DislikedHi Graeme, yet again you give us diamonds in your words.
i find this very interesting and wonder, if we where only to look and find the flying buddahs, but hold off on acting on them, until we are more certain it was a successful flying buddah, and enter and add to the position as you would normally???, the premise is we are still looking for the possible entry in the same way, but are not just blindly entering because of it???, and we are adding to the position with the momentum of the trend???
anyway just something that came to mind when i was...Ignored
Correct.
All readers please read Geoff's post as there is an important related discovery.
Most flying buddahs are strong indication of trend change but if you want to sincerely lower your drawdown/risk, you can 'add' a personal touch to flying buddahs and filter it. Accuracy may improve but you may also slightly lower your profit. Its all relative.
An amateur trader will look at flying buddahs and sigh at the low win rate but I assure you most sensible systems in this forum is less than 50% win rate.
Inside bar has a similar win rate however they offset the lower win rate by urging traders to enter 2 positions at entry and aim for 1:3 on one position and higher r:r on the second (apologies if the numbers are slightly off as I havent been on their thread for a very long time). Can you see what they are doing? Maximizing profit taking in one given golden opportunity by increasing exposure which in this case is using more than one position.
It is how we manage the trade to maximize our profit takings on a given opportunity that divides the amateurs from pros.
The easiest and most well known method in maximizing our profit is using higher r:r than 1:1. With a 50% win rate and 1:2 r:r you would be very rich sooner or later as the odds are on your favour. However, whether the 50% win rate is a true hard percentage or not is questionable in most cases.
Traders get confused when pros advise them to be mechanical in trading. In a sense the pros are referring to be mechanical in the 'approach' but not the trading. However, traders believe mechanical is when 'something' happens that they are waiting for which triggers their entry or exit. That is not mechanical but pre-defining your action and we all know how I feel about that.
Sincerely,
Graeme