Probability
Hey Beno,
Development on such a system would be based on parameters freely given, one would think we need to figure out a mathematical equation using the various aspects of a candle.
High, Low, Close, Open, Range, Time
By creating a foundation equation based on the six various aspects of a candle, the following probability models can be built off a single base.
I think this is a wonderful idea, and I hope to see other people who are much more gifted in statistics and math and Beno and I.
Cheers,
You have no idea how deep the questions go. Keep going. The answer will automatically come to the correct questions. Very soon you'll find that just about all classical t/a is nonsense and everything needs to be properly redefined in its own light through scientifically & statistically measureable terms. From that moment, you will finally understand and, unfortunately, be on your own. Good luck!
Welcome to 2009 I hope it will be a profitable year for you all.
I like this idea a lot. Everything is probability.
I am literally just getting into this so I will require help but I am very interested in creating an EA based on my own trading.
If we think about the overall function of what the EA must do to be worth while is that it needs to have more profits than loss. Expectancy should obviously be positive.
So far the EA's I have seen work backwards to me, but I assume they are written to be more consistently profitable.
During an average trading day when you look back on it it seems like there are such easy and well defined trends at points throughout the day.
The thing about probability is you have to look at expectancy of risk to reward. If we are able to write something that attempts to open a trade and target 100 pips with a stop loss of 10 pips, we can be wrong 90% of the time and make money. This seems like a backwards way to look at trying to take something based on probability but it has an edge and in the long run should be profitable. If you could make it to profit 30% of the time you would be very happy. This is how I currently trade, get in at a support or resistance, so that if it breaks I know to exit, have a tighter stop and use say a 1:4 risk reward ratio.
Non of the above is revolutionary but the problem is when manually trading as much as I try to not let my emotions matter, sometimes they do. If I could program something to detect what I look for to enter or exit I would rather have it automated, if I have a positive expectancy then it should be profitable. I am sure this has all been discussed before but I am just laying this out to try and organize and maybe others can help with this.
What one obviously needs to do is determine the probability of a duration of a trend and look to capture a portion of it or all of it if possible.
For example, lets say we have a downtrend breaking(signaled by a higher low and higher high) once this happens what is the probability of that uptrend continuing and for how long?
If we look at a specific chart(unfortunately it seems like MT4 doesn't have tick charts?) we could try and determine how long a trend lasts in ticks. If a bullish bar on a 133 tick chart is generally followed by 4 more bullish bars we could look to capture this trend.
I am using general and completely fabricated estimations but if the above scenario occurs 70% of the time you would want to enter a trade when this happens with a logical stop loss each time. The above scenario may run into problems during a time of consolidation but maybe could be filtered to avoid most instances of overtrading.
The other scenario again uses probability but instead uses time frames. If you use X time frame once a trend begins what is the length and probability it continues for a certain period of time? You could use bars or a OHLC scenario to determine trend reversal then say filter it with the 30 min trend and enter a trade with a stop loss with a close below the low created before reversal or as a trailing stop below each higher low.
Sorry this is long and I don't mean to hijack just trying to get thoughts out there. Again this is probably already been thought of but this is my first attempt to learn and try and program an auto trading program and I am sure this community is very knowledgeable.
If anyone knows how to code the above scenarios or has code for the general idea I would love to hear about it or collaborate on it.
Ben
Gidday Ben
That is a big first post LOL welcome to the forum.
There are plenty of people that are able to code your system but most are very busy on other projects so good luck.
I have attached an excel sheet that contains my mm system and a probability sheet. it has data from gbpusd to use.
Entry is on the open of a new bar.
I am looking for ideas to move forward as the only thing all time frames have in common from my limited experience is OHLC Volume/Volatility.
So the system should be able to pick the best TP based on TF ie if the 1m tf moves 12 pips on average per bar what is the optimum TP for that time frame on a bar by bar basis.
Probability based systems are very new to me as well, but I do think this is the way forward as you could in theory use them to trade anything from FX to Stocks futures ETC.
Cheers
Beno
hi
yes I agree in probability system we should pay attention to risk reward ratio , min.1:1 (tp=30 SL =30) sometimes big drawdown happened if u used wrong risk reward ratio (tp =30 SL = 60)
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Thanks for the warm welcome Beno!
Sounds like we are on the same page trying to go off of duration of trend(ie how many pips on average can you expect in the direction of trend).
I am wondering if Average True Range would be useful at all? I personally have not used it in my trading but seems kind of like what we would be looking for in terms of determining what the volatility is on any instrument.
Depending on the system and how frequently it trades, it may be more advantagious to go with a more volatile moving instrument to increase chances of capturing a decent portion of a trend.
I am going to try and do some more research and learning so may be I can help out but hopefully others can chime in with info and ideas.
Ben
Thats where the mm system comes into play as the TP is based on how accurate the system becomes ie the more accurate the more the profit it takes and vice versa. but the risk is alway the same as you have a max DD that your comfortable with because you set it to what you want.
This is all theory apart from the mm system I know that works but the hard part is getting the probability part correct. ie what are the chances of the TP being hit if a open either a buy or a sell based on history.
The higher the prob will determine the trade direction, it sounds logical to me.
Cheers
Beno
Well I just downloaded all the the lessons that codersguru made, which I have to say is awesome and thanks to him. So hopefully after a crash course I can come up with some constructive input in terms of code and try and put ideas into action.
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