Where is the EDGE in trading? The most important thing in trading!

This is very similar to my own research, inspired by some papers I've read:

http://dl.dropbox.com/u/190212/public/prob_matrix.png

Look at the first bunch, for moves of 0.2%. L is the "level" - how many 0.2% moves we had in the same direction. So L3 means a move of 0.6% from the last local extrema. You can see that at each "level", we have an almost 50% probability of continuing OR reversing, thus the market is very similar to a random-walk. In the [] we have the instance count. So, for L1, we had 3485 times where the trend continued after a 0.2% move, and 2997 times where it reversed. This is on EUR/USD, from Nov 2010 to Jul 2011. A 0.2% move is around 28 pips with EUR/USD at 1.4.

Note: The C (continue in direction of trend) probability seems larger than 50%, but this is because these stats ignore the spread. If you take the spread into account, the prob is exactly 50%.

This is without taking the time to make the 0.2% move into account. If you start considering time, things get more interesting. But now we are getting into EDGE territory.

I believe my tips can help!

When the Eur/Usd goes up, most of the time Usd/Chf goes down. However, there are few exceptions that some time both pairs are going down due to uncertainty events (investors fleeing to safe-haven currencies), they are selling stocks, and other high yield currencies (AUD, ZAR, Mexican peso, Turkish Lira, and so on to stay at USD, Swissie, and the Yen.) it will make these pairs appreciate their value). When the investors feel they want to take more risk, ofcourse, they will buy high interest rate currencies and selling the low ones. These moves happen all the time for the last decades.

I hope it helps.

Happay trading and best of luck to all traders in FF.

Thx for your advice. Yes this is excatly why EUR/CHF should be the most ranging currency but due to uncertain events in last year regarding the swiss central bank and some other things you better stay out of trading this negative correlation

You asked for the edge?
I gave you the edge.

Take a look at the attache .

Yes, basicly when there are the hugh gaps, between CHF and other pairs, the stock markets around the world are stumble big time, all the time. But it will correct its self over time. Look at the last trading days (Thursday and Friday) CHF has been stumble big time, therefore stock markets gain back some point.

What I am trying to clarify is I alway wait the opportunity then excute the trade and I should make nice pips run. I mean trading FX is just waiting right time to pull your trigger.

Happy Trading

My personal journey and observations of the market are such:

1) News move the market, learn how to interpret and trade them.

I give you a perfect example. After the US downgrade it was pretty much obvious that the market was going to collapse, considering the pretext (meltdown the week prior to be further participated with no possible way to put a good spin on the downgrade) If i recall correctly S&P first collapsed than retraced most of the losses giving a great entry opportunity with SL just above the Friday close.

After the panic, another News trade presented itself for those tuned in a ready to act with conviction, with a bit of far sight it was pretty obvious that market should rally with expectation of the Fed support on tuesday, you could have entered early on Tuesday, or on retrace in S&P after initial rally later on in the day, both would have paid of handsomely.

And if that's not enough for you, buy the rumor sell the news trade was next, just not exactly. Anyone who is a follower of Mr Helicopter (me included, hence the logic for the previous trade) would be expecting something pretty significant. And of course Fed didn't really announce anything significant, this was a perfect opportunity to short S&P as expectations have not been met. I personally went short at 1135, with 2.5 point stop loss, and less than 30 minutes later, was able to close at 1115 (and with some patience you could have got below 1100) With is 8:1 risk/reward of better...

2) All markets are fundamentally the same, follow volume closely

For those with some patience, below might be very revealing.

My main business is brokerage of grain for physical delivery on international markets. This gives me full access to raw market data as it happens. My job is to know who sold , when, at which price. Physical market is much slower, but it really gives you a understanding of the mechanics.

There is always the same pattern repeating over and over. Let us start with a falling market. When prices are on the slide, all the buyers pull back (most not all of course) as they do not want to buy today, if they can get cheaper tomorrow, even if they regard prices as Fair/Good. So sellers are forced to offer lower and lower prices , hitting the bids so to speak, in attempt to move their inventory. At some point, after this has been going on for some time, in a short period of time, there is a huge burst of buying activity. It usually starts with some buyers taking an aggressive stance and buying what they see as "undervalued" goods. Keep in mind, that all the traders are watching each other, hence others on the fence step up to the plate and buy as well. Now, keep in mind that most buyers have been waiting and waiting, running down their stocks, so they are in a sense, desperate to buy. After these first few trades, sellers see that all of a sudden, they have a surge in buying interest, and decide to lift the prices as they feel it's now their time to take revenge. Now, the buyers on the sidelines see prices rise, and of course all rush to buy, taking more liquidity out. Of course, the amount of liquidity is limited, so only part of the buyers book the trades and others are left with nothing, and are now forced to raise their bids to attract new offers. Now buyers are really bullish and simply leave the market (again most buyers not all of course) and this leads to a prolonged bullish momentum. This is the reason why momentum exists actually i believe.

