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Low Risk, High Reward Trading Experiment

  • #2,661
  • Jan 17, 2007 11:44pm Jan 17, 2007 11:44pm
Quoting aicccia
I'm really confused...the price never got up to 1.9760. The highest it got was to around 1.9740....?
I believe the idea is to enter the trade (if you choose to) IF it gets up to 1.9760.
  • #2,662
  • Jan 18, 2007 12:10am Jan 18, 2007 12:10am
Quoting aicccia
I'm really confused...the price never got up to 1.9760. The highest it got was to around 1.9740....?
We believe that there is a significant chance (at least 50%) that the price will rise to 1.9760, but not higher than 1.9821, before it descends all the way to 1.9550. The reward / risk ratio of this configuration of numbers is 3.2 to 1.

We aspire to better trades than this. For live trades, we much prefer trades with a reward / risk ratio of 5.0 to 1 or better. But I am recording it in order to test my system, and to hone my skill. A conservative trader, if they agree with this general assessment, might revise the entry price to 1.9780 or 1.9800 to increase the reward / risk ratio. They might keep the same stop, or raise the stop accordingly. If they raise the stop, so that it is the same risk as before, and keep the target at the same price, then the RRR will increase because the reward will increase, but the risk will stay the same. There are many strategies that someone could follow. They could stage their entry into the position, like Thomas DeMark does. There is nothing stopping GBP/USD from rising indefinitely, except that at some point the shorting sentiments will outweigh the longing sentiments, and a reversal will happen. Everything we are doing concerns probabilities, based on previous behavior of the market.
  • #2,663
  • Edited 8:59am Jan 18, 2007 12:41am | Edited 8:59am
Wednesday January 17 at 1:45 ET

Trade Experiment #320 Sell CHF/JPY at 97.20

Stop is 97.51

Target is 95.00

Risk is 40 pips

Reward is 211 pips

Reward / Risk Ratio is 5.3

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

For research purposes only.

This is an attempt to trade the C Wave down of the Fourth Wave down of the Fifth large wave upwards of a very large upwards trend which began October 24, 2000. The current price of CHF/JPY is 97.20.

p.s. - recent high for CHF/JPY is 97.41, 21 pips above our entry price, and just 10 pips off our stop. The system generated high probability reversal point is actually 97.40, so I didn't do proper analysis prior to this entry. Stop should have been set or adjusted to 97.61.
  • #2,664
  • Edited 1:42am Jan 18, 2007 1:29am | Edited 1:42am
Thursday January 18 at 2:30 ET

 Re-Enter Trade Experiment #318A Sell GBP/JPY at 239.34

Stop is 240.11

Target #1 is 237.30

Risk is 86 pips

Reward is 195 min pips

Reward / Risk Ratio is min. 2.3

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

For research purposes only.

Note: I calculated the above entry price in a hurry. The correct entry price in this price zone is actually 239.55, not 239.34, with the stop above 240.00. If I had done the entry at the correct price, the RRR would be much better.
__________________________________________________
___________________________________________________

Previous trade experiment:

Wednesday January 17 at 23:00 ET
Trade Experiment #318 Sell GBP/JPY at 238.40
Stop is 239.15
 Target #1 is 237.30
Risk is 84 pips
Reward is min 101 pips
Reward / Risk Ratio is min. 1.2
Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair

For research purposes only.
  • #2,665
  • Jan 18, 2007 1:58am Jan 18, 2007 1:58am
Thursday January 18 at 2:30 ET

Trade Experiment #321 Sell USD/JPY at 121.30

Stop is 121.66

Target #1 is 119.50

Risk is 40 pips

Reward is 176 pips

Reward / Risk Ratio is 4.4

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

For research purposes only.

Note: We are attempting to identify the top of this 700 pip upwards trend. The wave pattern is nebulous, but a strong bounce at this entry price is likely. So the best strategy is to lower the stop to close to break even when the price moves 20 pips below the entry price.
  • #2,666
  • Edited 4:08am Jan 18, 2007 2:11am | Edited 4:08am
Thursday January 18 at 3:30 ET

Note: GBP/USD just rose to 1.9777, 17 pips past our entry price. It may have reached its top, based on the wave pattern and the rapid fall to 1.9714.

