Low Risk, High Reward Trading Experiment

Wednesday January 3 at 10:15 ET

Trade Experiment #303B Buy GBP/USD at 1.9500

Stop is 1.9469

Target is 1.9705

Risk is 35 pips

Reward is 201 pips

Reward / Risk Ratio is 5.7

Confidence level: good
Accuracy: fair
Reward / Risk Ratio : good

For research purposes only.

This is an attempt to trade an upwards Wave B of a downwards Wave 4 of an upwards extended Third Wave.
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Previous trade experiments:

This one got stopped out when the GBP/USD dropped like a stone 100 pips for no apparent reason. We expected the fifth wave down to be small, but it was huge!:

Wednesday January 3 at 9:15 ET
Trade Experiment #303A Buy GBP/USD at 1.9577
Stop is 1.9553
Target is 1.9705
Risk is 29 pips
Reward is 124 pips
Reward / Risk Ratio is 4.3
Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.

This is an attempt to trade an upwards Wave B of a downwards Wave 4 of an upwards extended Third Wave.

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Adjust target for Trade Experiment #303 Buy GBP/USD to 1.9617
Wednesday January 3 at 8:00 ET

After more analysis we believe that GBP/USD will descend to a new low at about 1.9580. Therefore adjust exit target to 1.9617 to claim 19 pips of profit and re-enter at the bottom of the next downwards small five wave pattern.

p.s. - GBP/USD went to an interim high of 1.9632 , thus hitting our adjusted exit target
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Previous trade experiments:

Wednesday January 3 at 6:45 ET
Trade Experiment #303 Buy GBP/USD at 1.9594
Enter Buy GBP/USD at 1.9594
Stop is 1.9569
Target is 1.9705
Risk is 29 pips
Reward is 107 pips
Reward / Risk Ratio is 3.7

Confidence level: good
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.

This is an attempt to trade an upwards Wave B of a downwards Wave 4 of an upwards extended Third Wave.

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Original, highly researched, highly successful trade plan:

Tuesday January 2, 2006 at 9:15 ET

Trade Experiment #302 Sell GBP/USD at 1.9749
Stop is 1.9782
Target is 1.9530
Risk is 37 pips
Reward is 215 pips
Reward / Risk Ratio is 5.8 / 1
Confidence level: fair
Accuracy: fair
Reward / Risk Ratio : good
For research purposes only.
This is an attempt to trade Wave C of Wave 4 down.

p.s. - recent high is 1.9749 (entry price met)
p.p.s. - recent low is 1.9482

I echo that!

Signals are awesome. We need to keep in mind that these are HIGH PROBABILITY Trades. You win some (BIG) you loose some (keep them small)

Right on Itme, thanks

As we say in our intro, this is the most dangerous way to trade. Predicting the precise endpoints of trends is trading madness. But by aspiring to accomplish this, we are gaining knowledge which is being applied to development of a high performance trading system which may not necessarily involve trading in this fashion. If you want to follow my experiments, I strongly suggest you put anything I do here through other analytical filters, and modify the strategies to make them more safe. Enter trades at more advantageus times and prices. Watch out for impending major news releases. Enter when there is some evidence of a trend reversal already, and chose a strategic entry point. Put the stop in a sensible, safe place. Exit at a sensible point, according to a coherent trading strategy. If you do chose to follow these daredevil trades, then be prepared for lots of losses along with some very high return winning trades. Also, I don't suggest actually entering ANY trades with a reward / risk ratio of less than 5:1 and a high level of confidence. Right now, I am quite confused by the wave count. Corrective waves are the hardest to interpret.

Hi!

Like that long call on GBPUSD.

I shorted it today at 1,9723 and closed at 1,9510.

Marc

Hi, please don't take this the wrong way but:
anyone taking "calls" that aren't any (it's a JOURNAL, and experimental, at that) and even more important, that he doesn't know the logic behind should be ready to get burnt.
It's funny that this happens over and again during the course of this thread even though there are gigantic warning signs saying "this is an experiment" every 5 meters...

Please folks, this is for observing, not for trading...be serious about your money.
Also I'm sure itme notices the trades that have their stops hit and need re-examination as well as his profits.

Just advising some caution...

Best regards,

SeekingLight

Itme, just wondering, the Wave 4 you're talking about, I see on a daily chart, would that be a A-B-C-X-A-B-C ? So if this is a BIG A, then BIG B is coming as you said above. At the same time, Wave 4 can get as low as top of Wave 1, which is few hundred pips lower, is could possibly go lower here too. I just need confirmation that I'm on the same page

Itme,

I did combine ur trend analysis with mine, and ur analysis are really2 awesome. Last month when I started to make ur experiment as reference, I could get 400 pips. Today alone I already got total 217 pips from GBU/USD and GBP/JPY.

