NCF basic trading journal

Continued:

To grade our risks we have to fully understand the risks we are rating and deciding to absorb. We learn about our risk with three main analysis types.

Fundamental
technical
statistical

fundamental is investment grade risk and drives overall longterm views.. but how do you grade fundamental risk?

fisher effect
perceptive judgement
production power

fisher effect is the linear effect on price due to the interest rate parity as shown by capital appreciation. The grading is rated by understanding that people will power a source that pays for the investment at the expense of the other. This is true among all markets like equities like dividend payout ratio. You are absorbing investment risk to receive payment on amount of risk of operation you absorb. The better the payment for risk taken vrs. risk of holding something that rewards for much lower risk will show that in times of absorbing taking higher risk positions are taken over lower risk.

for example subprime crisis as risk taking lowered people transfered risk of holding positions for something with less carrying risk.. this is why riskfree investments rose and payouts decreased. And as accumulation of risk by the masses happen changes in perceptive judgement takes place.

Perceptive judgement changes when consumers of risk regrade their risk to determine whether they are still willing to accept the risk or not. In times of excessive risk taking is occuring consumers of risk should be wary and look to void risk. and as excessive risk liquidation occurs consumers of risk look for opportunities to absorb risk.

This why the market shows signs of the changing of perception of risk taking. excessive riskless positions->risk taking->excessive risk taking-> risk liquidation.

Production power grades the risk for it ability to produce results during risk taking times. The risk that has the most power and efficiency is going to receive a better grading and understanding of a better investment and ability of return per accrued risk.

ive added a picture of what what I mean by the cycles

exited 1/2 eur/usd @ 63 pips
aud/jpy & eur/aud continue to show me excessive risk liquidation and regrading.
323

thanks jeremy we hope to see more from you in here.

thanks pa18 we use absolutely no indicators and trade price action in its rawest form. Hope to see you around more.

continued:

Grading risk with statistic analysis is a relatively new Idea to trading we see phrases thrown around that many people more often than not can not define.. like high probability trade.... well what makes a high probability trade meaningful to us as traders when lower probability trades with high rewards can outperform High probability low reward. By changing the wording I find that traders with lack of financial background use the term high probability trade in the same aspect as professional traders use the word higher graded risk. For example bond.. junk bonds can have bad ratings B ratings and good bonds with a higher payout and safety have better rating AA ratings but what are they grading... They are grading the Risk of absorbing the bond with your investment for promised payout.

MAIN POINT: THIS IS THE HEART OF THE MARKET
"Is risk graded high enough for the reward I seek" and traders make bets based on where they think the best graded risk is

how do we define statistical grading for risk?

psychological probability density

as risk is graded and regraded we will notice the different areas or ranges appear to change. the density between the high and low is binomial distribution and break into free area is skewed to the high or low of the break by %.

so we can grade our risk based on psychological probability density that occurs at these locked points.

binomial distribution and between areas of regraded risk

How do we know that when we are at these points risk is being regraded ?

point of interest are those around price action formations hanging at areas known for regrading risk. for easiest examples we turn to recent charts


red areas are regrading price youll notice that during the regrading price makes smaller lower lows and lower highs mean risk is being greater for shorts. The ^ pattern of the first trade is the cleanest price action. risk is regraded with the Inside bar and price confirms and risk absorbing is happening, the cycle continues.

lets go over this eur/aud trade and how and why I took it.

interest rates payments pay to hold short with single A risk grade. why grade A? EUR previous interest rates where 1.25% last time modified they dropped to 1.0% while aud was 3.25 and adjusted to 3.5% the interest rates between these two currencies are diverging.

on longer term charts consumers of risk are regrading with lower highs and lower lows and euro production power decreases as aussie production power increases by more than expected quarterly.

The two economies are diverging and divergence means profits.

statistical risk rates the pair B grade risk while proving that the high regrading is occurring at lows previous regrade.

technical triggers have produced regrading signal for short on confirmation.

and we look to enter short.