q target at the bottom of wave B was a strong move upwards to form a wave C of the Wave 4 upwards corrective wave. Assuming an upwards zigzag Wave 4, wave C carried the price of USD/JPY slightly past our conservative Q target at 116.40, reaching 116.47, which is the exact Q system calculated most probable reversal value.

The size of the downwards B wave was 115.86 - 114.87 = 99 pips. The reward here is too small compared with the risk, so this would not be a system compliant trade.

The upwards wave C was from 114.87 to an interim top at 116.47 which is 160 pips. This would have been a difficult trade due to the speed of analysis required during the volatile price action and the difficulty in calculating a precise entry price and a close stop that was safe from being hit.

The best trade opportunity is from the top of wave C down to the bottom of the upcoming Fifth (impulse) wave.

This downwards 1-2-3-4-5 type wave pattern is the first impulse Wave of a large downwards WAVE 5 targeting 103.40 in about 6 months.

If the JPY appreciates by 12.5%, this will put stresses on the Japanese economy, which will thus suffer reduced exports, layoffs, reduced consumer confidence and wage cuts. The Chinese currency may become worth quite alot more as it is allowed to float more freely, which would improve the competitiveness of Japanese manufactured goods, counterbalancing the above challenge to the Japanese economy and people.

Hey "ITME",

"I hope that everyone is working very hard to form their own theories about the movements, and not trusting and believing in anyone else."


Well said....

A

This was a duplicate of above post. We will find something else to insert here - like a post trade analysis of our NFP USD/CHF short trade.

There is a very informative thread on the subject of risk analysis that I would like to draw the attention of readers here to:

Determining Risk

by twinchell<SCRIPT type=text/javascript> vbmenu_register("postmenu_148234", true); </SCRIPT>

"There are many ways to go about determining how much of your capital you risk per trade. This is only one of them; this is how I do it. You do not have to do it this way.

If you trade, you need a trading plan, plain and simple. There are two main components to a trading plan. The first is a system. This consists of entry and exit rules - when to enter a trade and when to exit that trade. There are many other things that can be employed when developing a system, which can include determining optimal stops, targets, moves to breakeven, trailing stops, and a dozen other things. I will not cover them. Once you have your system defined, the next step is determining how much to risk on each trade. This is what I will cover.

I've seen too many threads on this forum where people just pick arbitrary risk values. Some people claim their system says to trade 10% per trade. Some say 20% per trade. I believe the beginners sticky thread says risk no more than 3%. So which one do you believe? None. You believe none of them. If you want something done right, you have to do it yourself. Determine your own risk per trade and you will be confident that it's right, because it will be right. Guessing how many lots to trade is the same as guessing when to enter a trade. Read that sentence again if you need to.

The first thing you need is a sequence of trades. This comes after you develop your "system". How you get that sequence of trades is up to you. If you have a mechanical system, you may want to program it, in which case the program will be able to spit out a sequence of trades for you. I recommend TradeStation; it's features are very powerful. Another way to get a sequence of trades is to do it by hand. You've heard of manually scrolling back on charts to determine if you strategy is profitable, right? Well do the same thing and record each and every trade your system takes. Mainly what were looking for is pips profit and pips lost on a per trade basis.......

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I have also participated in some dialogue on in this thread that people might want to peruse.

I believe that this comment deserves special consideration:

Willingness to risk is the foundation of success
<HR style="COLOR: #d1d1e1" SIZE=1><!-- / icon and title --><!-- message -->Agreed, Twinchell, everyone is different, so there is no one trading system for everyone. However, some things are universally true. Such as the risk inherent in day trading.

Willingness to risk is a pre-requisite of ability to gain. If the process is logical, then it should theoretically work. If it doesn't work - then the analysis was faulty, the trader deviated from the plan, or an improbable event occured. One can't escape the laws of probability.

Everyone takes a risk when entering a trade. A calculated risk. The size of drawdown should be irrelevant, as long as it doesn't cause the suspension of the trading program, or interfere with its efficiency. The probability of achieving one's target at the end of the trading program is all that should guide one's conduct. If the goal is to make alot of money with an small initial bankroll, then one must trade systematically and logically, and that includes taking relatively large calculated risks.

Drawdowns are a part of trading. The quantity or percentage of drawdown has no special importance to me, from an analytical point of view. The final outcome is all that matters. The way I see it, one is risking one's initial investment, not the money which accrues during the trading program.

One should not identify with the money in one's trading account. Until one has terminated one's trading program, the money in one's account is not one's own, it is capital that is invested in a trading program that is theoretically at risk of being lost. That is the constant warning in the Forex business. Do people really take that warning seriously? They should, because it's true. We must be willing and able to lose our initial bankroll, because it will happen sometimes. We must face this possibility squarely, and having digested this possibility, proceed logically and systematically towards our goal, whatever that is. My goal is large amounts of money, in a relatively short time. The same is true for most traders. It isn't easy, and alot of learning is needed. But the goal will be reached sooner if all superstition, myth, dogma and sentimentallity are relinquished early on in the process. This is just as true in the case of a slower, low risk method as in the case of a high performance, high precision trading system.

Let me elaborate on this a little further. A little consideration of the Itme Theorem of Return on Capital from Short Term Investments (located here: From $7.00 to $770 Billion - Satire ) helps one realise that the performance of a trading program is contingent on only two factors - 1) accuracy and consistency of predictive ability (typical reward / risk ratio) and 2) willingness (and ability) to risk.

