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Pascal's Triangle as MM

  • #21
  • Jan 18, 2008 10:06pm Jan 18, 2008 10:06pm
Quoting twoblink
You will note that while prices only rose +41 pips, we were able to extract 118 pips from it, with minimal risk, with the risk being highest at the beginning (-176 pips) and never greater than that. Averaging up and pyramiding in will allow you mass pip extractions from a small movement with no increased risk.

This is "Anti-martingaling" in a sense.

Hope this answers a massive amount of questions and relieves my PM box.
Thank you Twoblink. all i can do is quote Notorious B.I.G "I had to find the buried treasure, so grams I had to measure" , i hope u know what i mean lol.
Egyptian and proud of it!
  • #22
  • Jan 21, 2008 6:48pm Jan 21, 2008 6:48pm
twoblink.....
You have made my day. Thank You.
Same Whore .... Different Dress
  • #23
  • Jan 21, 2008 7:16pm Jan 21, 2008 7:16pm
I find people on FF to be fickle though, fickle or stupid or both, I'm not sure.

Quite a few of you seem to enjoy this thread, judging from the PM's I get; but had I had a book called "how to use Pascal's Triangle to improve your trading" I'm sure 99% of you would have wanted a refund after reading the book.

If you take a look around, I think I am the pioneer of using a Pascal's Triangle for trading, same with Trendfans. I don't think there is a trader out there that uses both in their trading except me, or at least I can't find one that does.

I find that my stuff grows out of discovery and necessity, but when it's all said and done, most still gravitate to stuff that doesn't work, like MA crossovers. I also don't think people want to put in the hours to think for themselves; which is a sad state of affairs.

Quote
Do you think it is possible to model hockey sticks around pivots? I wonder if any research has been done into fibo-levels around pivot points for reversals... that is... at what level does a price over or undershoot a pivot level before reversing.... just idle curiosity.

Is there a topic I haven't done research on?? Perhaps I have more hours in a day than most of you?

Pivots are curious things, basically, they use some of the theories that Disneyland and other large companies do for quick estimation and prediction.

Disneyland takes a quick count maybe 5 times a day at different times to see how long the line-queue is at both the ticket counter and the entry. This gives them a better estimate of how many people come at what time on what days, without looking at computer generated results.

The Opens and Closes act as such. If the queue is 6 people deep, an experienced manager will know how many to expect today and hire the 2nd shift accordingly, or let a few people go home early if the numbers warrant it.

Same with pivots. They establish kind of where things will be.

That said, I'm not a fan of pivots. People say they "work" because it's a self-fulfilling prophecy like fibs. I for one am always on the lookout for black swans and I also think that pivots work less well in FX than in stocks. The reason being, in stocks trading, you have a clear "beginning time" and an "end time" and you also have a great definition of when "the day begins", not so with FX. When does your day begin in FX? When your broker opens? When NY opens? When London opens?

I am also known for not believing in Opens and Closes, after ridiculous number of hours spent on researching OCC, that was my conclusion.

I also have a book called "Trends and Trendlines" but quite a few buyers have said they find the information concerning trends and trendlines to be utterly useless; which is amazing to me, as that's the basis of trend trading; but they will buy a system that sells them MA crossovers.

If you are going to use fibs, then the pascal's triangle is the way to go, as the fibs themselves are inset into series of numbers, and not just percentages.

As far as pivots, you can use both in conjunction with each other.

Just remember though, pivots are "prediction points" and I find that to be contradictory. If we can predict, why even bother to trade? And if we can't predict, then why are we using prediction tools?
google:
  • #24
  • Jan 21, 2008 7:19pm Jan 21, 2008 7:19pm
Am I the only one that realizes the R:R is below 1:1 with this method?

Please correct me if I am mistaken.
  • #25
  • Jan 21, 2008 7:58pm Jan 21, 2008 7:58pm
OK OK, doom and gloom aside, I'll teach you another pascal's triangle method.

This is based on "sibling numbers" and predictive TP.

I'm feeling generous today, so I've photoshopped the section out for you all.

