The Most Profitable Trading Pattern You Will Ever Encounter

[Morim]

@Philip, great contibution.

As being newby I have some questions:
I do have a demo account and don’t have 4h time frame. I can use 1h chart though. In this case do I have to wait 4 hrs (4x1hr) to be able to get same restults of 4hr charts? In other words by using 1 hr chart do i have to wait 4 candels? And another question: let’s say markets opens at 9 am… does this mean that I have wait until 1pm (considering 4hr time frame) to be able to entry?

Further, can I use this techniques to the stockmarkts or indexes as well? If not what are the differences with forex markets?

Appreciate your answers.

Rgds,
Mori

[lordclansman]

I didn’t make a profit with the last two operations I made so I’m asking here.

I’m seeing all the signs in GBPUSD right now, is it a good time to buy? Red is a moving average on 20 period and blue is a moving average on 50 period.

[PhilipPirrip]

@rvince99

Philip,
Cases where f == 1 (or, more precisely, where f >= 1) are as follows (it’s pretty simple, though I had a hard time wrapping my head around it for a long time).

First, in the non-asymptotic case (which is the actual optimal value for f, which is always a function of horizon), with a positive expectation, where the horizon is one play, the fraction that maximizes the expected growth is (rather obviously) 1.0.

In the asymptotic case, this only occurs for a one-component portfolio if there is no chance of loss. In the more terrestrial cases where this is at least some chance of loss and individual component’s f value is always < 1, but what I call “Sigma f,” the sum of the f values of all the components (which represents the immediate worst-case drawdown if all individual worst-cases occur simultaneously) will :

Asymptote out at 1.0 as the number of components increases

-unless-

there is one or more components with perfect negative correlation to one or more components, in which case the asymptotic f (as well as the optimal f value for a finite number of plays) is infinite (as there is never a losing period in the aggregate).

This last case is risk-less, i.e. with no chance of loss. So we can say that whenever there is no chance of loss, the f that is expected growth optimal is infinitely high (i.e. we should risk all we can on the proposition to be expected growth optimal, for anywhere from one to an infinite number of trials.

The only other times we see an f value (for one components) or Sigma f (for multiple components) equal to 1 is when we are in a positive expectation with a horizon of 1, or we increase the number of components and approach an f value of 1. These cases DO have risk, and with f (or Sigma f) at or near 1, it is these cases where, to achieve expected geometric growth, we are exposed to near total loss should worst-case manifest, and these particular cases where I suspect your question is germane to.

Here’s the problem, and also evident in my (long-winded) answer here: the solution to expected growth optimality is without respect to risk. Any dilution of this, is a deviation (and diminishment) of expected growth optimality.

Which is where all of this goes down the rabbit hole, and where some new, and what I regard as beautiful answers, some useful applications of all of this emerge.

We are looking so far at expected growth without regard to risk as our criterion for “optimality.” Is that really what we want to pursue?

Generally, we pursue expected growth with respect to some sort of risk measure. Even sports or table-game gamblers generally aren’t pure, expected-growth without regard to risk optimizers.

On the very curve between 0 and 1.0 where the peak (the expected growth optimal maximizing f value) there are other points which are “optimal,” with respect to the trader or gambler’s criteria. For example, there is an inflection point, between 0 and the peak, where the marginal increase in expected growth with respect to marginal increase in risk, is maximized, where this curve goes from concave up to concave down.

Perhaps that is,for many, their optimal point. It IS a point of geometric significance.

Another one which Dr Zhu and I were working on along with the inflection point is the point that maximizes expected growth to expected risk, which would be that point on the curve that is tangent to a line drawn from f=0 , tangent to the expected growth optimal curve. This point is greater than the inflection point, but also less than the expected growth optimal peak.

When more than one component is involved, we have a surface, and these points now are manifolds upon this surface.

And one’s criteria may not involve a single point on this surface, but a moving about the surface with respect to time or equity changes or some other input or feedback. In other words, we end up with a framework for satisfying whatever criterion we seek to satisfy by utilizing the important geometric points, and perhaps moving about them, upon this surface.

I know this is a little more than you asked for. However, in the context of your question, it is evident that expected growth optimality without concern for risk may not, and most likely is not, YOUR criterion here, and before one can decide upon a money management / allocation strategy, a criterion must be articulated.

