If you're afraid of the highly improbable occuring how do you ever walk outside the house?
"I know it is highly improbable, but improbable is not the point."
Improbabilty IS the point. That's what the whole thread/idea is about. Do I accept that eventually it will happen? Yes. That is why I've said it would be wise to not increase your lot size after your account has increased until you have reached a certain point that perhaps you would need a total disaster of 20+ losing trades in a row.
Probability of 20 losing trades in row of a 1000 trades = less than .01%. That is in a 50% system. With a 60% system that would be less than .003%. Why are people so afraid of that?
There are many ways I see this system could work.
1. You triple down on the trades such that you cash in tremendously on those highly probable 3-4 consecutive losers. Instead of playing to win for just $1, you cash in $108 off of only 6 trades.
2. You realize that eventually the system will fail catastrophically. Play the system in periods. When you reach a certain profit level, take money off the table. My guess is that if you take off $500-$1000 here and there when you can, that it will add up to more than when the catastrophe hits and wipes out $10,000 or even $20,000.
3. You play for the long haul. Don't increase lot sizes for a long time. The highly improbable doesn't happen for a long time. Your account grows steadily past many key levels. You hit $50K, $100K, $150K without increasing your lot sizes. I am not going to say the account will grow like that, the point is to let the account grow beyond what your math would say you are capable of trading. You tell yourself you can handle 15 trades in a row easily, but you don't up your lots till you can handle 25. Strict money management.
I still have to question what happens to our accuracy when we don't make the signals for long/short random. If they were random then I would assume the system is 50% correct. Because if there is a strong uptrend and randomness selected to go long 50% and sell 50% of the time, we would be right 50%. What if we gave the system the ability to make a simple decision to go long when price breaks a trigger from below and sell when it breaks a trigger from the top? We would have been right almost all the time on the uptrend - 60-80% I would say.
Something as simple as that could give us the edge. Chance of a 12 loss streak out of 1000 trades in a 60% correct system? .9%
Simple safeguards in the system to make a random system more predictable is the name of the game. That is our edge. That is what every single trading system out there is doing. They are looking to be more than 50%. What does basing buy/sell orders based on the position of MACD do to our accuracy? What does a decision off of RSI tell us? If those indicators did not increase accuracy then people would not use them. I will say then that by a simple tool such as that will increase a system past 50%.
I'm trying to use a simpler tool of price action, because I like it. It doesn't lag, and doesn't become overbought/oversold. We are only concerned about price and not what level the RSI is at. Also, correct me if I'm wrong, but when we say a 12 streak loss in a 60% correct system is .9% likely out of 1000 trades. Does that mean if we look at 100 sets of 1000 trades it will occur less than once? I analyze that percentage as saying, "in these 1000 trades there is a .9% chance of it actually occuring. It is not 100% going to happen in these 1000 trades."
Do you see why I don't know why we're so afraid of the improbable? I see it as another form of risk/reward. I'll be risking a lot yea, but what is the risk. If we bet $1 for every 1000 trades that there is not a 12 streak loss, would I be up $99 bucks?
". well now lets see what happens when that 12 loss streak happens, -100,-200,-400,-800,-1600,-3200,-6400,-12800,-25600,-51200, -102400, -204800. Add those all up and you have -409,500 *.01 = -$4,095"
You are also basing those numbers off of a system I posted for sake of argument. What happens if the system we actually uses only looks for 20 pips each trade? The losses will be -20, -40, -80, -160, -320, -640, - 1280, -2560, -5120, -10240, -20480 = -$409.40 dollars. The next trade would then be risking $409.60 to win the 20 pips. I think a $50K account can handle a trade of less than one standard lot, agree?
You are correct when you ask, is it worth it to risk so much for those pips? It might be since I just showed you the system can be very managable money wise. We don't need to look for 100 pip SL and TP.
What would happen if we tripled on each trade to really maximize profits?
We'll start by doubling the first loss and then triple afterwards to make it
-20, -40, -120, -360, ,-1080, -3240, -9720, -29160, -87480, -262440, -787320, -2361960 = -3542940 = -35429.40. The next trade would risk 7085880 to profit $35429.40 off of the 12 trades.
Obviously adapting a triple up strategy, although highly profitable, eventually runs into the problem of lack of capital quickly. It could be used perhaps only for the first couple losses, then the double up strategy to only cover losses.
ALSO! You don't need to double up at all or use it forever. What if you only matched losses to bet that you'll hit those streaks of winners to profit? Meaning we don't care about not profiting on the losing streaks, but we'd like to profit on the winning streaks since they are likely to happen too. Your "double down line" would be -20, -20, -40, -80, -160, -320, -640. You can see it holds off the doubling for a few rounds. So instead of being at -1280 loss on the 7th trade we're still only at -640.
There are many ways this idea of using probabilties can be used. It's not just 100 SL 100 TP. It's not just double down or triple down after each trade. So why would this still fail miserably? Matt
"I know it is highly improbable, but improbable is not the point."