This is for people who think they can predict the future of price movement.

Take a look at the pascal's triangle and pick a number in the middle of it, and read either to its left or to its right.

I pick 56.

56,35,20,10,4,1
To its left are:
70,35,15,5,1

The goal here differs from previously. It goes something like this:

"I PREDICT that the market will go 56 pips upwards."

(Note: I personally don't believe in predictive analysis, but quite a few of you seem to, so I'll go ahead and teach it anyways.)

So we start in reverse with a baseline of -56pips SL we are trying to make up.

So follow me here, as this is thinking in reverse:

I buy 7.0 lots and set and SL at -56 pips.

56,35,20,10,4,1 <-- This is my series for SL's.
70,35,15,5,1 <-- This is my series for lot sizes.

Now the price is hopscotched to start:

We started off with -56 pips as our SL.

When the price gets to -20 pips left to go, I purchase another 3.5 lots, and move the SL to 0.

When the price is at -10 pips to go, I move the stop to the last purchase price and purchase another 1.5 lots.

When the price is -4 to go, I move the SL to the last purchase price and purchase another 0.5 lots.

Let's say yen is at 100.00 (makes life easier).

I think the markets going up so I predict long.
(Note:The @@ means all positions moved to the same location regardless of entry point.)

Buy 7.0 @ 100.00, SL @ 99.44
Buy 3.5 @ 100.36, SL @@ 100.00
Buy 1.5 @ 100.46, SL @@ 100.36
Buy 0.5 @ 100.52, SL @@ 100.46
TP @@ 100.56

Because you move the SL's to the previous purchase point, you are only exposing current new trade to the market, as old trades are profitable or breakeven (except for Bid ask spread).

All systems used, SHOULD be this way, if you aren't reducing your risk as you pyramid, you are screwing up somewhere...

The reason I like the sibling method, is because it is easy to view the pairings...

The other reason I prefer pascal's triangle to fibs is because fibs work with percentages, which aren't quite concrete to me. Pascal's triangles work with lots and pips, and there for, system can be created independent of what pairs you are trading, and/or where your starting point is.

This method is also something I prefer to pivots.

Again, I don't do predictive methods, but some of you seem so giddy about it, I thought I'd dig up my old research and post it.
Attached Image
google:
  • #26
  • Jan 21, 2008 8:03pm Jan 21, 2008 8:03pm
Interesting, to say the least. Thanks.
  • #27
  • Jan 21, 2008 8:12pm Jan 21, 2008 8:12pm
Quoting tdion
Am I the only one that realizes the R:R is below 1:1 with this method?

Please correct me if I am mistaken.
You are not mistaken.. but you are also mistaken.

The initial risk is greater than the potential reward. As the trade progresses, this changes.

That said, consider if you wanted to gain +118 pips from 4.1 lots and you entered that from the getgo.

To do so, you'd have to make +28 raw pips per lot. So let's say I bought 4.1 lots, how deep would my SL be?? If this is straight up, you'd have a -43 pip deep SL, so only -40 pip SL if you count a 3 for bid/ask. Pyramiding then, allows for a deeper SL (in our case, -56 pips) and a progressive lock of profits as we move up.

The fair comparison however, is the use of -56 pips deep SL in comparison. 4.1 lots @ -56 = -229.6pip in exposed risk if we wanted the same SL depth.


As for the comment of R:R < 1, not really.
The Risk/Reward might be less than 1,

but expectancy is:

(How often I win * how much I win when I win) - (How often I lose * How much I lose when I lose)

So just simply staring at R:R won't do it for you. It's the expectancy of the system that you need to look at.. And here, we've actually not addressed any system, simply MM and risk assessment.

Hope that helps.
google:
  • #28
  • Edited 8:28pm Jan 21, 2008 8:26pm | Edited 8:28pm
Quoting tdion
Am I the only one that realizes the R:R is below 1:1 with this method?

Please correct me if I am mistaken.
I think that either... You only will have the edge IF the things go right in your direction 3 TIMES so you can profit, and this profit will be less than loss.