EUR/GBP has descended to .6554 and is also showing signs of nearing its bottom.

USD/JPY came to a recent high of 121.43. Both GBP/USD and USD/JPY were near recent highs at the same time. This put GBP/JPY at an eight year high of 240.01. (The last high on August 17, 1998 was 240.40.)
____________________________________________
____________________________________________

Previous trade experiment:

Wednesday January 17 at 22:00 ET
Trade Experiment #317 Sell GBP/USD at 1.9760
Stop is 1.9821
 Target is 1.9550
Risk is 65 pips
Reward is 206 pips
Reward / Risk Ratio is 3.2
Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair
For research purposes only.

This is an attempt to trade the Wave A down of a large Fourth Wave down of a large upwards trend.The current price of GBP/USD is 157.30.
  • #2,667
  • Edited 4:37am Jan 18, 2007 2:40am | Edited 4:37am
Thursday January 18 at 3:30 ET

Trade Experiment #322 Sell GBP/CHF at 2.4650

Stop is 2.4751

Target #1 is 2.4000

Risk is 116 pips

Reward is 635 pips

Reward / Risk Ratio is 5.6

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

For research purposes only.

p.s. - The recent high on GBP/CHF is 2.4687. The wave pattern is very steep and narrow, so it is difficult to assess the completion of the wave pattern. It could rise to 2.4725 if GBP/USD springs back up while USD/CHF stays up near its recent high. USD/CHF is at a recent high of 1.2519, after having jumped up 89 pips in 6 hours.
  • #2,668
  • Jan 18, 2007 2:48am Jan 18, 2007 2:48am
Hi itme,

Have you visited this thread: http://www.forexfactory.com/showthread.php?t=11939?

It is interesting, maybe you would like to take a look.

iiivb
  • #2,669
  • Jan 18, 2007 3:53am Jan 18, 2007 3:53am
Quoting iiivb
Hi itme,
Have you visited this thread: http://www.forexfactory.com/showthread.php?t=11939?
It is interesting, maybe you would like to take a look.

iiivb
thanks!
  • #2,670
  • Edited 5:11am Jan 18, 2007 3:56am | Edited 5:11am
Thursday January 18 at 4:45 ET

Exit Trade Experiment #321 Sell USD/JPY at market price of 121.25 for break even trade and re-enter at top of next wave.

BoJ Interest Rate Announcement (JAN) (1:30EST)
Actual: 0.25%
Expected: 0.50%
Previous: 0.25%

How Did the Markets React?

The Bank of Japan left rates unchanged today, bowing to political pressure and the growing evidence that the Japanese economy is not expanding as fast as forecast. By leaving rates at 25 basis points – the lowest interest rate amongst major economies, the BOJ acknowledged that the country’s consumer sector has not recovered as fast as projected. The news produced a major impact across all markets with equities and bonds rallying while yen sank to 22 month lows.

__________________________________________________
__________________________________________________
Previous trade experiment:

Thursday January 18 at 2:30 ET

Trade Experiment #321 Sell USD/JPY at 121.30
Stop is 121.66
Target #1 is 119.50
Risk is 40 pips
Reward is 176 pips
Reward / Risk Ratio is 4.4
Confidence level: fair
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.

Note: We are attempting to identify the top of this 700 pip upwards trend. The wave pattern is nebulous, but a strong bounce at this entry price is likely. So the best strategy is to lower the stop to close to break even when the price moves 20 pips below the entry price.
  • #2,671
  • Edited Jan 19, 2007 12:30am Jan 18, 2007 4:25am | Edited Jan 19, 2007 12:30am
Thursday January 18 at 4:15 ET

Note: GBP/USD just rose to 1.9777, 17 pips past our entry price. It may have reached its top, based on the wave pattern and the rapid fall to 1.9704. However, there is a distinct possibility that it reached only the top of the third wave of the last (fifth) upwards wave, and that we caught the Wave A - B-C of a zigzag wave 4 down. In this second case we are due for another wave up - wave 5 - to either a new high, or a double top (failed or truncated fifth wave). We will enter another short position at the top of the next upwards wave, wherever that is.

