Low Risk, High Reward Trading Experiment

Have you found a paticular currency or currencies that are easier to accurately anaylize more then others. Also is there a pair that you have a high confidence level with that is going according to plan?

Without having done a quantitative analysis, goodthings, my general view is that no particular currency pair is always well behaved. But every currency pair has moments of crystal perfection when an accurate prediction can be made with a high level of certainty. The pattern is the thing, not so much the currency pair. But to capitalise on this observation would require effectively analysing many currency pairs constantly, which would be ideal, but requires alot of manpower.

In terms of Elliott Wave, etc., majors are generally easier to predict than cross currency pairs. GBP/JPY and GBP/CHF are the most difficult, because their behavior is volatile, idiosyncratic and unfamiliar. It is tricky to count USD/JPY because it is spiky and strange. EUR/CAD is often very orderly. I sometimes have the impression that the crosses are driving the majors. My current hypothesis is the the best pairs for my purposes are GBP/USD, EUR/USD and EUR/JPY. By keeping an eye on USD/CAD, some wonderful opportunities occur now and then. I wish I had a better answer to this question, because it would be very valuable information.

Whenever we can say about a particular currency pair that we have a high confidence in the direction of the larger trend, and the wave count within that trend, then a series of opportunities to attempt low risk / high reward trades with a high probability of success arises. In practical terms, it is probably a good strategy to identify currency pairs where a trend analysis results in this clarity, especially where there is a strong, protracted impulse wave underway, and give extra attention to these pairs.

Announcements can also jam up the works. So pairs where the interest rate situation and economies are relatively stable, so that technical factors dominate the behavior, are best, except where the news and events favor and reinforce the technical analysis, which is an ideal situation. But this requires constantly following the news, and catching the news releases the second they come out.

For instance, right now CAD/JPY, GBP/USD and USD/JPY are muddy for me, but CHF/JPY and USD/CAD are somewhat clear.

For the last 4hrs opening and closing around 1.9562 Daily Fib of .382 and 1.9565 weekly fib of .382. Seems like a nice pivot point for up or down.

Monday December 18 at 6:00 ET

Trade Experiment #271B Buy GBP/JPY at 229.40

Stop is 228.89

Target #1 is 232.00
Target #1 is 232.50

Risk is 60 pips

Reward is 251 pips

Reward : Risk ratio is 4.2 / 5.0 to 1

We are trading the fifth wave of the Fifth Wave to the end of the upwards trend.

Monday December 18 at 7:00 ET

Our Trade Experiment #287 Buy GBP/USD at 1.9580 only made it up to 1.9664 (profit 80 pips) when an unusually bouyant USD TIC report threw GBP/USD down below our stop. Savvy investors would have monitored this news and protected themselves from loss.

<table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" width="100%"><thead><tr><td class="alt2"> 9:00am </td> <td class="alt2" align="center">USD</td> <td class="alt2">TIC Report</td> <td class="alt2" align="center">
</td> <td class="alt2" align="center">82.3B</td> <td class="alt2" align="center">65.0B</td> <td class="alt2" align="center">65.1B</td></tr></thead></table>
We try again:

Trade Experiment #287A Buy GBP/USD at 1.9490

Stop is 1.9447

Target is 1.9800

Risk is 47 pips

Reward is 306 pips

Reward : Risk ratio is 6.5 to 1

For research purposes only.

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Previous trade experiment:

Thursday December 14 at 10:30 ET
Trade Experiment #287 Buy GBP/USD at 1.9580
Stop is 1.9548
Target is 1.9750
Risk is 37 pips
Reward is 185 pips
Reward : Risk ratio is 5.0 to 1

For research purposes only.

GBP/CHF Update for Monday December 18, 2006 8:30 ET

The Trade Experiment #283 Sell GBP/CHF at 2.3760 was stopped out because it assumed that Wave 3 was a simple wave, whereas it turned out to be complex wave, which seems to be the norm. A conservative trade set-up should assume a complex wave 3.

Our current estimate for the top of this 1700 pips uptrend is at 2.4250

Current price is 2.3800. Recent high is 2.3876.

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Previous trade experiment:

Thursday December 14 at 4:30 ET

Re-enter Trade Experiment #283 Sell GBP/CHF at 2.3760

As predicted, GBP/CHF rose to 2.3760, which is a preferred entry point for our short trade.

Adjust the stop to 2.3804
Risk is now reduced to 56 pips instead of 75 pips
The targets stay the same as before.

Reward #1 is 298 minimum pips
Reward #2 is 448 minimum pips

Reward : risk ratio is now minimum 5.3/8.0 to 1

Confidence level : much better

For research purposes only.

Well, that one was a bust.

itme do you agree that wave c in wave 4 is completed? looks like it

Do you mean GBP/CHF? If so, no, I'm not satisfied that it is.

Yes, our Trade Experiment #287A going long on GBP/USD had very little going for it either. The wave count was sketchy, and no Q high probability reversal targets had been met. All we had was a short term trend line and a slightly viable 5 wave pattern, without a complex wave 3. And what looked like a clear sign that GBP/JPY was going up, which is almost always correlated with an uptrend in GBP/USD (but not in this case). Going long at 1.9380 will be a much better trade set-up. This experiment reinforces the importance of having as many positive factors in one's favor before risking one's capital in this challenging market.