I already opened GBU/USD as ur latest experiment but higher than ur entry price and already got several pips.

Wonderful experiments, two thumbs up.

My system is so challenging and complex, that sometimes I don't maintain my clarity. As you can see below, the original trade concept for Trade Experiment #302 Sell GBP/USD at 1.9749, which was the result of several days of careful analysis and thoughtful consideration - was perfect. We nailed the entry price to the exact pip, and our conservative target was passed by the amount that we estimated it would - about 30 pips. By exiting prematurely at 1.9620 we still accomplished a trade with a reward : risk ratio of 125 / 37 = 3.4, however, which with a 25% Risk Factor provides a healthy return of 86% of capital (don't trade this way at home unless you know what you're doing - I don't).

The main thing is that we had no logical reason to deviate from our original trading plan. So we should have stuck with the plan, in which case we would have realised a reward : risk ratio of 215 / 37 = 5.8, which produces a return on capital of 145% with a 25% risk factor.

However, in the middle of the trading sesion, while the market was trending, and with a friend with me who doesn't understand much (who I am teaching), I lost my intense focus on the extremely sophisticated (and complex) rationale for the trade specifications, and pulled out of the trade 90 pips early, and even entered a trade rather unwisely against this raging trend, even though a few hours before I had calculated a target for this trend 90 pips lower.

By studying the Elliott Wave patterns, I then realised that I had entered a long trade in the middle of a strong downwards trend (at the bottom of wave 3), so I devised and implemented a winning exit strategy. I should also logically have re-entered the trade at the top of wave 4, and increased the already large reward / risk ratio of the trade. But for some reason I didn't, but instead developed the opinion that the fifth wave would be small. It was huge.

I have found that I cannot trade with people around me who are uncomprehending of what I am doing, because the attention they take and the erroneous or unrelated notions they come up with divert my focus and thinking from the correct methods which three years of intense, full time research have indicated hold potential to pinpoint the prime trading setups (and accurate trade specifications) at least 50% of the time, at the current level of development of this trading system, when the trades are chosen very carefully and the entry, stop and target criteria are calculated very conservatively.
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Original, highly researched, highly successful trade plan:

Tuesday January 2, 2006 at 9:15 ET

Trade Experiment #302 Sell GBP/USD at 1.9749
Stop is 1.9782
Target is 1.9530
Risk is 37 pips
Reward is 215 pips
Reward / Risk Ratio is 5.8 / 1
Confidence level: fair
Accuracy: fair
Reward / Risk Ratio : good
For research purposes only.
This is an attempt to trade Wave C of Wave 4 down.

p.s. - recent high is 1.9749 (entry price met)
p.p.s. - recent low is 1.9482

My best guess at this moment is that the downwards move we just witnessed is the C Wave of a flat A-B-C downwards Wave 2 of a large upwards trend (upwards WAVE 5) that began at 12:00 ET on December 18, 2006.

Many thanks for your "Experimental Trades" which I have been looking at since just before Christmas. I have placed 4 trades based on your recommendations this week as follows :- GBP/JPY entered at 234.50 now at 233.14, still in the trade with built in profits; CHF/JPY ENTERED AT 97.97 now at 97.53. Unfortunately got stopped out on 2 AUD/CAD trades which went the wrong way, but thats the way it goes! I am completely new to trading and find your info of immense interest together with the rest of the forum.

Many thanks
Mandrake

"If you are trading well, there are no losing trades: only trades that make money and trades that give you the information to make money later"
...from an article by B. Steenbarger.

Itme, your thread is inspiring.

Wednesday January 3 at 11:30 ET

Entry review: We just missed hitting our stop on our short GBP/JPY trade (Trade Experiment #301 ) - by about 10 pips. We did a rather obvious Elliott Wave miscount, but it has been very difficult to count waves lately due to all the flat sections in our charts caused by the holidays, which we aren't accustomed to and interfere with our counting.

Exit strategy: The current price is at or near to a likely reversal point and we thus advise exit either at market price of about 233.10, or at 233.00 (which is likely to be hit). The recent low is 232.96

Exit Trade Experiment #301 Sell GBP/JPY at 234.30 at market price, or at 233.00

If there is a strong and clear upwards a-b-c wave now, then we can short it at the top and trade the C wave of the wave 4 down.

p.s. - GBP/JPY just fell to 232.76 as expected in a fifth wave of a fifth wave. It is now due to reverse and do an upwards corrective wave a-b-c.
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Previous trade experiment:

Tuesday January 2, 2006 at 5:45 ET
Trade Experiment #301 Sell GBP/JPY at 234.30
Stop is 234.91
Target is 232.60
Risk is 70 pips
Reward is 161 pips
Reward / Risk Ratio is 2.3 / 1
Confidence level: fair
Accuracy: good
Reward / Risk Ratio : poor

For research purposes only.

