Using Basic Statistics to gain an EDGE. - page 3
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So at any point on a chart we have a 50/50 shot of hitting our TP so long as our entry is equidistant from the TP as well as our SL.
This isn't quite true because if the spread is 3 pips, you have to go up 53 pips to have the same win as a loss of 50 pips. Its not 50/50
This isn't quite true because if the spread is 3 pips, you have to go up 53 pips to have the same win as a loss of 50 pips. Its not 50/50
That's why I said you need to adjust the TP and SL to be equidistant. If you have a TP of 47 and SL of 50, or TP of 50 and SL of 53 then you'll be equidistant. At that point in time you'll have a 50/50 shot at hitting either one of them.
I will assume that the difference between 47/50 or 50/53 is small enough that by being 50% right the succcess won't be affected all that much in terms of pips gained vs pips lost. This is because certain money management techniques could be instituted to increase the profits off of the successful trades.
Also, if the system can easily decide which way to place the trade to carry the momentum of the price then it should also balance it out to either be 50% correct or more. If a price is running you are better off running with it than against it.
Standard Deviation
Standard Deviation is a statistical measurement of volatility. It measures how widely values range from the average value. The larger the difference between the closing prices and the average closing price, the higher the standard deviation will be and the higher the volatility. The closer the closing prices are to the average price, the lower the standard deviation and the lower the volatility.
High volatility levels can be used to time trend reversals such as market tops and bottoms. Low volatility levels can sometimes be used to time the beginning of new upward price trends following periods of consolidation.
From the attached screenshot based of the 1 Minute EUR/USD chart, it is quite clear and fairly easy to spot possible reversal zones or exhaustion zone using the StdDev indicator included in Metatrader 4 as default set to 14.
I toyed with the idea that when the StdDev rises above 0.0004, it would signal that a change in the direction of the current price leg is imminent. On the chart I highlighted a couple of these points. (The point 0.0004 has been chosen based on a quick visual inspection although I am sure it is possible to determine the most significant level, there are some other issues that I am aware of that motivates me to use this level also, I will discuss this perhaps in future posts if anyone is interested).
If you care to look at point A for example, and notice that on the StdDev it just closed above 0.0004, thus signaling that a change is imminent and closing or partially closing out a open SHORT position would be prudent.
Point B signaled the end of a possible LONG position, Point C the end of a possible SHORT position, point D the same, point E also the same.
Point F formed on the second bar after the StdDev signal, see the next paragraph for possible usage.
I am toying with a few possible rule sets for example; to use the HIGH of the bar that just caused the StdDev to close above 0.0004 as the immediate exit if it is breached by subsequent bars. If the next bar makes an even low high, this exit stop would be adjust down to fit the new lower high etc until stopped out.
A second idea I am toying with is to do the same as the above, but only start applying it when the StdDev close down the first time.
Which ever way it will end up, I think one can hardly ignore the accuracy and significance of using a simple statistical tool in this manor.
Uhm now who said statistics are boring and difficult to relate it to trading
In future posts, I will indulge in some more uses of statistics especially using my favorite statistical indicator the R-Squared, I will share my research into using it to pinpoint entries with a high degree of accuracy and low risk.
If there is anyone out there thinking in these lines or doing some other lite statistical research, let us know what you are up to.
It is general knowledge that the markets are not linear or at least not linear most of the time, knowing when it is, can reveal interesting results
Catch you laters,
FX SniperFX Sniper,
I am using the STD DEV indicator on IBFX charts with 14 period setting on 1M EUR/USD chart on the same day and time as the chart you posted, but my chart does not match your charts. On IBFX I miss most of the signals you have.
May I know which broker you used for the STD DEV chart you posted.
Thanking in advance,
Raj
Hello Everyone,
Just to give you some idea on possible profits from applying statistics please visit the page below. I do not know what they do, but in thermodynamics entropy measures the "tidness" of the nature, the higher the better (the world tends to be organized as little as possible)
http://www.collective2.com/cgi-perl/systems.mpl?want=publicdetails&systemid=17038326&session=125462152898016247488045150311664
Regarding the statistics itself, do not U think that all the candle patters as well as protrend & reversals patters(double tops, bottoms etc) are base on statistical observations of the market.
In my case I use daily range brakout with MM. Win/loss ration 9:1, avg win/avg loss = 1:1, the only problem is that it happens each 10-15 days
Regards
"Personally I do not really care much for most indicators out there, the reason is extremely simple, if you take say MACD histo, RSI, Stochastic bla bla bla and input them all in Excel for example, normalize them to get them on the same scale and then do a simple correlation test, the high correlation in the 80+ range is clear proof that adding more than one of these particular indicators brings NOTHING new to the decision table in a system. When I consider using an indicator for something, I always check this out first to see if it would really bring some fresh information to the decision table or just clutter the hell out of my charts to say the least."
Totally agree, everytime this is pointed out on a forum, a hail of flack is generated, I think the reaction is due to people being scared at the prospect of not having easy, prepackaged solutions to problems.
"Personally I do not really care much for most indicators out there, the reason is extremely simple, if you take say MACD histo, RSI, Stochastic bla bla bla and input them all in Excel for example, normalize them to get them on the same scale and then do a simple correlation test, the high correlation in the 80+ range is clear proof that adding more than one of these particular indicators brings NOTHING new to the decision table in a system. When I consider using an indicator for something, I always check this out first to see if it would really bring some fresh information to the decision table or just clutter the hell out of my charts to say the least." Totally agree, everytime this is pointed out on a forum, a hail of flack is generated, I think the reaction is due to people being scared at the prospect of not having easy, prepackaged solutions to problems.
The issue of using or not any indicators and in general the whole TA is another important topic. But it directly leads to the theoretical model which should be applied to the forex market in different TF. Can we start any statistical calculations without settig up model which lets us to approach reality at best?
Even if we do not use any idicator it is worth to know how popular it is since it let's us to predict other people reaction and at least avoid losses. For example let's consider Woodie CCI (with the whole respect to that great person). The more people use it, the easier it is to predict their reaction and make money. Will you take short position if you know that 100% traders use woodies ZLR which points to long? Surely it will never (never say never) happen since once all traders start using one techniqe forex will die. But this can be applied to small TF and small money since I hardly believe that China National Bank will take decision using Woodie's CCI patterns (probably they care more about fundamentals).
FX_Sniper, it is great idea to start the topic. Forex market is influenced by so many factors, emotions etc etc that applying statistics and probability seams to be reasonable as long as it is accompanied by very good MM.
FX Sniper,
I am using the STD DEV indicator on IBFX charts with 14 period setting on 1M EUR/USD chart on the same day and time as the chart you posted, but my chart does not match your charts. On IBFX I miss most of the signals you have.
May I know which broker you used for the STD DEV chart you posted.
Thanking in advance,
RajHi there,
I know what you mean, from time to time I have this also. Data, especially lower TF's get more sensitive to differences, the shot I posted was taken from Alpari feed, the UK demo to be exact although it is the same as the other demo they have. Sometimes, they skip a 1min bar all together and sometimes one of the other brokers skip a bar or two even, I have tested Fibo Group, SBFX and Alpari and usually mix between them just to make sure my stuff is at least in there somewhere.
It really is a pain in the but that the difs are so big, my broker is Oanda, and they are more different than any of the MT4 demo's I have tried, I am working on a way to get some data from them as I believe it is best to test systems etc on one's own broker rather... I have however designed my system around this and just look at the differences in terms or volatility
:D ( the difs between the brokers)
Best wishes
FX Sniper