I'am illetrate in math, and still think that scale down is a nice thing, at least for me (because of my trading style).

Think this way:

Market is ranging much more than 50% (i can't tell exactely) so price go up and down several times a day.

Let's suppose we buy at 4H sup. and fib confluence with 60pips SL and 60 TP, in my method it will be like this:

1st trade = 20% total lot size with 60 SL
2nd trade 15 pips less than entry = 30% total lot size with 45 SL (45 SL = 75% of initial SL)
3rd trade 30 pips less than entry = 50% total lot size with 30 SL ( 30 SL = 50%)

Suppose that total lot size is 0.833, witch is 5% risk of $1,000 with 60 pips SL, this mens you would lose $50 if the trade goes against you.

1st trade = 0.17 lots = 60 stop = 10.20
2nd trade = 0.25 lots = 45 stop = 11.25
3rd trade = 0.42 lots = 30 stop = 12.60

TOTAL LOSS = $34.05 = 3.405% of $1,000

Accepting that price range, we see it easily going up and down 20 pips every time so if you open your 3rd trade and the price goes in your direction just 11 pips you're on profit (without counting spreads). And this is much more easy because we often miss the timming but get right in the direction..
If your position close in profit you'll have earned $58.95, risking $34.05

Well i don't know, sorry if i said something stupid just want to understand this math.

Bruno

Edit: I took to long to wrote this post so i couldn't see the replys witch i'll do now
No Brain, no Gain.
  • #29
  • Jan 21, 2008 8:47pm Jan 21, 2008 8:47pm
[quote=twoblink;1813380]

dear twoblink,

I read your method of using Pascal's Triangle as MM for trading a few days ago, and I've been ever since trying to incorporate it into my trading. however I've found it not easy to do so, as there are so many different combinations and one must know a pair from the inside out in order to choose a suitable hockey from the triangle. I've been experimenting for the past few days, and I believe that many others are doing the same. you are one of the most inspiring members of this forum who has been consistently offering valuable advice to the public for free. I always take your findings and revelations seriously.

I've been day trading GBPJPY and so far I haven't found satisfactory ways to pyramid. Phantom also said that for daytraders it's best to put on a full position at the beginning. however for GBPJPY there has been at least one 100+ pips move almost every day. that gives enough room to pyramid in my opinion.

however I haven't found a suitable hockey from Pascal's Triangle for GJ. instead the original Fibs seem to do the job. I use 89,55,34,21 for SL, and 55,34,21 for Position Sizing. initial lot size is 55, SL is 89. if GJ moves 55 points from entry, move SL to BreakEven and add 34 lots with SL 55, and so on. max lot size is 110, where if everything goes according to plan, I could have locked in 6600+ pips, that is 60 pips per lot out of a 110 pips move. not very impressive, but the current SL is still 21 points away, which could still be enough to take advantage of further price action.

of course this still depends on being right about trend direction. that's why I'm considering buying your book "Trends and Trendlines". I'm currently using MACD to determine trend direction. it's actually quite good at doing this, that is, after a number of wrong turns you finally get on the right track. if only I could find a way to fix this, then I would have my Holygrail. :-)

best regards
  • #30
  • Jan 21, 2008 8:49pm Jan 21, 2008 8:49pm
With all due respect to BGazzoni,

If you don't know the math behind why averaging down is a bad idea, then you shouldn't be preaching it.

What you advocate would have people buying Enron on the way down, and selling Google on the way up.

Averaging down creates a lose/breakeven situation as scenerios, while averaging up creates a breakeven/double up situation.

All I can say is, if you don't understand the math behind MM, you should learn it before you trade real money. Tuition is expensive in here Forex..

Might I refer you to my old journal
http://www.forexfactory.com/showthread.php?t=6222

And more specifically the portion I talk about why its asinine to average down.

http://www.forexfactory.com/showpost...3&postcount=17

I'm going to give you the uber simple version of it..

If the market is going up, why would you sell it? If the market is going up, it has a better chance of going up some more, vs going down.