As in the last trade experiment, this is an attempt to enter at the top of the third wave and trade the fourth wave down - not a preferred wave configuration. Estimating the target is not reliable for this kind of trade with my current system.

p.s. - current high is 234.57
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Previous comment and prediction:

<table class="tborder" id="post171247" align="center" border="0" cellpadding="6" cellspacing="1" width="100%"><tbody><tr><td class="thead" id="currentPost">12-28-06, 14:22 <!-- / status icon and date -->
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</td> </tr> </tbody></table> <!-- / user info --> </td> </tr> <tr> <td class="alt1"><!-- message, attachments, sig --><!-- icon and title --> Impending large GBP/JPY correction
<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 marc
Hi!
GBPJPY has a very huge, strong; a concrete wall at 234,20.
Marc
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Good point, Marc. I believe that GBP/JPY will initiate a large Fourth Wave downwards correction at about 234.00 that will carry it down as far as 220.00, which is 1400 pips (or 6%) in a flat A-B-C formation, before rising in its Fifth Wave to its ultimate trend high at about 235.00.</td></tr></tbody></table>

I think some misunderstood what I was saying. I wasn't directing anything negative towards ITME, as I respect the hell out of him and what he's doing, but more towards myself and MY system which gave me a similar signal. I like to review what ITME posts but will only trade one of his signals if my system is telling me something similar, which is why I lost 30 pips instead of the 22 I would have with ITME's SL.

Thanks for all of your hard work ITME!

OK, Sundevil, now that that's cleared up, it's still good that we re-iterated our warnings and advise concerning trend reversal trading - the most challenging, exciting, and risky approach to investing. Thanks for getting all those ideas out into the open so all the new readers are brought up to speed and given all the appropriate warnings! It's been an exciting morning, with the GBP/USD plummeting 265 pips in 12 hours, but then every moment is exciting, I find, in the business of learning to tame this turbulent beast of a market!

Hi Itme,
I was just wondering whether you were still thinking that GBP/JPY was going to go down to 220 some time soon?
Originally you had mentioned 234 as a possible starting point for the large downward correction. We are now at 233 and you most recently mentioned an upward correction. Is this upward correction meant to be a small intervening correction before the completion of the large downward movement?
Thank you for the clarification.

On December 28 I stated, "I believe that GBP/JPY will initiate a large Fourth Wave downwards correction at about 234.00 that will carry it down as far as 220.00, which is 1400 pips (or 6%) in a flat A-B-C formation, before rising in its Fifth Wave to its ultimate trend high at about 235.00."

What subsequently transpired is a 1-2-Extended 3 and than 4A in my opinion. I think there will now follow 4B - 4C and wave 5 to a high at about 235.25 - 236.00 (the Top of a large WAVE 3) before the really big WAVE 4 occurs refered to above. GBP/JPY is a unique currency pair. The size and strength of its trends are unsurpassed. We must treat it with extreme caution.

Thank you for the clarification. I have been attempting to apply some basic EW analysis (very basic) to the 2 pairs I know best, cable and poundyen.
Somehow I managed to figure that we were now scheduled for a small (corrective) wave upward before a much larger downward wave. I guess I have to start over and try to see where I went wrong.

I would need to do a very intensive study of GBP/JPY in order to have a high degree of confidence in any particular wave hypothesis. You may be correct in your theory - it could be on its way south now - or after a smallish correction. That would be consistent with FixmeOne2's bearish GBP/USD wave hypothesis.

Though I can't really make good sense of the medium term GBP/USD wave pattern right now, I am still inclined to believe that it isn't through with its uptrend, and is due either sooner or later to rise to a new high. If it does, then in all likelihood GBP/JPY will rise to a new high (wave 5) also.

The beginning point of the count determines the endpoint in many cases. So we need to correctly interpret the prior trend's wave count to ascertain where to begin our count, and thus whether the current trend is complete or not.

I like your choice of currency pairs to study. I think GBP/JPY should only be traded, though, when the pattern is unequivocal. EUR/JPY is generally an easier currency pair to successfully evaluate I believe.

FOMC Meeting Minutes <hr style="color: rgb(209, 209, 225);" size="1"> <!-- / icon and title --><!-- message --> here are the minutes...
http://www.federalreserve.gov/fomc/minutes/20061212.htm

The FOMC minutes offered an unexpected surprise. Predicted to undergo few changes, the body of the minutes actually fielded a bullish bias after the Board projected a rebound in the hammered down housing market while the inflation warnings went untouched.
<table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" width="100%"><thead><tr><td class="alt1" nowrap="nowrap">Wed. 01/03</td> <td class="alt1"> 3:30am </td> <td class="alt1" align="center">CHF</td> <td class="alt1">SVME PMI</td> <td class="alt1" align="center">65.0</td> <td class="alt1" align="center">66.0</td> <td class="alt1" align="center">67.0</td> <td class="alt1" id="collapsecal_eventanalysis_3435" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3435" 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>

