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  • #341
  • Mar 10, 2012 9:01am Mar 10, 2012 9:01am
nice video on consistency and a conservative approach to money management

http://specialisttrading.wistia.com/m/Qf1S2U

and another...

http://specialisttrading.wistia.com/m/lr1VHs
tradewith60
  • #342
  • Mar 10, 2012 9:21am Mar 10, 2012 9:21am
Quoting IRISH37
This strategy can be greatly improved by using a 5 ema crossing a 10 ema for entry and exit at H1 and longer.
i have always like MA crossing trading method.
maybe a new thread of your own would be nice.
making others traders can contribute to your trading method.
what you say?
let me know when your new thread is up.


Quoting 60minuteman
nice video on consistency and a conservative approach to money management

http://specialisttrading.wistia.com/m/Qf1S2U

and another...

http://specialisttrading.wistia.com/m/lr1VHs
tq.
  • #343
  • Edited 2:35pm Mar 10, 2012 10:54am | Edited 2:35pm
60minuteman, congratulations! I predict this is going to be one of the (few) good systems on FF, especially if you find the right strategy for money management and SL/TP. I trade 4hr charts myself using a simple trend following strategy.

I hope you don't mind if I talk a little more about some of the RR myths that are so popular. Let me start by referring to that article you mentioned. From the start the author(s) seem to imply that the reason most traders lose even though they are more often right than wrong (have more winning than losing trades) is the bad RR ratio. They lose more on their losing trades than they win on their winning trades. That's faulty logic. The reason those traders are more often right than wrong is EXACTLY because their targets are smaller than their take profit targets. If they had a higher RR ratio they wouldn't be right as often. They lose because their system has a negative expectancy. They could be right more often but lose big when they lose, or they could win a lot when they win, but lose way too often ... the outcome is the same.

Let's start with the basics. It's an experiment that has been done countless times. I tried it myself a few years ago. Write an EA that opens buy and sell positions at random, with a fixed SL and TP. For example both SL and TP are 50 pips, what we would call a 1:1 RR. On the long run this EA breaks even as number of pips, but the account bleeds because you have the trading costs (spreads, swaps, commissions). There will be an equal amount of winners and losers. If the EA has the SL set at 50 and the TP at 100, it still breaks even in terms of pips simply because there will be twice as many losers than winners. This has been tested even with ridiculous RR such as 10:1 and 1:10. If the entries are random and the SL/TP are fixed you always get the same result, close to BE, regardless of what RR you use.

But we as technical traders assume that the market is not perfectly random, and that various patterns that we find on charts give us an edge. For example a trader could say that when the price is above the 50 sma and we have bullish engulfing the price is more likely to go up than down. But what does that mean exactly, go up rather than down? If it first moves 30 pips up, then 70 down, then 150 up, then 200 down which way did it go? In order to analyze whether you have an edge or not it is not enough to look at the chart and see that at some point in the future the price was indeed higher. Because prior to that maybe it had reached lows that would be more than your MM and account could handle. The correct way to put it is to back test using a certain SL and TP. Let's say we start doing that with a SL of 100 and TP of 100. If we find the same number of winners and losers then our system has no edge, there's nothing to it. Simply increasing the TP to 200 or making the SL 50 doesn't make the system better. You must test those new settings and adjust them until you have something that beats the random odds. For example if a target of 50 pips is reached 3 times more often than the SL of 100 (instead of the expected 2x), then we have a winner.

When all those trading books and gurus teach that you should always let your profits run, or have targets bigger than your stops, they are simply wrong. It all depends on what system you are using. There are systems which work best with a very small TP compared to the SL, and systems that work very well doing the opposite. It is true that the trend following systems are very popular. Those systems tend to produce many losers simply because the price is ranging more than trending, and there are more fake moves than home runs. That is why you need the occasional big move to make up for all the small losses, and that's why when you do the back test you will probably find that setting a TP that is several times higher than the SL is more profitable. But that's not necessarily true for all strategies, not even for all trend following ones.

And there is one other aspect to keep in mind. Even if a system has a positive expectancy according to your back test, if it has more losers than winners (as it happens with these 'great' RR systems) it is very difficult to trade from a psychological point of view. It's not uncommon for such a system to have a long string of losses, even 10 or 20, and then we're tempted to change the rules, abandon the system or do something really silly.

