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Random walk and Pascals triangle

  • #61
  • Aug 9, 2010 1:33am Aug 9, 2010 1:33am
Quoting medici

As an example, take a look at a 1 minute or tick chart for sterling at 2.45 London time yesterday. Clear evidence of persistent buying over the past half hour, and the R1 level at 1.5936 had turned into support where buying continued. A thrust upwards could be expected, so if you bought at 2.45 with 5% for 7 pips you stood to make more than 35% on margin at 5% risk over the next 20 minutes or so.
You seem to trade on the small time frames, I didnt think horizontal s/r was meant to be reliable down there?
  • #62
  • Aug 9, 2010 1:48am Aug 9, 2010 1:48am
Quoting medici

I wouldn't use a random walk model to guide me in my trading. Or, quoting one of my old maths professors, "probability theory is a lot of non-sense. The probability of something happening is either 0 or 1, but you may not know which!" Differently put, probability theory provides models that may be useful, but be careful in concluding that the underlying reality is random. For more about that see my recent post here: http://www.forexfactory.com/showpost...9&postcount=10
Agreed but some areas of science depend on probability: thermodynamics, statistical mechanics, genetics. Didnt one 'proof' (Brownian motion) of the existence of the atom use probability? I may be wrong here, but in principle the outcome of the roll of a dice can be predicted. We would have to know EXACTLY (not possible) the initial conditions and had a computer powerful enough to solve the all equations.
  • #63
  • Aug 9, 2010 1:50am Aug 9, 2010 1:50am
Quoting ForexQuant
P(Hit TP) = 47.7%
P(Hit BE) = 21.4%
P(Hit SL) = 30.9%
P(Hit TP or BE or SL) = 47.7 + 21.4 + 30.9 = 100%

So I think your logic works and the calculation is correct.
Should be fairly straight forward to modify to a TS.
  • #64
  • Aug 9, 2010 2:16am Aug 9, 2010 2:16am
Quoting Scotty2Cues
You seem to trade on the small time frames, I didnt think horizontal s/r was meant to be reliable down there?
You're right. S/R levels derived from small time frames are less reliable. But S/R levels derived from 1H/4H charts are not.

Short term traders have to look at long term charts and long term traders have to look at short term charts, as the saying goes.
  • #65
  • Last Post: Aug 13, 2010 9:09pm Aug 13, 2010 9:09pm
For those who is interested, inspired by the thread here I have calculated (under the random walk scenario), what is the maximum profit one can get in hindsight with stoploss at -1R.

http://www.forexfactory.com/showpost...6&postcount=36
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