On the other hand, Trade Experiment #271B Buy GBP/JPY at 229.40 has been up 80 pips so far, which is a good start. And by the way, the price of 231.78 which GBP/JPY touched before it fell 250 pips in 2 hours, is a very high probability reversal value according to our trend reversal model.

Prediction: we expect GBP/USD to descend to 1.9375 and then reverse the downtrend and head up to 1.9745 in the "c" wave of the upwards "B" Wave, to be followed by a descent to 1.9245 to 1.9300. There is also a chance that GBP/USD will descend to 1.9315 before rising again. Also, it is possible that the upwards "B" wave is already complete, and that we are engaged in the more forceful downwards "C" wave which could descend to 1.9245. So we should be careful about going long.

Previous trade experiment:

We try again:
Trade Experiment #287A Buy GBP/USD at 1.9490
Stop is 1.9447
Target is 1.9800
Risk is 47 pips
Reward is 306 pips
Reward : Risk ratio is 6.5 to 1

For research purposes only.

any thoughts on the eur/cad? has it completed its fifth wave or do you predict a smart long trade still at this point

thanks!

TEST TIME, sorry

EUR/CAD Update for Monday December 18 at 20:00 ET

When things get this far along in a trend, my preference shifts to the short trade at the very, very end of the uptrend. I feel that probabilities of success decrease the further we get towards the end of a trend. So we don't expect to go long unless a very clear pattern emerges indicating the bottom of the downwards corrective wave we are now on and good trend reversal values are met.

Generally, my prediction is for a fall to about 1.5020 to 1.5040, then a rise to 1.5530 to 1.5740. 1.5690 is a possible reversal value. When the price reaches the very top, as evidenced by an Elliott Wave completion pattern and the intersection with high probability reversal values, we will have a good low risk / high probability short trade opportunity. We expect a Fifth Wave upwards, with the top of its internal third wave at 1.5530, and the top of its internal fifth wave at 1.5740.

The current price is 1.5145. We are in a short term corrective downwards fourth wave A-B-C of an upwards third wave of an upwards extended Third Wave according to our current wave hypothesis. Alternatively, we could be in a short term corrective downwards fourth wave A-B-C of an upwards first wave of an upwards B Wave.

Adjust Target for Trade Experiment #279A Sell USD/CAD at 1.1578 to 1.1530.

The interim high for USD/CAD is 1.1588. However, there isn't a convincing completed 5 wave Elliott pattern, which means there is a likelihood of a rise to another high at 1.1600 or above before the trend is complete. This puts our stop in jeopardy. It is thus best to exit at 1.1530 and re-enter at the ultimate top of the upwards trend.

p.s. - USD/CAD fell to our adjusted target of 1.1530 at 13:00 ET on December 19, allowing us to book 43 pips of profit, then proceeded down (and 3 pips past) to our Q most likely reversal price of 1.1510
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Previous comments and trade experiment:

Thursday December 14 at 5:15 ET

As predicted, USD/CAD fell to 1.1545 and then shot up to 1.1577. It may ascend one more time to set a new high at 1.1580 or so.

Trade Experiment #279A Sell USD/CAD at 1.1578
Stop is 1.1611
Target #1 is 1.1300
Risk is 38 pips
Reward is 273 pips
Reward : Risk ratio is 7.2 to 1

For research purposes only.
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USD/CAD may not be quite ready to decline <hr style="color: rgb(209, 209, 225);" size="1"> <!-- / icon and title --><!-- message --> Quote:
<table border="0" cellpadding="6" cellspacing="0" width="100%"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> Originally Posted by starfire
Well done Itme with the USD/CAD pair as well. I gather this should now have topped Wave 5 of 5, with expected big move down now?
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Yes, starfire, as my post number 2226 stated, we expected a turnaround of USD/CAD at 1.1570, and it rose to 1.1572 and appears to be reversing. But only time will tell whether this is indeed the ultimate top of this trend.

I just checked the chart, and see only 1-2-3 of wave 5 up. So I predict a fall to around 1.1547 in wave 4 and then a rise to a new high of 1.1580 to 1.1600 at the top of wave 5 of Wave 5 - the ultimate high of this trend.

A rise to 1.1630 is also very likely. The higher the price where one enters, the less likelihood of hitting one's stop, and the larger the reward. But the longer one waits, the greater the likelihood of missing the entry opportunity.

By studying Elliott Wave patterns, one may often recognise the characteristic completion pattern, right down to the smallest order of wave. The stop should be placed above 1.1650. I suggest 1.1654.
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Update for USD/CAD for Tuesday December 12 at 16:00 ET

The wave count at entry time for Trade Experiment #279 Sell USD/CAD at 1.1500 was credible, but when USD/CAD fell and then rose to a new high, the wave count was invalidated. When it fell and rose one more time to form a typical extended wave 3 crown pattern, then it was a cinch that there would be a corrective downwards wave 4 in an a-b-c pattern, followed by another wave up - wave 5.