So why am i saying all this, this is the market mechanics at their simplest/raw form. All markets essentially work like this, they work though price discovery. The difficulty with financial markets, is that all of the above happens much quicker and is much more difficult to track. For forex traders, there is almost no way to follow the raw market data, hence you might feel that all i've said is worthless, but that is not so.

For those looking to get market data, currency futures are a solution. As limited as it might be, they provide good approximation of what is happening in the forex market. I have been able to program a completely automatic system which trades the order flow. And it works across Eur/GBP/CHF (as most liquid currencies) and S&P futures, using the same principles. So do not loose hope, it is possible, it's is just damn hard.

My main point would be this, market have a clear structure and follow the same dynamics. For all of my trades, i see a clear reason:

1) For news trades, there is a new piece of information which leads to a rush of order as market has to find a new "fair price"

2) Order flow trades, simply follow the innate dynamics of the market (any market)

Markets might be random most of the time, but a traders job is to find times when markets are predictable, and there is a specific reason for the markets going one way or another. Of course there is no 100% guarantee, but it can turn the odds greatly in your favor.

Hope this helps some of you who feel like there is no hope, to see that there really is light at the end of the tunnel

Rgrds.

No doubt, you my friend have the IQ of a spoon!

Would you like to earn 1,000 pips 30% of the time or 1 pip 70% of the time?

The percentage of time the markets trend has nothing to do with the magnitude of the trend. We can make money even if the market trends 10% of the time, if the magnitude of the trend is powerful enough.

that'd be a cool name.

and fighting out of the red corner.... Trend "the friend" MAAAAAAGNIITUUUUUUUUDE!!!!

Let me quote :
Originally Posted by Mr Breakout http://www.forexfactory.com/images/buttons/viewpost.gif

Quote

Disliked

if the market moves 100 pips in one direction, what is the probability of seeing another 100 pip move in the same direction? Now if you answer 50% then your ignorance is beyond belief!! It is NOT 50%, it is MORE than 50%.

True but thats irrelevant becouse overall you have absolutelly no data to support your claims that that this random entry strategy would produce any profit. Statistics is not on your side as you can see in the example someone posted above.

Whatever you say, just support it with some data, lets see if u can bring the results tomorow from 1 min TA profitable strategy test you said u can make. Dont give me any code or strategy...just proove your point. Or was that BS as well as most of your trolling posts.

Seriously, noone is going to be stupid enough to post this type of data. In order to make money, there needs to be losers.

Hi Euclid,

Let me see if I interpret your numbers correctly : A 0.5% move on the EUR/USD is followed by another move in the same direction 53% of the time, is that it?

Also, why is your sample so small?

Like I said earlier, just remember that some currency pairs trend more than others. GBP/USD for example does not trend well, it is one of the weirdest pair I know.

Tomorrow morning I will look for a trend to trade on the m15 chart, if I cannot find one I will look for one on the m5 chart.

That is all I do every morning. It is a good edge.

Personally if I cannot find a specific trading setup on the EUR/USD I switch to USD/JPY. If it is not there, I check the USD/CHF. I check 25 currency pairs until I find what I am looking for, from the 15min to the 4h time frame.

That's all there is to it: Find a trading pattern that works and look for it on every major currency pair, every single day.

hi guys gals howz the fighting going

You are speaking my language.

I like EU too, I almost always find what I need from five or six pairs. AU, GU, USDSEK, SWISSY and CAD. It keeps things simple.

me too Jag,gbp-usd-eur-jpy- nice profit earners then aud and chf keep it simple

There is no fighting Billy, but I seriously think this thread should be renamed :
"1,001 things Reres did not know about technical analysis but never dared to ask"

Now back to the charts, let's make some money.

Haha that and the spoon comment, classic.

lol, your right i apologise, i know your not really fighting but its amusing to see peoples views on trading and how sometimes they dont comprehend
other peoples trading plans

well the markets are open.Do any of you trade sun night