If the market is going down, why would you buy it? It has a better chance of going down some more vs going up.

Whenever you average down, you are GUARANTEED to have overpaid compared to the market; how is overpaying for something a way to make money??

Why do I even bother?? Ok everybody, go average down and lose your shirts.. It seems like I retype this every few days to deaf ears and blind eyes...

Quote
I'am illetrate in math, and still think that scale down is a nice thing, at least for me (because of my trading style).

That quote is the SADDEST THING I HAVE READ IN 2008 BY FAR.
google:
  • #31
  • Jan 21, 2008 8:58pm Jan 21, 2008 8:58pm
The problem I've always wrestled with (when pyramiding) is that although the stop tightens, the likelyhood of getting "bumped" out of trades during small corrections escalates.

That is, trading "straight up" with no pyramid, your stop is always far away during retracements.... however, during a pyramid, you are far more likely to end your trade early.

It is really just a push. This method will get stopped out more frequently than not using it. And, in a nutshell, you will be better off in some markets pyramiding, but in other markets not.
  • #32
  • Jan 21, 2008 9:11pm Jan 21, 2008 9:11pm
Quoting tdion
The problem I've always wrestled with (when pyramiding) is that although the stop tightens, the likelyhood of getting "bumped" out of trades during small corrections escalates.

That is, trading "straight up" with no pyramid, your stop is always far away during retracements.... however, during a pyramid, you are far more likely to end your trade early.

It is really just a push. This method will get stopped out more frequently than not using it. And, in a nutshell, you will be better off in some markets pyramiding, but in other markets not.
Yes, I agree, but you are viewing it from a purely "original" position viewpoint.

When you pyramid, your original position is not the original position anymore. You start at a new watermark.

If you entered at say, pyramid point 2, shouldn't THAT position prove itself?

Let me give you the math behind the problem:


I will call my entry point 0.

If I have a TP of +50 and a SL of -50, in theory, R:R is 1. But it's not. In order for R:R to be 1, assuming B/A of 3, it would have to be:

TP = +53, SL = -50. Because we have a B/A and thus an negative expectancy, we no longer can have same pip depth on both sides. The larger the position, the smaller the influence of the B/A.

Once we have a +53/-50 situation however, assuming there's and equal chance of going up as going down, we now have an expectancy disadvantage of -6%, which is HIGHER than playing Red/Black on a Roulette table in a Casino (Roulette is a -5.26% disadvantage).

Some people will do something like -40 SL and + 20 TP, I see this all the time.. It's quicker to spend your money on hookers and booz, you get better ROI. When you do something like this, you need a 2:1 winrate (67%) just to breakeven, and I'm not even including B/A which will probably kick that number to like 75%.

So playing pure red/black in a casino will be easier and a slower bleed on your cash.

Pyramiding is not easy, if it was, everybody would be doing it. The back and forth as you force it to move in one direction only, will stop you out quite often.. That's where you come in with a system that will give you slightly better odds in a direction. That's also why "market smoothness" is a major concern for me.

I use things like trendfans to see market smoothness.
google:
  • #33
  • Edited 9:15pm Jan 21, 2008 9:12pm | Edited 9:15pm
Quoting twoblink
I'm going to give you the uber simple version of it..

If the market is going up, why would you sell it? If the market is going up, it has a better chance of going up some more, vs going down.

If the market is going down, why would you buy it? It has a better chance of going down some more vs going up.
What you said it's true, and we all know that. What i said is that MY trading style allows me to do that, as your trading style is personal to you, i'm not saying to anyone do this, you have to know how you trade and stick with MM that works for you. I scale up my positions either but i don't profit from scale up too much. What i'm saying is that there is no right or wrong, since it brings you consistent money.

I think you were very hard on your posts, but thats ok.

edit:
Quoting tdion
The problem I've always wrestled with (when pyramiding) is that although the stop tightens, the likelyhood of getting "bumped" out of trades during small corrections escalates.

That is, trading "straight up" with no pyramid, your stop is always far away during retracements.... however, during a pyramid, you are far more likely to end your trade early.