Again, I’m not trying to hustle anything, not trying to be obtuse either. I’ve spent most of my life studying this and I don;t know everything about it, I’ve only scratched upon the surface. If you are interested in morof this I suggest the paper with co-authored with de Prado and Zhu, which is available freely for download on the home page of my website.

This actually seems a departure from your earlier your work. If I’m not mistaken you are now saying that diversifying the portfolio and trading over the long-term would eventually lead to an even higher value than 1. In the past you said that holding a trade for shorter periods is actually more efficient.

I’m still trying to make sense of the equation in trading terms; like what would be the horizon in my system. The components? are they the pairs traded or the number of plays. I need to time to sort of grasp it.

But you mentioned my criterion and I want to address this. I understand your work about reaching an optimal f within a predefined tolerance for a drawdown. The problem I have with that, is that the result is limited by the trader’s intolerance to drawdown. I want to do this with a drawdown of a 100%, so the actual inflection point. Not just that I want to create a situation where that inflection point is 1.

It may be impossible to do but there is no better authority to ask than yourself. I know you said its realistically impossible but bare with me.

I have a $10,000 with an optimal f of 0.22. That means I’m risking $2200 if I encounter my worst loss. Rather than putting all of that $10,000 into the trading account. I’d put only the $2200 I was willing to risk in the trading account, and use an optimal f of 1. My argument here is that I’d lose the same amount anyways if I reach maximum loss. But overtime, since my system has positive expectancy, the profits made on the $2200 would exceed the $10,000. Also note that as a trader, I can make a decision to never encounter my worst loss again by choosing the trade that has a stop lower than that loss.

Here is an example constructed from the trades I took this year in the same order I took them.

So you can see that the $2200 balance moved to $4509 after 13 trades. Adding it to the $7800 I left at the bank and the result is $12309.78.

This is higher than the 12040.66 yielded by trading the full $10,000.

In the $2200 balance’s case; in my opinion risk is defined as the probability of losing the entire equity before doubling it. In other words risk is the odds that I’d turn $2200 to 0 before it can reach $4400. Now even though the risk of ruin increases with time, there is no doubt that the probability of reaching $4400 before 0 is higher at an optimal f of 1 than it is 0.22. This is especially bearing in mind that the trader can control never encountering the worst loss again (by setting a stop loss) and by having the rest of his capital in reserve.

Am I crazy?

EDIT: sorry I was trying to crop out the picture so we can view the first 13 trades (where the 2200 was doubled) but I failed miserably.

[PhilipPirrip]

So the Australian Central Bank does not cut rate, giving a chance for those who bought AUD to exit on a stochastic move to overbought. Sticking to the rules works.

[jw1981]

@lordclansman

I didn’t make a profit with the last two operations I made so I’m asking here.

I’m seeing all the signs in GBPUSD right now, is it a good time to buy? Red is a moving average on 20 period and blue is a moving average on 50 period.

Can you post a normal chart as this zoomed in chart is hard to understand. Also your stochs look very smooth, are you using the 14,1,3?

According to the rules, that would be a buy signal once the H4 candle closes and stochs move out from the oversold levels.

[jw1981]

@Morim

@Philip, great contibution.

As being newby I have some questions:
I do have a demo account and don’t have 4h time frame. I can use 1h chart though. In this case do I have to wait 4 hrs (4x1hr) to be able to get same restults of 4hr charts? In other words by using 1 hr chart do i have to wait 4 candels? And another question: let’s say markets opens at 9 am… does this mean that I have wait until 1pm (considering 4hr time frame) to be able to entry?

Further, can I use this techniques to the stockmarkts or indexes as well? If not what are the differences with forex markets?

Appreciate your answers.

Rgds,
Mori

Waiting for 4hrs doesn’t help on a H1 chart. If you are using a 1hr candle, just use this method on H1 charts since you are demoing anyways. Only issue is that you might end up in a few choppy trades (but an easy way to avoid that is not to trade when EMA’s are flat). There are quite some nice trades that go on in H1 too. Or just use tradingview.com charting if you want to stick to H4.

H4 charts merely offer a balanced view of the markets in terms of prices, but that doesn’t mean H4 is insulated from sideways markets. Good example, GBPUSD H4 has had instances of flat EMA’s.

