nice job quah. the only question i have is what made you decide on the +1/-1.25? i'm not questioning if it works or not, just wondering how you arrived at those numbers? like, what if someone wanted to transfer this method to a different instrument? how would they go about calculating the target and stop? thanks! keep it up!
Not sure how I came up with the +1/-1.25 - just seemed to work. Someone with a lower risk tolerance might go for only +.75. Basically, there is no specific reason for those numbers. I haven't really looked at this for NQ, but off the top of my head I'd probably equate the +1 ES to +3 NQ points, or maybe just 2. I'll take a look at that later on tonight.
quah, Interesting. But I think statistics will catch up to you after a certain time. With a 50/50 chance of being right, you have larger losses than winners. However, by all means, keep trading it. The rule of large numbers may take so long to catch up with your system, that you might do great for a long time. I have no idea -- I confess that I know nothing.
Every trade, no matter your system, technically has a 50/50 chance of being a winner (if you don't include B/E). IMO, it's okay to have an average loss that is higher that the average profit as long as your ratio of winners to losers allows it. IMO, when you have a system - no matter what it is - the 50/50 thing gets blown out of the water because you have an "edge". Might be a postive edge or a negative edge. For example, if I bought every time stochastics were pegged above, say, 95, I'd expect to lose more than 50% of the time.
Quah, All trades at their onset -- 100% of trades, automatically become a loser just from the spread and commissions. I don't agree with the 50/50 probability. There are markets that give you a high-probability of a winner over a shorter time domain and, as that time-domain increases, chaotic fluctuations in prices may reduce the probability of a trade being successful. In my own opinion, if the markets were purely 50/50 random odds of any one trade being a winner, then there could exist no system that would profit from such randomness over a long timespan. No amount of money-management, cutting losses and letting winners run would give a trader a net profit over a significant timespan with 50/50 odds. Take into account commissions, datafeeds and other expenses, and you definately stand no chance. Write a program that generates purely random numbers and trade off of THAT graph and then tell me how you do over time. Markets are not random, they are chaotic. If the market was truely random, it wouldn't matter what the stochastic said. Do you know what a true stochastic measures in mathematics? ------- In mathematics, a stochastic approach is one in which values are obtained from a corresponding sequence of jointly distributed random variables. Classic examples of the stochastic process are guessing the length of a queue at a stated time given the random distribution over time of a number of people or objects entering and leaving the queue and guessing the amount of water in a reservoir based on the random distribution of rainfall and water usage. ------- Stochastics are used on random data, and yet the market is not random. If you, by using trends, indicators, volume-levels, etc -- are able to ascertain an edge when trading, then, in my very honest opinion, you are reducing your edge by forcing yourself to trade at specific time-periods. Nobody likes to make an entry sometimes -- there is that feeling of, "am I really right?" Just because you force yourself to enter at a specific time doesn't necessarily give your system an edge, though. Don't get me wrong -- I am not saying your system cannot work. However, it is my gut feeling that, over time, it will tend to break-even with small losses resulting from commissions. If you could look at an indicator and successfully trade at 9:33, why could you not do this throughout the day at any time you chose?
I don't know that I couldn't - but that isn't the point. If I find that 9:33 works, why would I want to try any other time? There is no need to see that other things do or don't work IMO. As far as stochastics go, you can take those out of the equation if you like. Use anything you like - as long at it isn't subjective. Like if the previous bar close lower than it's open, short - if it close higher than it's open - long. Or whatever you like.
Sure it does - it might be a positive edge or a negative edge, but it is certainly different from choosing a totally random entry point. Entering on a fixed time is no different from entering on any other indicator - be it mathematical or subjective. Some people enter a trade when the fast and slow stochastics lines cross below 20 - how is that any different (edge wise) than entering a trade when the clock says 9:33?
are you saying if i enter a long trade at 10, my stop is at 9 and my target is at 100, that my chances of being right are 50/50? obviously not. please correct me if i misunderstood you.