 Adjust target for Trade Experiment #317 Sell GBP/USD to 1.9700. That is, exit as close to 1.9700 as possible. We are best to exit here close to 1.9700, take about 56 pips of profit, and assess the future of this trend, as GBP/USD may yet rise to one more new high.

p.s. - we mistook the first 1-2-3 of a 1-2-3-4-5 Wave C down for the entire A-B-C Wave 4 correction, and thus exited 64 pips before the bottom of the wave at 1.9636. A large upwards Wave B followed, and so we have later on entered a short trade experiment at the top of Wave B in order to trade Wave C down.
 ____________________________________________
____________________________________________

Previous trade experiment:

Wednesday January 17 at 22:00 ET
Trade Experiment #317 Sell GBP/USD at 1.9760
Stop is 1.9821
 Target is 1.9550
Risk is 65 pips
Reward is 206 pips
Reward / Risk Ratio is 3.2
Confidence level: good
Accuracy: fair
Reward / Risk Ratio : fair
For research purposes only.

This is an attempt to trade the Wave A down of a large Fourth Wave down of a large upwards trend.The current price of GBP/USD is 157.30.
  • #2,672
  • Jan 18, 2007 4:44am Jan 18, 2007 4:44am
Thursday January 18 at 5:30 ET

Trade Experiment #323 Buy EUR/USD 1.2935

Stop is 1.2925

Target #1 is 1.2985

Risk is 13 pips

Reward is 47 pips

Reward / Risk Ratio is 3.6

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

For research purposes only.
  • #2,673
  • Jan 18, 2007 5:16am Jan 18, 2007 5:16am
Thursday January 18 at 6:00 ET

Exit Trade Experiment #323 Buy EUR/USD at 1.2946 (collect 8 pips profit) and re-enter long trade at 1.2923

The wave pattern, etc. suggests that there will be one more small wave down, possibly to a new low.
 ___________________________________________________
___________________________________________________

Previous trade experiment:

Thursday January 18 at 5:30 ET
Trade Experiment #323 Buy EUR/USD 1.2935
Stop is 1.2925
Target #1 is 1.2985
Risk is 13 pips
Reward is 47 pips
Reward / Risk Ratio is 3.6
Confidence level: good
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.
  • #2,674
  • Jan 18, 2007 8:33am Jan 18, 2007 8:33am
Thursday January 18 at 9:30 ET

EUR/USD descended unexpectedly to 1.2897, then bounced up 63 pips to 1.2960. If anyone is long on this currency, then we recommend exiting at 1.2952 to 1.2960 and wait and see to choose a good entry price, as it is not clear to me which way this pair is going next.

Exit long EUR/USD positions at 1.2952 - 1.2960

_____________________________________________
______________________________________________

Previous trade experiment:

Thursday January 18 at 6:00 ET

Exit Trade Experiment #323 Buy EUR/USD at 1.2946 (collect 8 pips profit) and re-enter long trade at 1.2923

The wave pattern, etc. suggests that there will be one more small wave down, possibly to a new low.
 __________________________________________________ _
__________________________________________________ _

Thursday January 18 at 5:30 ET
Trade Experiment #323 Buy EUR/USD 1.2935
Stop is 1.2925
Target #1 is 1.2985
Risk is 13 pips
Reward is 47 pips
Reward / Risk Ratio is 3.6
Confidence level: good
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.
  • #2,675
  • Jan 18, 2007 8:45am Jan 18, 2007 8:45am
Thursday January 18 at 8:45 ET

Re-entry Trade Experiment #321A Sell USD/JPY at 121.56

The next 5 wave pattern up ended at 121.57. Our targeting system predicted the reversal at 121.56. We weren't watching the market at the time, but our system would have indicated a re-entry short at 121.56, one small wave up as expected. ("Exit Trade Experiment #321 Sell USD/JPY at market price of 121.25 for break even trade and re-enter at top of next wave.")

Stop is 122.06
Target #1 is 119.50
Risk is 53 pips
Reward is 203 pips
Reward / Risk Ratio is 3.8
Confidence level: fair
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.

__________________________________________________
__________________________________________________

Previous trade experiment:

Thursday January 18 at 4:45 ET

Exit Trade Experiment #321 Sell USD/JPY at market price of 121.25 for break even trade and re-enter at top of next wave.

