And I think I copied these from a MightyOne post:
They are D2 charts
But I can see the same thing on D1 and H4 charts:
And what I see is that just by following in the previous candles' direction (ONLY WHEN the current candle is following the same color as the previous), there is great opportunity for profit. Even when the candles switch colors back and forth, there still seem to be wicks when you could've caught a little something.
I guess you would want to be there trading when the candle opens. And some overtrading management for times when the price ranges back and forth over the open. (You still to some degree would have to decide what triggers your entry, even if using the previous candles' color as your deciding criteria.)
And finally, just being honest, I don't run any backtest programs, I just make some observations and zoom into timeframes to see how it plays out.
:::EDIT May 25. 2010:::
I FINALLY found the post. I was starting to think I imagined it...
Posted: Sun Oct 18, 2009 6:58 pm(EST) http://kreslik.com/forums/viewtopic.php?p=28424#28424
MightyOne wrote:foreman01 wrote:Patch wrote:Does it make sense to be a Red Rat because the market falls much faster, and farther over a shorter period of time than a market rising?
Might be true for stocks, but forex pairs are relative. If EUR/USD was instead called the USD/EUR pair, then it would go in reverse -- so what does it mean to fall or rise? You buy one EUR you sell the USD at the exact same time - that's what always happens.
As to the idea of only playing one direction. The DTB rat - as I recall - was based a statistical study that said "20 pips from the high, OR LOW" -- both directions were equally valid.
I think on a more generic level one could be a rat by always playing their "system." One often hears pros say "learn one system and stick with it." So in this sense the system could be stated as: be a red rat when 20 pips from the high; and be a green rat when 20 pips from the low.
I feel pretty confident that if this forums experienced traders were to trade both red rats and green rats, that they would still have the same percentage of successes.
LMAO (at myself for this next statement) ON THE OTHER HAND -- it may be that by only playing one direction on one pair that the price action would be different for a red rat than a green rat and thus one would become better at recognizing a successful trade (especially the price action for exiting - because the entrance rules are pretty much ground in stone).
You would only benefit from switching rats if you could tell that price was going to make a strong trending move.
Over one period of time there will be more green than red bars and over another period there will be more red bars than green.
There may even be near equal distribution of red and green bars
Upon entering into the market you cannot know if price will move 11 or 1,100 pips nor can you tell for sure the beginning of a move from its end.
What you can know are the statistics of individual bars or how the current bar usually interacts with its neighbor(s).
Pick one color and stick to it and maybe later, when you are not subject to an alarm clock, you can attempt to switch just before a strong trending move should you have the experience to do so.