To cut a long story short, only doing the boring homework of testing various RR settings helps us decide which one to use. There is no magic ratio that is universally good.
  • #344
  • Mar 10, 2012 11:14am Mar 10, 2012 11:14am
Quoting LazyPawn
60minuteman, congratulations! I predict this is going to be one of the (few) good systems on FF, especially if you find the right strategy for money management and SL/TP. I trade 4hr charts myself using a simple trend following strategy.
Excellent post, thank you.
  • #345
  • Mar 10, 2012 11:52am Mar 10, 2012 11:52am
Quoting LazyPawn
60minuteman, congratulations! I predict this is going to be one of the (few) good systems on FF, especially if you find the right strategy for money management and SL/TP. I trade 4hr charts myself using a simple trend following strategy.

I hope you don't mind if I talk a little more about some of the RR myths that are so popular. Let me start by referring to that article you mentioned. From the start the author(s) seem to imply that the reason most traders lose even though they are more often right than wrong (have more winning than losing trades)...
Welcome Lazypawn,

First thanks for the post, you clearly know your stuff and are testament that its experience that really makes the trader!

Lets first have a look at some data... compiled on 20,000 instances...

The bearish engulfing candlestick is one of the more popular and well known candlesticks. It works very well as a bearish reversal, performing that way 79% of the time (ranking 5 out of 103 candlestick types where 1 is best). Unfortunately, the trend after the breakout is short-lived, ranking 91st. Thus, even though price will often reverse, the bearish engulfing candlestick does not imply a lasting reversal.

Theoretical performance: Bearish reversal
Tested performance: Bearish reversal 79% of the time
Frequency rank: 11
Overall performance rank: 91
Best percentage meeting price target 1/1: 76% (bear market, down breakout)
Best average move in 10 days: -5.92% (bear market, down breakout)
Best 10-day performance rank: 21 (bear market, down breakout)
All ranks are out of 103 candlestick patterns with the top performer ranking 1. "Best" means the highest rated of the four combinations of bull/bear market, up/down breakouts.

So what I take from this data is, the pattern alone is highly successful at indicating the direction of the movement but the length of this move is disappointing...its overall ranking also is very low. why could that be? and how could we improve it?

Well how about adding to the signal the direction of the inbound trend? if that maintains the high strike rate and increases the length of the move then we are really on to something, now we have 2 edges working in our favour.

Now in my experience anything that adds an edge to your strategy usually has a negative pay off too... with the engulfing I think its the risk... a strong engulfing signal means bigger stop, more risk and therefore bigger profit targets are needed. On the other hand, you are at least giving your trade some room to breath...

So we know we have an edge in the market using this strategy, how do we now trade it and be consistent... do we use a price action signal to exit? an indicator? or a fixed ratio of profit?..... Do we go with a conservative approach like Steve Primo and move our stops at 0.5/1 r/r or aggressive holding for the big runs?... I wish I had the answer, I've tried a few things, all working well sometimes and not so well other times...

So the search goes on and maybe it is down to the individual, and the reason I started this thread was to hopefully get a good group of traders, trading this with discipline and learning as we go...

If you have any more wisdom on this Lazy, or something in particular you use, I would love to hear...

anyway im waffling...
tradewith60
  • #346
  • Mar 10, 2012 12:56pm Mar 10, 2012 12:56pm
Quoting 60minuteman
Welcome Lazypawn,

First thanks for the post, you clearly know your stuff and are testament that its experience that really makes the trader!

Lets first have a look at some data... compiled on 20,000 instances...

The bearish engulfing candlestick is one of the more popular and well known candlesticks. It works very well as a bearish reversal, performing that way 79% of the time (ranking 5 out of 103 candlestick types where 1 is best). Unfortunately, the trend after the breakout is short-lived, ranking 91st. Thus, even though price will often reverse,...

The statistics you quote are only for bearish reversals.
You're using the pattern for bullish reversals as well.
What are the stats when taken together?

As far as increasing the edge, first you have to have an edge to increase.

It's a waste of time trying to tweak a break even system. If the rules in your first post do not show a profit, as they are, it is no better than a coin toss.

