Extracted Thread (per thread starter's request)

This week, I plan to continue testing the Stairstep System to evaluate its expectancy. I know that for any system to be profitable over the long term it must have a positive expectancy. So, I will continue my testing by looking at only around two CZs per week, for several different pairs. I will take every signal the system generates and input the results into my spreadsheet that tracks a system's expectancy. Once I have demo'ed for a minimum of thirty trades, if the system's expectancy is still positive I will add it to my live-trading repertoire.

My testing will involve risking 2% of my trading capital for each trade I take, so the number of lots will vary depending on the height of the CZ (pips risked).

Hello Stairstep group. This is my first post in this thread. Here is an example of the USD/CAD that I am taking long.

I am relatively new to the method, so pardon me please if I have it incorrect.

I did some statistical analysis on this system. Just a little, only on GBPJPY M15 for the last 100 days. Not a big enough sample to make big decisions, but the results are interesting and encouraging. Even though we all know this is a profitable system, it's cool to see how the numbers work.

It's about optimizing SL and TP levels, expectations for drawdown levels, R:R and $$ profit expectations, etc.

For me, it adds to my confidence when I can objectively answer questions like "if I enter this trade, with this SL, and this lot size, etc., what are the chances I will win/lose, or profit $xx or more/less, and what are my drawdown expectations, etc." Or, "is there any statistical relationship between drawdown and expected profit, or SL and drawdown levels?"

I've attached the excel sheet, which includes my formulas which I am glad to share (I got them from another trader!), and a pdf for those nervous about downloading.

A full explanation is in the attachments. It would be too much info for a post. Although, if FH wants me to I will be glad to put it in a post to make it searchable.

DISCLAIMER: I am not a full time trader, and I'm not even particularly good at statistical analysis. This data probably contains horrible mistakes that I haven't even noticed! If you take any action based on this information, I am not responsible. In fact, I'm totally irresponsible - just ask my wife.

I hope this is helpful to someone. Thanks again to Forexhard and Squalou again for sharing your knowledge and efforts!

Mega pips to all!

Hi. The core M5 settings (the Autobox settings) were from FH himself, so you should thank him instead. I only changed the boxlength (probably much to FH's chagrin.. haha) to suit my scalping mentality. This is my own personal preference. I'm sure FH does NOT endorse this in any way, shape, or form.

For the sake of consistency, I echo the sentiment of some other members here to keep the core discussion on the M15, and from here let's all find our own inspiration (as I believe I have found mine in M5).

Kind regards to all.

35 for 35.....
Almost hit.....

http://i600.photobucket.com/albums/t...Percobaan5.jpg

Hey Roels, what does "35 for 35" mean? TP 35 and SL 35? Something else???

Yups....TP 35 & SL 35 (1:1 R/R).....

Thought so, but I was hoping you would say 35 wins out of 35 trades!

thanks for this, appreciated.

I guess the main problem is with the TP levels. The numbers displayed by the indi would rarely be achievable except by those gifted with spotting reversals on PA. Your analysis highlights the need for more defined exit stratagies.

Can't Wait No Longer.....

No offense here, but how can you say there is a problem with the TP levels?? If you look at the low of the red 6:15 candle, it hit exactly to the pip of the first target @ 1.57917! Unless you're talking about when price moves past the first target because you really didn't specify in the above post.

Just my 2 cents , One might set the TP based on ATR & level of breakout for day trading .. ( if ATR : 130 pips & breakout happened at 40 pips from opening , then we might expect the max. TP will be 90 pips (130 - 40) from opening & min. maybe half of 90 pips ?) .. Good Luck !!

my point is that the sq indi takes the absolute highest/lowest price achieved before the next CZ forms, so doesn't quite reflect real-world profit-taking activity, at least I think I would stuggle to exit with those maximums.

as I've mentioned before on this thread, I am using these CZ zones as excellent entries into building my long-term trend-trading positions.

Well, since we're on the subject, I'll give my take on exit strategies here that I employ and I apologize for the length. I've always used fib extensions as possible profit targets but there are a lot of people that take fib extensions with a grain of salt because they never really took the time to study them properly. Now I'm not saying that the fib extension targets I recommended in the indicator are set in stone or are the perfect targets to shoot for (I've modified my levels twice already), but by sitting back and looking at the charts, you can't totally dismiss the accuracy that they can produce whether you use them as profit targets or additional support or resistance levels or whatever.