Yes, this method works on all markets.

Hope the above helps.

[prasadvissa]

Hi Philip,
posting here EUROGBP daily and 4H, wherein both have given signals , but in the opposite direction.( or , is my reading of the charts wrong?) In such cases what is to be done?

[jw1981]

@prasadvissa

Hi Philip,
posting here EUROGBP daily and 4H, wherein both have given signals , but in the opposite direction.( or , is my reading of the charts wrong?) In such cases what is to be done?

Either H4 or D1 will fail, meaning one of those two could recover before setting itself right. So if you feel adventurous stick to the rules.

Here’s my take on it:
H4 chart with explanation. Bottom line is, there is a correction due down to 0.71528 from H4.

Previous long entries will be recovered quickly (on the way down to 0.71528).

Then in D1 you see a nice hidden bearish divergence as price makes lower high and Stochs make higher high. So i’d take a short from D1 and see how it goes. And because 0.71528 is a level to keep an eye on, i’ll look to booking some profits there before continuing on with the rest of the 100%, 127.2% and so on.

Hope this helps and doesn’t complicate things too much

[prasadvissa]

@JW1981,
thank you for the reply. appreciate the efforts taken to explain the scenario. Happpy Trading.

[rvince99]

PhilipPirrip,

Let me try to answer the several points inyour post, if I can. Please understand, I don’t know everythign about this material, like I said, I have only scratched the surface, despite having spent decades in pursuing it.

You say:
<<This actually seems a departure from your earlier your work. If I’m not mistaken you are now saying that diversifying the portfolio and trading over the long-term would eventually lead to an even higher value than 1. In the past you said that holding a trade for shorter periods is actually more efficient. >>

No, the Sigma f, the sum of all the f components in the portfolio approaches 1 as the number of components in the portfolio increases. Let me demostrate this in rather simple terms.

Let’s say I toss a coin that pays off at 2:1. If we calculate the Optimal f in this case (or the Kelly Criterion as this is a case where the two give identical resultsO we find the expected growth optimal fraction to bet is .25. Now, let’ssay I am going to wager on two of these very same coin tosses simultaneously. Now the fraction drops to about .23 each, so my Sigma f is.46…continuing, you can see that at about 9 multiple, simultaneous coin tosses like this, your Sigma f is now>.99, and continuing, it asymptotes out at 1:

#games f Sigma f Obj Func
1 0.25 0.25 1.060660172
2 0.2302911 0.4605822 1.119119317
3 0.2108185 0.6324555 1.174520606
4 0.1915346 0.7661384 1.225875158
5 0.1725609 0.8628045 1.272072169
6 0.1543264 0.9259584 1.312023094
7 0.137522 0.962654 1.345021143
8 0.1227372 0.9818976 1.371125513
9 0.1101508 0.9913572 1.391168868
10 0.0995878 0.995878 1.406375091
11 0.0907294 0.9980234 1.417958107
12 0.0832539 0.9990468 1.426916321
13 0.0768875 0.9995375 1.433993145
14 0.0714124 0.9997736 1.439714164
15 0.0666593 0.9998895 1.444442499
16 0.0624966 0.9999456 1.448427952
17 0.0588219 0.9999723 1.451843823

So if we were playing 17 of these games simultaeously, and all ame up against us, -1, we would have an immediate drawdwon of at least 99.99723% (the obejective function is our geometric mean holding period return, what we would expect to make, on average at theend of each toss of so many simultaneous tosses)

But these are coins, so the correlation between them is nonexistent. If, say, one of the components had perfect negative correlation to the others, then our sigma f would be infinitely high.

Now, to finish going over the dynamics of this, let’s go back to playing one of these games alone. SO far, what I have mentioned is all in the asymptotic (Q->infinity) sense. If our horizon were one play (Q=1), and since there is a positive mathematical expectation, we would maximize expected geometric growth at f=1. If we were toquit at Q=2, we would have maximized growth trading at a fraction of .375. As we increase Q, it ultimately approaches (but never quite reaches) .25. Similarly, with multiple, simultaneous games, the sigma f starts at 1, and as Q increases, the peak reaches it’s asmptotic value along the given axes at the asymptotc expected growth optinal points.

