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TheRumpledOne
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Postby TheRumpledOne » Fri Dec 05, 2008 11:28 am

- Column 1 and 2 show the no. of candles in a row (buy on top block, sell on bottom one)
- Columns P6...P100 shows the no. of successful reversals with 6..100 PIPs for the candles in row

Take 1st row: out of 216 single buy candles 185 had a 6 PIP (or more) reverse. This is a probability of 85.6%.
Now take 4th row: out of 18 patterns 4 in a row, 14 had a successful 6 PIP reversal. This is a probability of 77.7%!

I've checked other currencies and came to similar figures: there is NO SIGNIFICANT difference in probability for a successful 6 PIP reversal based on the no. of candles in a row or the color of a previous candle! For a H1 timeframe you always go with a chance of about 85% (in average) for a successful 6PIP reversal trade!

Anybody can proof me wrong?


The house in Vegas has, at best, a 52% - 48% advantage over the player.

But in BlackJack, there are times when the player has the edge based on the CARD COUNT. That's why if they catch you counting cards, you are asked to leave.

Are you saying there's an 85% chance of a 6 pip reversal trade each hour?

You know, VEGAS, would kill for those odds.

Also, are you looking at the H1 candle or summing up the M1 candles?

Thanks for sharing.
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TheRumpledOne
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Postby TheRumpledOne » Fri Dec 05, 2008 11:55 am

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Linear Regression!!
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Postby razorboy » Fri Dec 05, 2008 11:59 am

What was your entry point for these? Just to say there is a reversal isn't very actionable unless you have some idea of when to get in or out




I think winny got a very good point! Following the "rule" he would have traded with the 4th, 5th and 6th candle as well - what would turn out to be no reverse trade in the end - although probably he still would have made some PIPs with these trades. So my question is: is it really more profitable to take a reversal after 3 or more candles in a row?

To verify this I made a small indicator to calculate the chances for a successful reversal trade after n-candles in a row (EURJPY, H1):



- Column 1 and 2 show the no. of candles in a row (buy on top block, sell on bottom one)
- Columns P6...P100 shows the no. of successful reversals with 6..100 PIPs for the candles in row

Take 1st row: out of 216 single buy candles 185 had a 6 PIP (or more) reverse. This is a probability of 85.6%.
Now take 4th row: out of 18 patterns 4 in a row, 14 had a successful 6 PIP reversal. This is a probability of 77.7%!

I've checked other currencies and came to similar figures: there is NO SIGNIFICANT difference in probability for a successful 6 PIP reversal based on the no. of candles in a row or the color of a previous candle! For a H1 timeframe you always go with a chance of about 85% (in average) for a successful 6PIP reversal trade!

Anybody can proof me wrong?[/quote]

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Postby razorboy » Fri Dec 05, 2008 12:03 pm

tro,

Any suggestions on what tools to use to determine if price has complete a retrace of a previous move (i.e when is price following a longer term trend than you are looking at)
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TheRumpledOne
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Postby TheRumpledOne » Fri Dec 05, 2008 12:07 pm

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BUZZARD REVERSALS...
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Postby msforex » Fri Dec 05, 2008 12:29 pm

The house in Vegas has, at best, a 52% - 48% advantage over the player.

But in BlackJack, there are times when the player has the edge based on the CARD COUNT. That's why if they catch you counting cards, you are asked to leave.

Are you saying there's an 85% chance of a 6 pip reversal trade each hour?

You know, VEGAS, would kill for those odds.

Also, are you looking at the H1 candle or summing up the M1 candles?

Thanks for sharing.


I am comparing the closing price of the H1 candle with the highest/lowest price of the following candle: in a successful reversal the low/high of the following candle must be at least 6 PIP below/above closing price of the previous candle. As shown in my indicator this is the case in +- 85% - whatever color the previous candle has!

Unfortunately, even with a 85% chance of win there is still somebody who will spoil our party: Mr. StopLoss or THE loosing trade. The 85% chance for win comes basically down to losing 1 trade out of 7. So if we make 6*6 = 36 PIPs the loosing trade will eat all 36 PIPs of profit (in statistic average). This is know as the risk/reward ratio. Test it with an indicator or even better an EA - its simple mathematics.

So obviously a high probability for a successful trade is not enough - we also need to consider the risk/reward ratio!

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Postby TheRumpledOne » Fri Dec 05, 2008 12:31 pm

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razorboy wrote:tro,

Any suggestions on what tools to use to determine if price has complete a retrace of a previous move (i.e when is price following a longer term trend than you are looking at)


I wrote TRO SupResPct ( "donational indicator" ) to show where price is AS A PERCENTAGE between dynamic support/resistance.

Is that what you had in mind?
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Postby TheRumpledOne » Fri Dec 05, 2008 12:34 pm

msforex wrote:
The house in Vegas has, at best, a 52% - 48% advantage over the player.

But in BlackJack, there are times when the player has the edge based on the CARD COUNT. That's why if they catch you counting cards, you are asked to leave.

Are you saying there's an 85% chance of a 6 pip reversal trade each hour?

You know, VEGAS, would kill for those odds.

Also, are you looking at the H1 candle or summing up the M1 candles?

Thanks for sharing.


I am comparing the closing price of the H1 candle with the highest/lowest price of the following candle: in a successful reversal the low/high of the following candle must be at least 6 PIP below/above closing price of the previous candle. As shown in my indicator this is the case in +- 85% - whatever color the previous candle has!

Unfortunately, even with a 85% chance of win there is still somebody who will spoil our party: Mr. StopLoss or THE loosing trade. The 85% chance for win comes basically down to losing 1 trade out of 7. So if we make 6*6 = 36 PIPs the loosing trade will eat all 36 PIPs of profit (in statistic average). This is know as the risk/reward ratio. Test it with an indicator or even better an EA - its simple mathematics.

So obviously a high probability for a successful trade is not enough - we also need to consider the risk/reward ratio!


Why would you lose 36 pips?

If you use DRAGON's MONEY MANAGEMENT, SL = 20.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby msforex » Fri Dec 05, 2008 1:23 pm

Why would you lose 36 pips?

If you use DRAGON's MONEY MANAGEMENT, SL = 20.


Using 20 PIPs stoploss your chances of winning will go down to 76.9%!

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TheRumpledOne
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Postby TheRumpledOne » Fri Dec 05, 2008 1:59 pm

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GET READY...
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