The Schweizerischer Verband für Materialwirtschaft und Einkauf (SVME) Purchasing Manager's Index (PMI) measures the activity level of purchasing managers, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 3:55am </td> <td class="alt1" align="center">EUR</td> <td class="alt1">German Unemployment Rate</td> <td class="alt1" align="center">9.8%</td> <td class="alt1" align="center">10.1%</td> <td class="alt1" align="center">10.2%</td> <td class="alt1" id="collapsecal_eventanalysis_3436" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3436" 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="alt1" nowrap="nowrap">
</td> <td class="alt1"> 4:30am </td> <td class="alt1" align="center">GBP</td> <td class="alt1">Construction PMI</td> <td class="alt1" align="center">57.5</td> <td class="alt1" align="center">54.5</td> <td class="alt1" align="center">54.8</td> <td class="alt1" id="collapsecal_eventanalysis_3437" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3437" 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>

The Chartered Institute of Purchasing and Supply (CIPS) Construction Purchasing Manager's Index (PMI) measures the activity level of purchasing managers in the construction sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 8:15am </td> <td class="alt1" align="center">USD</td> <td class="alt1">ADP Nonfarm Employment Change</td> <td class="alt1" align="center">-40K</td> <td class="alt1" align="center">
</td> <td class="alt1" align="center">158K</td> <td class="alt1" id="collapsecal_eventanalysis_3415" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3415" 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 correlation between the ADP and national payroll data has been fairly weak over the past few months.

</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. ADP, a leading provider of employment solutions for businesses, releases this indicator two days before the highly anticipated official Nonfarm Employment Change. ADP claims that this indicator has predictive value in regard to official statistics, but it hasn't yet gained acclaim from traders due to it's short history.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 10:00am </td> <td class="alt1" align="center">USD</td> <td class="alt1">ISM Manufacturing Index</td> <td class="alt1" align="center">51.4</td> <td class="alt1" align="center">51.0</td> <td class="alt1" align="center">49.5</td> <td class="alt1" id="collapsecal_eventanalysis_3413" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3413" 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 underlying components will also need to be watched closely

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

The Institute of Supply Management (ISM) Manufacturing Index measures the activity level of purchasing managers in the manufacturing sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation's currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 10:00am </td> <td class="alt1" align="center">USD</td> <td class="alt1">ISM Manufacturing Prices</td> <td class="alt1" align="center">47.5</td> <td class="alt1" align="center">54.0</td> <td class="alt1" align="center">53.5</td> <td class="alt1" id="collapsecal_eventanalysis_3414" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3414" 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>

The Institute of Supply Management (ISM) Manufacturing Prices measures the monthly inflation experienced by manufacturing organizations when purchasing materials and services. The ISM surveys 400 firms to produce this index.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 10:00am </td> <td class="alt1" align="center">USD</td> <td class="alt1">Construction Spending m/m</td> <td class="alt1" align="center">-0.2%</td> <td class="alt1" align="center">-0.6%</td> <td class="alt1" align="center">-1.0%</td> <td class="alt1" id="collapsecal_eventanalysis_3416" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3416" 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 monthly change in value of new construction projects.

</fieldset>

</td> </tr> </tbody><thead> <tr> <td class="alt1" nowrap="nowrap">
</td> <td class="alt1"> 2:00pm </td> <td class="alt1" align="center">USD</td> <td class="alt1">FOMC Meeting Minutes</td> <td class="alt1" align="center">
</td> <td class="alt1" align="center">
</td> <td class="alt1" align="center">
</td> <td class="alt1" id="collapsecal_eventanalysis_3417" style="" align="center"> [read] </td> </tr> </thead> <tbody id="collapseobj_eventanalysis_3417" 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 net risks are slightly dollar positive.

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

The Federal Open Market Committee (FOMC) Meeting Minutes are a verbatim record of the committee's meeting held about two weeks earlier. The minutes give traders insight into the latest interest rate decision and policy shifts.

</fieldset>

</td> </tr> </tbody><thead> </thead></table><table class="tborder" style="margin-top: 12px;" align="center" border="0" cellpadding="3" cellspacing="0" width="100%"><thead><tr><td class="alt1" align="center"></td></tr></thead></table>

Thanks,Ishak

I have found from experience that not only am I learning from both my mistakes (failures) and successes, and my evolving trading system's successes and failures, but when I lose a trade that has had a chance of winning, then I have done the homework (analysis), and the market configuration has generally evolved in such a fashion that a better trade than the original one soon becomes available - a trade with a smaller stop and larger reward, and also more accurate, reliable entry value, from which the return on capital is large enough to provide my minimum return (5:1 RRR) plus compensate for the losses in capital from the previous losing trade.

That is so sweet!