Now using these with regards to stops and exit strategies is always tricky. I've always had this philosophy drilled into me that you should always protect a winning trade and that you should always move your stops as price progresses in it's current wave movement. Which basically means as price retraces and either gains support from the fib levels or the level becomes resistance, you move your stops to a point which allows the retrace (wave movement) to form, find it's support or resistance point, and either let it proceed to the next target until exhaustion of the wave movement takes over or stop us out. As you near to the exhaustion point of the trade, you are moving your stops incrementally closer in order to lock in the most profit. I would be just as happy banking 20 pips because a strong retrace hit my stop as I would with 300 pips that hit my last TP target, a winning trade is a winning trade.

Remember, you are never going to get all the pips that the indicator points out to us so please get that idea of your heads now.

Now back to the stops. As we initiate a trade, we need a strategy to move the stops to lock in profit. Now some are content to hit the first target and close out the trade and there is nothing wrong with that and I applaud their discipline to do that. I, personally, like to let the price dictate how the trade will flow and it's my job to allow it to do so and to take advantage of when it does. As I mentioned above, we need to allow for the price to go through several stages of exhaustion (retraces) and continue it's movement til the resistance is too much to overcome. If any of you have studied any Elliot Wave principles, you'll understand what a wave movement is.

As we see in the Usd/Chf chart below from the 8th of September, as we progress through our Profit Targets (blue boxes), we move our stops (red lines) accordingly to allow the retracements (black boxes) to breathe and to allow the price to continue to its exhaustion target (notice how price is reacting to every level). As we first start out in the trade, we need to allow for a larger retracement move as a strong retrace in the beginning of the trade, generally to the 61.8 or 76.4 fib levels, means a larger overall movement in the total trade. As we get closer to the higher TP levels and the fib extensions become wider, we can tighten up the stops to lock in as much profit as we try and anticipate the exhaustion point.

Now, we may only get to level 3 before it turns, we may not even get to level 1 at times, or we may get a perfect run like we have in the pic below, we'll never know. We, as traders can only react to the price action and follow where it takes us. In this example, which is a great example but will not always be the case, properly moving our stops and allowing the trade to run could have netted us +305 pips at our 9th TP level instead of just closing the trade at level 1 and only getting only +38 pips. Now this is just a basis of what I do in my trades and is not to be construed as financial advise, but please use it as an informal guide to match to your own trading style and risk appetite and make smart decisions. Remember, never let a winner turn into a loser.

Another way that these fib extensions can help in exiting a trade, and the reason I leave all of them on my chart, is through confluences. If you look at the Eur/Jpy chart below from last week you can see the confluence of the two fib extensions levels from the previous two CZs. Now look how the price action from the current breakout reacts to this strong confluence and make a strong u-turn in the other direction. By spotting and watching how price is reacting to this confluence, you might have made the decision to either move your stop early to a BE or BE+(X) or maybe to close the trade altogether and prepare for the reversal. Just for kicks, notice how the spike stops almost to the pip at the 4th TP level from the day before, just a coincidence? I don't think so. This just food for thought for everyone to ponder over.

First trade ended in a +30 profit.
*Entered trade off the box, not the lines, might need a smaller box on USD/CAD, or a smaller TP.

And here's how last Thursday's Eur/Jpy trade went. +332 pips and hit right at my TP level 9. Notice again how the stops are moved incrementally to allow for the retrace to form and continue. I can post examples all day, but you get the point. Don't disregard the fib extensions as they are a vital part of making money with this strategy.

Mer,

Thanks for explaining your thinking behind your SL placing and adjustment during a trade; I found it very interesting. Perhaps this is because it echoes my sentiments, but it may also be because I am, as I've admitted on FF previously, a maths ignoramus, and my SL moves are as a result of hundreds if not thousands (not yet 10,000) of hours of screentime and journal keeping on trade progress and retracements, so to see any sort of mathematical confirmation is fascinating.

FH and Squalou: great work and kudos to you both. I suppose we're all seeing the same thing on GU at the moment. Short trade triggered at 07.15 Alpari UK time, progressed 32 pips, enough to move stop to b/e. Where next? Time will tell, but I seem to remember FH saying he only takes the first BO in any direction, so a Long is still on the cards.

Have fun.

cgldsmth, I'm looking at this as a tool to improve my vision into PA. Of course the indicator is not supposed to be interpreted as showing a TP level that you can use in your trade. It's only hindsight.

Mer, thank you for sharing your take on TP. I'm glad cgldsmth sparked you into that! I still exit too early, with my #1 priority to not lose money. What you say adds confidence and makes sense - whether entering, exiting, or deciding to stay in or out, whatever - let the market dictate.

What are your TP levels please as they are not the default.