Friday, 6 January 2012

Numb3rs Again!

Trading is a numbers game. A game of probabilities. Getting that concept is an important part of getting to CP. The trading stool has three legs: win rate, average win, average loss. The rest of the statistics are made up out of these three (that number again) prime numbers.

Mastering these statistics is what it's all about. You can trade 1 contract for 9 hours or 9 contracts for one hour, it all comes down to the numbers.

The issue for a discretionary trader is to be rule based enough so that the statistics that are produced mean something other wise you are whistling in the dark. Having a repeatable methodology means that you can have an expectancy that gives the confidence to stick to a TP. Sticking to a TP means that you can increase size as the market gives you it's money to use against it. Increasing size means that your hobby can become a business.

It's all in the numb3rs.

The markets replay and replay the same pictures. The trade below is one such picture.

This is a 5.5 point range bar of the DAX, but it could be any intraday chart. There was a monthly U.S. jobs report out at 1.30pm London time. See the Cyan rectangle. The market digested the news and then broke down. The previous low to the left, an hour before, was where the stops were and they were taken out by the big guys who covered their shorts there and took the market back to support at the EMAs. 

Until the breakdown, the market was in an uptrend. The change of trend is not one move. The break and the pullback and the subsequent thrust was the change of trend. By selling at the pullback to resistance in the direction of the new trends you get the best trade location and the least risk on the trade. Note the oversold market at the point where the big guys covered their shorts.

Putting this trade into a rule based TP and back testing it gives very specific numbers that can be relied upon. Using the technology to do the grind work means that in 20 minutes you can do the work that used to take days or weeks. Then, taking the next step and using the algo to make the entries is not such a big step.


  1. jenrique42

    what a week it has had the euro, down, I had not seen a week as bassist with a wide range of over 340 pips a beast


    pues menuda semana ha tenido el euro, de bajada, yo no habia visto una semana tan bajista con un gran rango, de mas de 340 pipos, una bestialidad

  2. Hello Boss,

    I need your help with my coupon clipping
    mentality (read, I am cheap).

    May I ask how much you pay a month for all
    your platforms, data feeds and such.



  3. Hi Rino, Lots as I have a bunch of platforms, feeds and VPSs, each for a different purpose. Email me with specific questions if you like.