BoJ Interest Rate Announcement (JAN) (1:30EST)
Actual: 0.25%
Expected: 0.50%
Previous: 0.25%

How Did the Markets React?

The Bank of Japan left rates unchanged today, bowing to political pressure and the growing evidence that the Japanese economy is not expanding as fast as forecast. By leaving rates at 25 basis points – the lowest interest rate amongst major economies, the BOJ acknowledged that the country’s consumer sector has not recovered as fast as projected. The news produced a major impact across all markets with equities and bonds rallying while yen sank to 22 month lows.

__________________________________________________
__________________________________________________
Previous trade experiment:

Thursday January 18 at 2:30 ET

Trade Experiment #321 Sell USD/JPY at 121.30
Stop is 121.66
Target #1 is 119.50
Risk is 40 pips
Reward is 176 pips
Reward / Risk Ratio is 4.4
Confidence level: fair
Accuracy: good
Reward / Risk Ratio : fair

For research purposes only.

Note: We are attempting to identify the top of this 700 pip upwards trend. The wave pattern is nebulous, but a strong bounce at this entry price is likely. So the best strategy is to lower the stop to close to break even when the price moves 20 pips below the entry price.
  • #2,676
  • Jan 18, 2007 9:00am Jan 18, 2007 9:00am
Quoting itme
We aspire to better trades than this. For live trades, we much prefer trades with a reward / risk ratio of 5.0 to 1 or better. But I am recording it in order to test my system, and to hone my skill. A conservative trader, if they agree with this general assessment, might revise the entry price to 1.9780 or 1.9800 to increase the reward / risk ratio. They might keep the same stop, or raise the stop accordingly. If they raise the stop, so that it is the same risk as before, and keep the target at the same price, then the RRR will increase because the reward will increase, but the risk will stay the same. There are many strategies that someone could follow. They could stage their entry into the position, like Thomas DeMark does. There is nothing stopping GBP/USD from rising indefinitely, except that at some point the shorting sentiments will outweigh the longing sentiments, and a reversal will happen. Everything we are doing concerns probabilities, based on previous behavior of the market.
Hi itme,

can you clarify the point you made about "staging the entry into position like Demark"

Thanks
  • #2,677
  • Jan 18, 2007 9:21am Jan 18, 2007 9:21am
According to an article about Thomas DeMark, one of his many strategies or trading systems, and one which he employs with large institutional capital, is to take a position in the opposite direction of the trend, where his system indicates the likelihood of a reversal. If the trend continues, he continues to add to his position. The further in the wrong direction it goes, the more lots he takes. His account goes further and further into the hole. By the time the market turns, he can be down quite alot, relatively speaking. Then the trend reverses and the situation quickly reverses. His account mushrooms.

He also stages out of the trade.

By following a well researched system and sound money management, DeMark gets good results with this strategy (supposedly).
  • #2,678
  • Jan 18, 2007 9:22am Jan 18, 2007 9:22am
According to an article about Thomas DeMark, one of his many strategies or trading systems, and one which he employs with large institutional capital, is to take a position in the opposite direction of the trend, where his system indicates the likelihood of a reversal. If the trend continues, he continues to add to his position. The further in the wrong direction it goes, the more lots he takes. His account goes further and further into the hole. By the time the market turns, he can be down quite alot, relatively speaking. Then the trend reverses and the situation quickly reverses. His account mushrooms.

He also stages out of the trade.

By following a well researched system and sound money management, DeMark gets good results with this strategy (supposedly).
  • #2,679
  • Jan 18, 2007 9:51am Jan 18, 2007 9:51am
Thank you for ytour response.

I read in Demark book that he had observed that brokers never go bacrupt and they utilize selling into the strength and buying weakness. He does have a set of indicators that are independent from each other but all work with that principal in mind.
  • #2,680
  • Jan 18, 2007 12:52pm Jan 18, 2007 12:52pm
hi itme, i was thinking a lot about GBP/USD and came up with only one opportunity that cable has reached itīs high point and we are in a downwards trend in a larger wave-c.

i could be wrong but i just dont see how cable could go higher.

what do you think?
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