Furthermore, we had not yet reached the larger timeframe high probability reversal target at about 1.1575. This should have been taken as a sign that we were at the top of wave 3, not wave 5.

This retracement of wave 4 followed by another impulse wave is exactly what happened. The obvious response would have been to exit the short trade at the bottom of wave 4 at 1.1444 (or the second exit opportunity at 1.1453) for an approximately 50 pips profit. We meant to post this at the time, but somehow neglected to.

The upwards Wave 5 has started, and lifted the price to 1.1555 in the first and third impulse waves. The current price of 1.1518 is near to the bottom of the wave 4. The anticipated top of this larger Wave 5 is about 1.1570.

We should theoretically have held on to our previous USD/CAD long position until this ultimate high was reached.

There will be a good low risk /high reward trade opportunity to sell USD/CAD at the top of Wave 5 at about 1.1570.

p.s.- the latest high of USD/CAD is 1.1555, and the pattern looks good for rising to a top at 1.1570.

Re-entry opportunity Trade Experiment #271B Buy GBP/JPY at 229.50

Impending re-entry opportunity on this trade.

p.s. - The price did not descend to 229.50 to offer this re-entry opportunity.
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Previous trade experiment:

Monday December 18 at 6:00 ET
Trade Experiment #271B Buy GBP/JPY at 229.40
Stop is 228.89
Target #1 is 232.00
Target #1 is 232.50
Risk is 60 pips
Reward is 251 pips
Reward : Risk ratio is 4.2 / 5.0 to 1
We are trading the fifth wave of the Fifth Wave to the end of the upwards trend.

no i mean GBP/USD. are we still in wave 4? i have the a wave the be wave and the 1,2,3,4 and 5 little waves in wave c of Wave 4.

is it possible that wave c in wave 4 could go further down? i see at the news forecast and i am not satisfied with what i see.

i already numbered the c wave into 1,2,3,4 and 5 and everything went as expected but is it possible that there something more hidden in this c wave? maybe a larger 1,2,3.

confusing

test time

Itme had proved that the success of a trader depended on 2 factors : a high reward/risk ratio and a willingness to take high capital risk .
The end result of a trade is calculated by his formula ( Itme invention) :

Final capital = initial capital x ( 1 + reward/risk x risk factor )

final capital is the amount at the end of the trade .
reward/risk ratio is the target pips over stop lost pips .
Ex : target = 100 pips , stop lost = 50 pips reward /risk = 100/50= 2/1
risk factor is trading capital that trader only want to lose , usually in the
amount of 2% to 5% of trading capital.
Let have an example in here :
initial capital is 1000.00
reward /risk ratio is 100 pips target and 50 pips stop lost or 100/50 =2
risk factor is 5% of trading capital or 5/100 = 0.05.

the final result = 1000 x ( 1 + 2 x 0.05 ) = 1000 x ( 1 + 0.1 )
the final result = 1000 x 1.1 = 1100.00 .
So with the high reward/risk ratio and high risk factor let say 10% trader
can have a very good result.

Tuesday December 19 at 4:30 ET

A target check of Trade Experiment #271B Buy GBP/JPY at 229.50 indicates that the Target #1 should have been 231.87, not 232.00, which was recently hit. Recent high is 231.94.

p.s. - Target #2 of 232.50 was just met at December 19 16:00 ET. One could have exited at Target #1 of 231.87, re-entered at the bottom of wave 4 at 231.33, and carried on with the trade up to the second conservative target of 232.50, which is the idea if the Elliott Wave count fits. The ultimate high for this wave could be 232.73 .

There are 4 ways to trade these multi-target trades. The best way depends on the trader's skill level and the particular situation:

1) enter two groups of lots. Exit one lot group at the first target, and the second group of lots at the second target.

2) exit the trade at the first target, which is usually the top of the third wave. Re-enter at the bottom of the fourth wave (assuming an upwards trend) and exit at the top of the fifth wave, or target #2. This assumes enough skill in Elliott Wave analysis to recognise the bottom of the fourth wave.

3) Exit at the first target. Period.

4) Assess the situation when the first target is met. If there is no clear evidence of a complete EW pattern, then hold until the second target is hit.

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In the case of this trade, if the preferred method - the second method above, was employed with the correct initial target, then the total RRR on this trade would be 4.0 X 1.8 = 7.2. This assumes using the same number of lots on the re-entry as the initial entry, and employing the same stop.
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Previous trade signal:

Re-entry opportunity Trade Experiment #271B Buy GBP/JPY at 229.50

Impending re-entry opportunity on this trade.
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Previous trade experiment:

Monday December 18 at 6:00 ET
Trade Experiment #271B Buy GBP/JPY at 229.40
Stop is 228.89
Target #1 is 232.00
Target #1 is 232.50
Risk is 60 pips
Reward is 251 pips
Reward : Risk ratio is 4.2 / 5.0 to 1
We are trading the fifth wave of the Fifth Wave to the end of the upwards trend.

Hi Itme,

I saw a thread regarding your concept without number of pips in calculation.
So , if a trader trades w/o stop lost , how much money can he gain ?