Improbabilty IS the point. That's what the whole thread/idea is about. Do I accept that eventually it will happen? Yes. That is why I've said it would be wise to not increase your lot size after your account has increased until you have reached a certain point that perhaps you would need a total disaster of 20+ losing trades in a row.
Probability of 20 losing trades in row of a 1000 trades = less than .01%. That is in a 50% system. With a 60% system that would be less than .003%. Why are people so afraid of that?
There are many ways I see this system could work.
1. You triple down on the trades such that you cash in tremendously on those highly probable 3-4 consecutive losers. Instead of playing to win for just $1, you cash in $108 off of only 6 trades.
2. You realize that eventually the system will fail catastrophically. Play the system in periods. When you reach a certain profit level, take money off the table. My guess is that if you take off $500-$1000 here and there when you can, that it will add up to more than when the catastrophe hits and wipes out $10,000 or even $20,000.
3. You play for the long haul. Don't increase lot sizes for a long time. The highly improbable doesn't happen for a long time. Your account grows steadily past many key levels. You hit $50K, $100K, $150K without increasing your lot sizes. I am not going to say the account will grow like that, the point is to let the account grow beyond what your math would say you are capable of trading. You tell yourself you can handle 15 trades in a row easily, but you don't up your lots till you can handle 25. Strict money management.
I still have to question what happens to our accuracy when we don't make the signals for long/short random. If they were random then I would assume the system is 50% correct. Because if there is a strong uptrend and randomness selected to go long 50% and sell 50% of the time, we would be right 50%. What if we gave the system the ability to make a simple decision to go long when price breaks a trigger from below and sell when it breaks a trigger from the top? We would have been right almost all the time on the uptrend - 60-80% I would say.
Something as simple as that could give us the edge. Chance of a 12 loss streak out of 1000 trades in a 60% correct system? .9%
Simple safeguards in the system to make a random system more predictable is the name of the game. That is our edge. That is what every single trading system out there is doing. They are looking to be more than 50%. What does basing buy/sell orders based on the position of MACD do to our accuracy? What does a decision off of RSI tell us? If those indicators did not increase accuracy then people would not use them. I will say then that by a simple tool such as that will increase a system past 50%.
I'm trying to use a simpler tool of price action, because I like it. It doesn't lag, and doesn't become overbought/oversold. We are only concerned about price and not what level the RSI is at. Also, correct me if I'm wrong, but when we say a 12 streak loss in a 60% correct system is .9% likely out of 1000 trades. Does that mean if we look at 100 sets of 1000 trades it will occur less than once? I analyze that percentage as saying, "in these 1000 trades there is a .9% chance of it actually occuring. It is not 100% going to happen in these 1000 trades."
Do you see why I don't know why we're so afraid of the improbable? I see it as another form of risk/reward. I'll be risking a lot yea, but what is the risk. If we bet $1 for every 1000 trades that there is not a 12 streak loss, would I be up $99 bucks?
". well now lets see what happens when that 12 loss streak happens, -100,-200,-400,-800,-1600,-3200,-6400,-12800,-25600,-51200, -102400, -204800. Add those all up and you have -409,500 *.01 = -$4,095"
You are also basing those numbers off of a system I posted for sake of argument. What happens if the system we actually uses only looks for 20 pips each trade? The losses will be -20, -40, -80, -160, -320, -640, - 1280, -2560, -5120, -10240, -20480 = -$409.40 dollars. The next trade would then be risking $409.60 to win the 20 pips. I think a $50K account can handle a trade of less than one standard lot, agree?
You are correct when you ask, is it worth it to risk so much for those pips? It might be since I just showed you the system can be very managable money wise. We don't need to look for 100 pip SL and TP.
What would happen if we tripled on each trade to really maximize profits?
We'll start by doubling the first loss and then triple afterwards to make it
-20, -40, -120, -360, ,-1080, -3240, -9720, -29160, -87480, -262440, -787320, -2361960 = -3542940 = -35429.40. The next trade would risk 7085880 to profit $35429.40 off of the 12 trades.
Obviously adapting a triple up strategy, although highly profitable, eventually runs into the problem of lack of capital quickly. It could be used perhaps only for the first couple losses, then the double up strategy to only cover losses.
ALSO! You don't need to double up at all or use it forever. What if you only matched losses to bet that you'll hit those streaks of winners to profit? Meaning we don't care about not profiting on the losing streaks, but we'd like to profit on the winning streaks since they are likely to happen too. Your "double down line" would be -20, -20, -40, -80, -160, -320, -640. You can see it holds off the doubling for a few rounds. So instead of being at -1280 loss on the 7th trade we're still only at -640.
There are many ways this idea of using probabilties can be used. It's not just 100 SL 100 TP. It's not just double down or triple down after each trade. So why would this still fail miserably? Matt
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