The only impediment to the first factor is limitation or degree of knowledge about market behavior - how capable one is at predicting market behavior. This boils down to accuracy - capacity to predict a point of directional reversal at both ends of the trade - beginning and end. The ability to accurately predict a potential market reversal at the beginnning of a trade determines entry price and stop size. The ability to accurately predict a potential market reversal at the end of a trade determines exit price. The impediments to the second factor are degree of knowledge of market behavior, and psychological stamina. The risk factor is thus limited by not one, but two factors. Both can be modified.

How? It is possible to acclimatise oneself to drawdowns through systematic behavioral conditioning and by education and logical reflection. Also - social factors can play a significant role. Do not encourage or entertain irrational or emotional reactions to normal events such as losses and attendant drawdowns. Do not expose yourself to people who model or ellicit these reactions. Do not indulge in them yourself.

Degree of market knowledge can increase through education and research. At the very least analyse all one's own trades thoroughly, including proposals for improvement. I believe that this is one of the great keys to eventual success, as it facilitates self awareness and honesty - truthfulness - one of the foundations of success, along with persistence, industriousness, intelligence, systematicallity and firm discipline.

The twin goals of the logical trader should be to maximize trading precision and risk factor - because these are the only two factors determining the efficiency of the trading program. To increase risk factor one must improve win rate, typical reward / risk ratio, skill (ability to accurately implement the trading system), decluster losses if possible, and eliminate psychological impediments to a higher risk factor.

With a clear eye on the twin balls - improvement of market knowledge to enhance reward / risk ratio and win rate (which in combination with psychological impediments determine maximum risk factor), and increase of risk factor through improvement of market knowledge and eliminating arbitrary psychological limitations - the trading "game" can be systematically improved.

I just read the opening post in this thread: Why we wont u to be rich? and feel that there is alot of practical wisdom from successful investors summarised there (don't pay attention to the spelling errors).
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p.s.- if any moderator reads this, please delete the previous post - #2197

Hi itme,
I'm just curious, as you had already revised this trade once before and I am currently seeing things I hadn't noticed before as well that might correlate with EJ pausing....what I mean to say is, I am currently a bit worried GBPJPY might not be able to penetrate the 61.8% of this swing down from the latest high made on the way back up.
EJ has been stunted back as well and I believe we're currently running the risk of getting a head and shoulders bearish GBPJPY pattern if we don't move above 227.80 soon.
I also have a target cluster at 229.70-230.15, but what I saw near friday's close worried me a bit.
Just wanted to ask whether or not you still believe in your current GBPJPY wave count and whether we're now in the wave 5 of a larger wave 5 upwards you anticipated originally.

Other than that - nice catch on NFP friday!

Best wishes,

SeekingLight

Itme - those spikes up and then down on Friday fit your price projections very neatly for the B & C waves of W4 - but what about time? with such a long A wave, this won't be it for C, surely? (or is it just that GBP/USD has not read EWT?)

Anyway, let me add my congrats to the accuracy of your projections for the NFP trading!

Thanks, starfire. The B wave needs to be an a-b-c configuration - either zigzag or flat. There may be another upwards wave yet to come in order to complete the Wave B pattern before we are ready to go down on C - that is, assuming we have the correct general wave count - corrective Wave 4 of an upwards trend, with another large Wave 5 upwards to go.

Regarding time cycles - I am not sure about that. Perhaps we should check some previous wave 4 configurations on this order to see if there are generalisations we can discern concerning wave periods. When the volatility is very high such as following NFP's , then the rate of price change increases and the period of the cycle decreases proportionally. So there may not be a problem with the rapidity of this spike wave.

Monday December 11 at 3:30 ET

Temporarily exit Trade Signal #276 Buy EUR/JPY (at 152.28) at 154.13 to capture 182 pips of profit. Re-enter after Wave 4 retracement.

p.s.- EUR/JPY just rose to 154.34, a very high probability reversal value, and is thus very likely to reverse and do a smaller wave 4 correction down to about 153.65 before heading up to the top of Wave 3 at about 154.50

p.p.s - EUR/JPY did bounce at 154.34, but only a small retracement in the mini-wave 4 down to 154.14, and then it launched into the wave 5 which has carried the price up to a recent high of 154.58 - the current price and likely turnaround point leading into a larger Wave 4 taking the price down to the region of 153.70 to 154.00.
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Previous trade signals:

Wednesday December 6 at 6:30 ET
Trade Signal #276 Buy EUR/JPY at 152.28
Stop is 151.94
Target is 154.35
Risk is 37 pips
Reward is 204 pips
Reward : Risk ratio is 5.5 to 1

For research purposes only.
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Previous trade experiment:

EUR/JPY update for Tuesday December 5 at 21:00 ET

We issued a trade experiment to sell EUR/JPY at 154.00 called Trade Signal #268 Sell EUR/JPY at 154.00 which predicted the top of a large wave 15 pips from the high point at 154.15. However, due to uncertainties about the wave count we exited at 153.68 with only 40 pips of profit, instead of our planned 151 pips. Subsequently the price fell to a recent low of 152.60, 40 pips past our target.

The moral of this story is that when we develop uncertainty about a trade, we should consider simply moving the stop up to a break even position, rather than exiting the trade with a small profit. After all, our analysis upon which the trade was predicated certainly had some merit in most cases, so the trade is worth playing out unless there is plainly good cause to exit it early.

In this case, we went into the trade knowingly with a fuzzy wave count, but we had strong evidence based on our Q theory that a reversal would occur at the indicated price. It did, and the low so far is 152.70, 130 pips lower than the entry price, making this a very successful trade experiment.
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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.
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Previous trade signal and comment:

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.
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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
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