You might as well tweak a coin toss entry and not worry about the patterns.

All of the 50 MAs, round numbers, pivots, momentum, time of day etc. can be applied to any random entry and do as well as applying them to a break even pattern.
  • #347
  • Mar 10, 2012 2:25pm Mar 10, 2012 2:25pm
Quoting 60minuteman
So we know we have an edge in the market using this strategy, how do we now trade it and be consistent... do we use a price action signal to exit? an indicator? or a fixed ratio of profit?..... Do we go with a conservative approach like Steve Primo and move our stops at 0.5/1 r/r or aggressive holding for the big runs?... I wish I had the answer, I've tried a few things, all working well sometimes and not so well other times...
I can't give you an answer regarding your particular strategy. Definitely not before doing some serious back testing. I can only tell you how things worked for me, using a different strategy but also on 4hr charts and trend-following. First of all I don't care how far away the SL is on my charts, since I always adjust my position size according to the logical placement of the SL (risk 0.5% per trade and not more than 3% total open trades). Yes, I know that 0.5% makes some people smile (some use 5% or even more) but it suits my style. I'm a very conservative trader. So for some trades my SL would be 40 pips away, and for some others 200 pips away, but I lose exactly the same amount if it's hit. For my system the approach that has worked best for me is the next one: the SL is above/below the signal candle. Let's say that means a 100 pip SL. When the price moves 1/2 of that distance in the right direction I move my SL to breakeven plus a few pips. In this case, when I am 50 pips in profit I move my SL to BE+5. It's true that by doing this some potentially good trades turn out to be 5 pip winners instead of 300 pip winners. But my backtests have shown that not moving the SL early leads to bigger losses overall. When I am 100 pips in profit (the initial SL size) I close half of the initial position and move the SL to 50. Then I use a trailing stop technique (either fixed number of pips but not less than 50 or following the candles lows/highs). I should also add that I don't do these things manually since I don't have time or energy to watch charts all day long - a trade manager does it automatically once I input the settings.

Please understand that I'm not suggesting that the above technique would be profitable using YOUR entries. It's just something to test.
  • #348
  • Edited 2:48pm Mar 10, 2012 2:27pm | Edited 2:48pm
Quoting billbss
The statistics you quote are only for bearish reversals.
You're using the pattern for bullish reversals as well.
What are the stats when taken together?

As far as increasing the edge, first you have to have an edge to increase.

It's a waste of time trying to tweak a break even system. If the rules in your first post do not show a profit, as they are, it is no better than a coin toss.

You might as well tweak a coin toss entry and not worry about the patterns.

All of the 50 MAs, round numbers, pivots, momentum, time of day etc....
Bill im not 100% sure of what you're saying here?

I believe these ideas can be used to make consistent profits, and I have some evidence of that in my experience and that of others using it.

Thats all i'm really trying to say here...

anyway here are the bullish figures

Theoretical performance: Bullish reversal
Tested performance: Bullish reversal 63% of the time
Frequency rank: 12
Overall performance rank: 84
Best percentage meeting price target: 67% (bear market, down breakout)
Best average move in 10 days: -6.31% (bear market, down breakout)
Best 10-day performance rank: 14 (bear market, down breakout)
tradewith60
  • #349
  • Mar 10, 2012 2:37pm Mar 10, 2012 2:37pm
Quoting LazyPawn
I can't give you an answer regarding your particular strategy. Definitely not before doing some serious back testing. I can only tell you how things worked for me, using a different strategy but also on 4hr charts and trend-following. First of all I don't care at all how far away the SL is on my charts, since I always adjust my position size according to the logical placement of the SL (risk 0.5% per trade and not more than 3% total open trades). Yes, I know that 0.5% makes some people smile (some use 5% or even more) but it suits my style. I'm...
nice Lazy, agree 100%, risk is always the same regardless of pip, correct position sizing etc etc..

I also use a trade manager, stuff can happen quickly and im guaranteed to get worse results if i sit and watch every tick of every trade. In fact I am a far superior trader when im asleep ...
tradewith60
  • #350
  • Mar 10, 2012 3:19pm Mar 10, 2012 3:19pm
Hi again guys,

Forgive me if I ask too many questions.

