My idea of probability

Hello Everyone,
I have come up with a method of trading forex pairs which doesn’t involve any fundamental analysis and conventional methods of technical analysis but It is purely based on probability and the fact that there is always going to be volatility.

From the procedure point of view, there are two layers.

****** 1st Layer ********
> In the middle of EU trading day, open 5 buy positions(D pairs) in the following pairs hedging them with 5 sells.

1D gbp/usd
2D eur/usd
3D eur/gbp
4D eur/chf
5D gbp/chf

These 10 positions will have 50 pips stop loss and 100 pips profit limit. The idea is that, whichever direction the market goes from that point, we will get 50 pips profit, for example, the long one closes with a loss of 50 pips and (assuming the market continues to move in the same direction) and the short one closes with 100 pips profit and overall 50 pips profit.
Note: When the 1st position closes, I move the S/L of 2nd one from -50 to 0.

> Repeat the above with 5 following (N) pairs during middle of Asian hours:

1N usd/jpy
2N eur/jpy
3N aud/jpy
4N aud/nzd
5N aud/usd

> This process will be executed mon-fri giving (roughly) 100 positions in one week.So far we have 2 deals executed for each trade, this is the 1st layer of this method.

The record of all the +ve and -ve deals and overall P/L per week summarised in Jupiter-weekly sheet of the file I attached. For statistical analysis purposes, I have calculated the overall P/L of each week trades for D & N pairs combined as well as seperately because one strategy might not suit
all the pairs (as the volatility of D pairs is different from N pairs).
The total P/L from this sheet goes into ‘1st layer’ column of Jupiter-summary sheet.

****** 2nd Layer ***********
> The above only works if, in all my trades, the market moves in one direction without touching the stop loss but you know, this is not going to happen all the time. From my experience, this roughly happens 50 percent of the time, i.e. 50/50 positive/negative giving us breakeven result of our trading.
To start with an example (for a negative)
> we start with a buy and sell of GBP/USD
> the pair goes up 50 pips, the short position closes and I move the S/L of
2nd one from -50 to 0
> the market goes further 25 pips UP and reverses back by 75 pips.
> So far, the first one closed at -50 and the 2nd one at 0.

To be positive overall, we need to cutdown negatives (or at least reduce them) . For this, I enter the 2nd layer of this method by opening a 3rd position when the 2nd hedged position is closed expecting that the market will move further in the direction of reversal(which, again obviously is not going to happen all the time).
For this pupose, I analyse every negative position(i.e. all the ones which closed at zero S/L) in the Jupiter-Log2 sheet to see what was the pattern.

In the Z(25) column of each negative I note how many pips it went further in the direction of reversal.
Continuing with the previous example:
> As the 2nd (long one) closes, I open a short (3rd one) because the pair is going down with 25 pips profit limit and 25 pips stop loss.
> In the same way, I analyse all of them to see what P/L could they have given me if I had 50/50, 50/150, 50/200 SL/PL combination and note their P/L down in thier respective columns.
By totalling them, it tells me which strategy in terms of stop loss and profit limit in number of pips gives me the best result overall.

> Again, I do this analysis for 2nd layer for combined D & N pairs as well as separately.
All the totals from Jupiter-Log2 are summarized in Jupiter-summary for each week per strategy.
To get the overall P/L result of my trading,
I pick the total of 1st layer plus one of the most effective strategy of 2nd layer. For example, P/L of day-only pairs (i.e. if I only traded with D pairs) is zero and most strategies in 2nd layer give me profit anywhere between 100 and 300 which is my overall profit of around two weeks of trades.
Now the idea is that, if a particular stragety can give me a consistent profit
(lets say 50/100 in this case so far) for at least 4-8 weeks, I will implement this into live trading.

> There are also ‘flip’ columns in these sheets. Lets say most of my(2nd layer) positions using the method I am using consistently went into negative and learning from that experience, I would flip those 3rd positions to turn them into positive.

Other ideas to tune these methods**

  • As we see, there are positive 1st layer deals in trendy market and negatives in slow and averaging markets. Instead of opening 2nd layer deal exactly where the 1st one closed, I can open it 25 or 50 pips away from closure of 1st layer whichever direction the market moved because by that time, the averaging trend has broken and has turned into trendy situation so there are most chances of success. I am yet to analyze my negatives positions for this.
  • I can also open a 3rd layer (4th position) resulting from loss in 2nd layer since from experience with this method, the 2nd layer is always (or most of the time) profitable than 1st layer.
  • Currently, I am opening the positions in the middle of trading day in each trading timezone and expecting that the market will move 100 pips in one direction. I can do the same methods by opening the position at the start of the day instead.
    AND a lot more ideas which are yet to be tested. In conclusion, I am trading 20 pairs a day and upon their close, I have developed a method of statistical analysis which allows me to test so many strategies and hope that I will be able to find a consistent pattern somewhere and beat the market somehow :slight_smile:

I welcome any feedback on this… Is it making any sense ? any questions ? any other ideas to tune this further ?
Also, I would like to know if(and how) I can do backtesting on this kind
of method.


Any feedback would be appreciated !

This is exactly the same as putting in limit orders to go long at +50 with a +100 target and short at -50 with a -100 target, with a 50 pip stop in both cases. Well, the same except for how it’s likely that not all of the orders will get tripped, so you’ll have less spread cost than opening all 10 trades at once. Otherwise, the P&L profiles are the same.

For example, in your case you’re “hedged” position would make nothing at all if the market stays between +50 and -50 (it would actually be a net loser when including the spread). At +50 the short is closed and long kept open, giving you the same risk profile as if you’d just entered long at +50. Same with the -50 case. Once you have the 1-sided directional risk after the “hedge” is closed, the market could keep going or turn around (or do nothing). Either way, it’s a position with a 50 pip target and a 50 pip stop.

thanks rhodytrader, well spotted,
I can certainly save a lots of pips by making this minor change in my method especially when i want to get out of market early, for example in the following scenario.

From my experience, (talking about one week) there are roughly equal chances of each of the deal going positive or negative, that means ~25 positives and ~25 negatives.
Based on that, there is good likelihood that at some point within the week, I will be positive by ~5 deals(unless I get 25 negatives in a row) which is my target for one week for now since I want to stay positive per week and when I achieve this target, I want to get out of market and look forward to next week. Now according to my hedging, I lose spread for positions which haven’t even touched +50 or -50 yet.