It is really just a push. This method will get stopped out more frequently than not using it. And, in a nutshell, you will be better off in some markets pyramiding, but in other markets not.
Exactly
No Brain, no Gain.
  • #34
  • Jan 21, 2008 9:18pm Jan 21, 2008 9:18pm
I'm harsh because reality is harsh.. If you want gummy bears and care bears, you need to stick to buying T-bills. This is FX, life in FX is harsh.

You must know something we don't know, because your trading style allows for you to violate the sanity of math.

Quote
What you said it's true, and we all know that.

NO.. We all don't know that, if we all did, none of us would be violating the concept by averaging down.

All I can say is.. Good luck with your trading man, hope you don't lose money. Maybe you have found something that violates the basics of math; hope you are right. Just be careful!! Wish you the best of luck...
google:
  • #35
  • Jan 21, 2008 9:21pm Jan 21, 2008 9:21pm
Thanks, same to you
No Brain, no Gain.
  • #36
  • Jan 21, 2008 10:02pm Jan 21, 2008 10:02pm
Quoting badthriller
interesting insight on pascals triangle. i have used a money management strategy called 'the code' by jordan knight, he calls it a strategy for strategy and I couldn't agree more because it changed all my losing strategies (the ones that i paid dearly) into winning ones. unlike pascals, he uses the mathematics of probabilities that i never saw anywhere else. my USD100 in Oanda never went below 95 even with numerous loses, where else without the code, i could have easily blown off my account (many experiences with that!). Try it yourself http://thecode.thefxcode.com/
What a great SPAM link ... the spam code......
A good rule of thumb on these ad site is the further you have to scroll down a page the deeper the bullshit......
Same Whore .... Different Dress
  • #37
  • Jan 21, 2008 10:08pm Jan 21, 2008 10:08pm
Quoting badthriller
interesting insight on pascals triangle. i have used a money management strategy called 'the code' by jordan knight, he calls it a strategy for strategy and I couldn't agree more because it changed all my losing strategies (the ones that i paid dearly) into winning ones. unlike pascals, he uses the mathematics of probabilities that i never saw anywhere else. my USD100 in Oanda never went below 95 even with numerous loses, where else without the code, i could have easily blown off my account (many experiences with that!). Try it yourself http://thecode.thefxcode.com/
Quote
This CODE, used for at least 1 month is GUARANTEED to make you profits and NEVER blow up your account ever again!
I am weary of "guaranteed profits".. but interesting..

I put out a book called "Trends and Trendlines" and I GUARANTEE you will learn to draw a trendline. That's it. I think you have to stop and ask yourself, if a system GUARANTEES PROFIT, why in the world would they sell it for $50?

It just doesn't make sense.. and I hope to great God that it doesn't teach averaging down in there..

http://thecode.thefxcode.com/chance.JPG
From that website; I see the pulldowns to be ridiculously drastic.. So I'm not sure where the promise of not blowing your account comes in.. To each their own.
google:
  • #38
  • Jan 21, 2008 10:44pm Jan 21, 2008 10:44pm
It was 299, but because they are SUCH GREAT GUYS they are givin us a deal....LOL
Same Whore .... Different Dress
  • #39
  • Jan 21, 2008 11:47pm Jan 21, 2008 11:47pm
BTW, the graph is of classic "average down", what it doesn't show however, is when a bankroll limit is hit.. then the curve becomes more of a cliff..
google:
  • #40
  • Jan 22, 2008 1:23am Jan 22, 2008 1:23am
Quoting twoblink
BTW, the graph is of classic "average down", what it doesn't show however, is when a bankroll limit is hit.. then the curve becomes more of a cliff..
Notice how that drop down on the graph becomes sharper and sharper as the "trade number" moves further on down the progression. That next drawdown looks like it's going to put someone in the loony bin. This is also plotted based on f(x), so what's to say that it's not about to hit a top and spur downwards faster and harder?

If on trade 8 you've hit draw down so massive that you're just barely still in profit, time to rethink your game plan.
Never underestimate the powers of the Force.
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