I am seeing the following 'setup' on the GU Daily chart. Thing is, it is sitting right on the 50sma. How do I proceed since we are technically still above the MA?
Do I sell a retrace to the round number it just broke and hope it will go further south or wait until the low is broken and enter there or is this NOT a valid short setup?

Please help!

http://img7.imageshack.us/img7/821/gbpsetup.jpg
Consistency = Steady growth = Solid equity
  • #351
  • Mar 10, 2012 3:39pm Mar 10, 2012 3:39pm
Similar but trickier scenario with AU.

A long setup right at the 50sma followed by a short setup right at 50sma.

http://img854.imageshack.us/img854/2682/ausetup.jpg
Consistency = Steady growth = Solid equity
  • #352
  • Mar 10, 2012 3:54pm Mar 10, 2012 3:54pm
Quoting NuBeez
Similar but trickier scenario with AU.

A long setup right at the 50sma followed by a short setup right at 50sma.

http://img854.imageshack.us/img854/2682/ausetup.jpg
The GU short is fine, but the

AU trade im not sure what you mean? are you saying thats a signal to short on monday? because friday hasn't engulfed thursday and it hasn't closed below the 50sma
tradewith60
  • #353
  • Mar 10, 2012 4:00pm Mar 10, 2012 4:00pm
Quoting 60minuteman
The GU short is fine, but the

AU trade im not sure what you mean? are you saying thats a signal to short on monday? because friday hasn't engulfed thursday and it hasn't closed below the 50sma
Thanks 60mm! I am uncertain about the long setup on the AU because the market was selling for awhile, then this strong bearish setup right at the MA, right on the weekend.
Consistency = Steady growth = Solid equity
  • #354
  • Mar 10, 2012 4:05pm Mar 10, 2012 4:05pm
Quoting NuBeez
Thanks 60mm! I am uncertain about the long setup on the AU because the market was selling for awhile, then this strong bearish setup right at the MA, right on the weekend.
ah ok, well if were taking the doji as a type 2 entry.. it closed in the top 25%, above the 50sma, the low was the lowest low of the last 5 candles, so entry would of been at the high of the doji +1pip + spread, and tp1 would of been at 1/1.. which i think it hit?

so that trade is over now... can see 100% on your chart, but my signal candle was 88 pips and it went 80 pips up on the next candle, so i would of closed all or partial and moved my stops to b.e at that point
tradewith60
  • #355
  • Edited 4:49pm Mar 10, 2012 4:18pm | Edited 4:49pm
Quoting 60minuteman
ah ok, well if were taking the doji as a type 2 entry.. it closed in the top 25%, above the 50sma, the low was the lowest low of the last 5 candles, so entry would of been at the high of the doji +1pip + spread, and tp1 would of been at 1/1.. which i think it hit?

so that trade is over now... can see 100% on your chart, but my signal candle was 88 pips and it went 80 pips up on the next candle, so i would of closed all or partial and moved my stops to b.e at that point
Ok. So you basically apply a 1:1 risk reward and ignore, what could be, pullbacks for the same setup?
Consistency = Steady growth = Solid equity
  • #356
  • Mar 11, 2012 3:29am Mar 11, 2012 3:29am
Quoting fugly
Billbss this strategy is a strategy created by Steven Primo of Specialisttrading.com
Here is my problem when I see this kind of stuff. Call me crazy but if his strategy was so great wouldn't he have been retired already? I mean shouldn't he be sipping margaritas on a beach in the Bahamas? Why would anyone with a real successful system go to such lengths? On FF I understand. A trader has a good system and wants to share. To make a webinar and a website? It seems that he couldn't make money trading so he just decided to sell his systems. Maybe psychologically he couldn't cut it. Just my take
  • #357
  • Mar 11, 2012 4:10am Mar 11, 2012 4:10am
This may have been discussed but after looking at some previous charts, it would seem a r/r of 1.5 or 2 would be better for this method. That is to say it seems that this method hits about 60% of the time at a 1:1 r/r but it seems that it hits at about 50% for 2:1 r/r. Anyone noticed this?

fyi assuming a 2% risk after 20 trades without compounding:

