Volatility based trading

Im not sure, but im playing on volatility.

If the price moves in one direction up 100 pips, or down 100 pips, and the chance of up or down move is 50%, you can earn money, because you set st at 10 and tp at 100. 50mulitiplied by 100 are the profits,which will be bigger than losses.

Thats the fundamental idea. The market will never be this ideal,but i look for oppurtunities where the market conditions behaves in such a way.

for instance, chances of higher volatility increases when:

1near critical levels,for instance trendlines,pivot points.
2 when the market hasnt done any big movemetns for a longe time/the lesser the currency pair has been moving,higher the chance of bigger volatility.
3macd strategy.
4news time
5 during active market times
6 Indication that a trend will develop.
7 Suitable currency pair.
8 if a currency pair have been in moving in a channel for a long time,chances of a break out will increase.


Any more suggestions of what increases volatility?

Length of time it took for the 100 pip move to occur. The longer the length of time of the 100 pip move would indicate to me that a 'breakout' from that move is less likely to happen because a long period of time would mean a gentle trend slope. Your volatility method will need to include some sort of momentum measurement. Probability of success would most likely increase if the 100 pips moved, say in the space of 1xH1 bar, as psychologically, people would look to jump on the bandwagon of that move as soon as possible in theory.

Also, not to be a naysayer, but lets presume that the balance of the outcome is exactly 50:50 either way as in your example. Lets presume that you intend to trade 100 times. Lets also presume worst case scenario which is as follows:

First 50 trades @ 10 pips loss = 500 pips.

Subsequent 50 trades could potentially be winners, however you will already be 500 pips down, which if you trade $10 per pip is $5k. You will need to have the discipline to continue trading the method with the knowledge that you already have lost that much money.

If the outcome of your method after utilising all of your above statements about news times, active periods, length of consolidation, etc is still 50:50, then you should probably trade something else.

Doesn't work that way. In a completely random market, which it's not, you will have a 50/50 chance of price moving 100 pips in either direction but once you alter one of those targets the probabilities change. With your example you roughly have a 90% chance of your stop being hit and 10% chance of your take profit being hit. If it were that easy then every trader would just make sure they have a r/r ratio greater than 1:1 and they could place trades at random and profit. That's clearly not the case. There is an EA floating around here somewhere that places random trades. You might want to find and try different risk/reward ratios and see for yourself what happens.

If the probability is 50:50 why are there more up bars then down bars in an uptrend?

The same reason you can flip a coin and get 6 heads in a row.

And why don't you get a near perfect distribution even if you have 60.000 Bars in your Sample? And why do the the up bars still dominate when the overall trend over that period was up?


Try it in Excel yourself.

Don't know what your point is really. If you're trying to say that the markets aren't random then you're preaching to the choir. I mentioned in my first post that I don't think they're random. I was merely using 50/50 because the original poster was basing his assumptions on that which would only hold true in market randomness.

I was responding to the thread op's scenario of the trade having a 50% chance of moving in either direction. My example was to show worst case scenario in an exact 50% of 100 trades that were both positive and negative and what would happen if a 'trend' of losing streaks came first.

Whether or not the op's 50:50 scenario happens in real life was not in question and I did not post my own beliefs on the the randomness (or lack thereof) of the market, but was responding to the 'IF' question.

There are plenty of threads on FF that both allude to randomness and non-randomness in the market. I don't believe the op intended this thread to be that debate here.

Ahh now I see the misunderstanding. I was replying to woo. My post was not related to yours.

To sum it up. Markets aren't random. If you build an EA that either loses 10 Bucks or wins 10 Bucks you won't end up Break Even. It's easy to debunk this common myth which is often propagated in trading forums. A cube with a displaced center of gravity won't end up 1/6 of the time with 1 at the top just because it has 6 sides. Same goes for the market. Trend defines your probability.

And all this time casinos have been basing their probabilities on exactly that for craps. I guess they're going to be embarrassed when they find out the truth.

Given a small sample you're correct but over time...

Even over time it won't be 1/6 for all 6 sides.
It's more the other way around if you throw it 12 times you could get every number 2 times but over time your the displaced center of gravity will effect your distribution.

I missed that you were talking about a displaced center. We're talking apples and oranges.

They kick me out every time I try to use loaded dice.