I have been running some statistics on about 70 currency pairs on the daily candles and these are my findings…
The average weekly move is about 2% so if you run the weekly charts you should average a 2% profit if you pick the right pairs each week. The average daily move is about 1/5 of the weekly move as you might expect. I also took a look at candle directions, if you look at any candlestick then the odds of the next one moving in the same direction are 50/50. If you take the combination of two candlesticks (UU, UD, DU, DD) then the odds of the next candle being up or down based on the combination of the directions of both candles is 25/25/25/25. For 3 and 4 candles it is the same thing, the odds of the next candlestick being up or down is completely random.
This is why you need to get your win/loss ratio up and why you need to make sure that the amount you win is more than the amount you risk. The system itself is random but you can tip the odds by using good money management.
the additional problem are swap fees
Interesting stats, thank you. However the W/L ratio is not important - it’s your second half of the sentence that is key.
I know of two traders who are very profitable scalping the 1m TF with a win rate of only 20%.
I like a little bit of statistical work on markets from time to time.
This morning I looked at GBP/USD for 2020. I wanted to estimate the probability of additional higher daily closes in an uptrend, or of additional lower daily closes in a downtrend. The reasoning behind this is that a difficult question in trading is when to exit a profitable position. So let’s suppose you have opened a long trade in an uptrend, and price has closed higher for 3 days in a row - do you hold on for another higher close or is the best of this upleg over?
I used a simplistic definition of an uptrend which is the slope of the 50EMA - upwards indicates an uptrend, downwards indicates a downtrend.
The very rough and ready results suggest that after 1 favourable close in a trend, there is about a 56% probability of another the next day. In other words, if you’re long in an uptrend, and price has closed higher, there’s about a 56% chance it will close higher tomorrow night.
After 2 consecutive with-trend closes (higher in an uptrend, lower in a downtrend), the probability of a third consecutive favourable close drops to about 35%. The overall average length of with-trend series over the year was 2.2 days.
Very similar results come from just looking at the consecutive high and consecutive lower closes across the year without any regard to the EMA. Again the average number of consecutive higher or consecutive lower closes across the year was 2.2. After a close in one direction, there was about a 56% probability of a second close in the same direction the next day. After 2 consecutive closes in the same direction, the probability of a third the next day dropped to 32%.
Good job with the stats of 70 currency pairs. That took me by surprise though. As far as your key takeaway is concerned, no wonder a well planned money management strategy can easily run the show.
Running them on 70 currency pairs is amazing! Thanks for sharing.
Thanks for sharing your analysis report with us here. I have also done the market analysis but mine shows different results. But, I guess it’s better that I go with mine for the time being. Even if I’ll lose, it’ll be a learning lesson and prepare me for better trades in the near future.