60% at 1:1 = +8%
50% at 2:1 = +20%
45% at 2:1 = +14%

As you can see even at a 45% win rate you would much better off with a 2:1 r/r than with a 60% win rate at 1:1 r/r.
  • #358
  • Mar 11, 2012 4:20am Mar 11, 2012 4:20am
Quoting bfis108137
This may have been discussed but after looking at some previous charts, it would seem a r/r of 1.5 or 2 would be better for this method. That is to say it seems that this method hits about 60% of the time at a 1:1 r/r but it seems that it hits at about 50% for 2:1 r/r. Anyone noticed this?

fyi assuming a 2% risk after 20 trades without compounding:

60% at 1:1 = +8%
50% at 2:1 = +20%
45% at 2:1 = +14%

As you can see even at a 45% win rate you would much better off with a 2:1 r/r than with a 60% win rate at 1:1 r/r.
Thank you for those figures...Im still working on some facts and figures and have to agree with the 2:1 R/R..

Are your figures taken from the raw rules on post one, regardless of support and resistance or did you include any filters..
Thank You James16, Fijitrader, Mbqb1, ghous, Pinbar and Jarroo. cpfleger
  • #359
  • Mar 11, 2012 5:14am Mar 11, 2012 5:14am
Quoting bfis108137
This may have been discussed but after looking at some previous charts, it would seem a r/r of 1.5 or 2 would be better for this method. That is to say it seems that this method hits about 60% of the time at a 1:1 r/r but it seems that it hits at about 50% for 2:1 r/r. Anyone noticed this?

fyi assuming a 2% risk after 20 trades without compounding:

60% at 1:1 = +8%
50% at 2:1 = +20%
45% at 2:1 = +14%

As you can see even at a 45% win rate you would much better off with a 2:1 r/r than with a 60% win rate at 1:1 r/r.
Hi bfis, welcome..

first the trader that is successful but continues to teach... heard this argument a lot... my take is
1.sipping cocktails on the beach is pretty shallow, most would die of boredom quickly.
2. Maybe they get a sense of achievement from teaching/helping people.
3. Consider trading this on daily bars only..... how much of your day would it really take up?

Pull up the 8 majors for 2011 and test the conservative approach on daily bars. I got around 100 pips net a week. Start with a single lot and compound.

But do that for say 5,10, or even 20 years.... you're gonna get bored, seems ridiculous when you're poor, but i'm sure thats why most of them do other related stuff.

The R/R figures are interesting, im going to have a look at removing risk at 0.5/1 and then employing a stepped trailing stop...
tradewith60
  • #360
  • Mar 11, 2012 6:03am Mar 11, 2012 6:03am
Quoting 60minuteman
Hi bfis, welcome..

first the trader that is successful but continues to teach... heard this argument a lot... my take is
1.sipping cocktails on the beach is pretty shallow, most would die of boredom quickly.
2. Maybe they get a sense of achievement from teaching/helping people.
3. Consider trading this on daily bars only..... how much of your day would it really take up?

Pull up the 8 majors for 2011 and test the conservative approach on daily bars. I got around 100 pips net a week. Start with a single lot and compound.

But do that...
I am not that successful but I am very logical and math orientated as well as a programmer. I hate programming mt4 though because the editor is absolutely terrible and that's being nice. Anyways, I just happened to notice that it seems that most of the winning trades are winning more than just 1:1. I am not trading this as of yet but tomorrow I think I will give it a try. While I am also against a hard set of rules for entering, I think a hard set of rules for exiting may benefit us (or at least myself) because it takes the emotion out of it. IMHO (and many others) the biggest battle of most traders is the emotional side of it.

I have also coded a little program to estimate different expectations at different win/loss ratios along with different risk/reward ratios. It gets around the problem of standard deviation (also known as luck). That is to say that in a 50% system you could still lose 10 in a row. I just means that each trade has a 50% chance of winning. Anyways it's very raw but it does the job it was intended to do. I have attached for all interested parties. Percentages are expressed only as whole numbers. You cannot have 66.7% and 66% is expressed as 66 and not .66. Sorry mac folks, it only works on windows. Tell me what you think or if it is outside the scope of this thread.
Attached File(s)
File Type: rar percentGainWithWinLossPercent.rar   6 KB | 630 downloads
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