The caveat to all of this is when a play cannot result in a loss, either for a single component, or, where an aggregation ofcomponents (due to correlation) does not permit a period to transpire that would be a loss. In these cases, expected geometric growth is maximized by usingf value(s) of infinity.

Those are the dynamics.

<<I’m still trying to make sense of the equation in trading terms; like what would be the horizon in my system. The components? are they the pairs traded or the number of plays. I need to time to sort of grasp it. >>

This is the crux of the matter. One must determin a criteria – what are you doing in this endeavor, what are you trying to achieve. If the answer is simply “To make a profit,” that’s too vague. Too vague to use this framework to your advantage anyhow. A lot of guys want to just survive, and make a profit. Now, I;ve said in the past, you;re always on this curve in one component, surface in N components, and likely moving about it, you jsut dont know it and the rulesof the geometry apply to you. So, if a guy is just looking to survive and make a profit and trade until his golden years, then you want to be tucked away down in the corner near f=0. trade one lots, set a maximum loss, and go from there. There’s nothing wrong with that – you’ve defined your criteria, including your time frame (trade, essentially “forever,” thus, the asymptotic curve/surface shape applies to you).

However, let’s say you are mamanging a pension or work for an insurance company, or even a hedge fund. Now you have some pretty well-defnined criteria to satisfy. As part of defining criteria, horizon is germane to that.

Suppose your criteria is to “Maximize quarterly risk adjusted returns overthe next five years.” Nowyou have a framework to pursue precisely that type of thing.

<<But you mentioned my criterion and I want to address this. I understand your work about reaching an optimal f within a predefined tolerance for a drawdown. The problem I have with that, is that the result is limited by the trader’s intolerance to drawdown. I want to do this with a drawdown of a 100%, so the actual inflection point. Not just that I want to create a situation where that inflection point is 1.

It may be impossible to do but there is no better authority to ask than yourself. I know you said its realistically impossible but bare with me… Am I crazy? >>

It’s a little long-winded of an answer here, too much so to include here. Thisis covered at-length in the Risk Opportunity book (Addendum 1 to Chapter 5 Üsing only a percentage of the stake so as to constrain risk") as well as the 1992 book where it addresses the notion of “Coninuous Dominance.” The quick answer is that you CAN do it, you pay a small price for doing so however, due to certain efficiency losses, and you then also end up with two surfaces or curves you are actually upon for your specified criteria.

Ralph Vince

[PhilipPirrip]

PhilipPirrip,

Let me try to answer the several points inyour post, if I can. Please understand, I don’t know everythign about this material, like I said, I have only scratched the surface, despite having spent decades in pursuing it.

You say:
<<This actually seems a departure from your earlier your work. If I’m not mistaken you are now saying that diversifying the portfolio and trading over the long-term would eventually lead to an even higher value than 1. In the past you said that holding a trade for shorter periods is actually more efficient. >>

No, the Sigma f, the sum of all the f components in the portfolio approaches 1 as the number of components in the portfolio increases. Let me demostrate this in rather simple terms.

Let’s say I toss a coin that pays off at 2:1. If we calculate the Optimal f in this case (or the Kelly Criterion as this is a case where the two give identical resultsO we find the expected growth optimal fraction to bet is .25. Now, let’ssay I am going to wager on two of these very same coin tosses simultaneously. Now the fraction drops to about .23 each, so my Sigma f is.46…continuing, you can see that at about 9 multiple, simultaneous coin tosses like this, your Sigma f is now>.99, and continuing, it asymptotes out at 1:

#games f Sigma f Obj Func
1 0.25 0.25 1.060660172
2 0.2302911 0.4605822 1.119119317
3 0.2108185 0.6324555 1.174520606
4 0.1915346 0.7661384 1.225875158
5 0.1725609 0.8628045 1.272072169
6 0.1543264 0.9259584 1.312023094
7 0.137522 0.962654 1.345021143
8 0.1227372 0.9818976 1.371125513
9 0.1101508 0.9913572 1.391168868
10 0.0995878 0.995878 1.406375091
11 0.0907294 0.9980234 1.417958107
12 0.0832539 0.9990468 1.426916321
13 0.0768875 0.9995375 1.433993145
14 0.0714124 0.9997736 1.439714164
15 0.0666593 0.9998895 1.444442499
16 0.0624966 0.9999456 1.448427952
17 0.0588219 0.9999723 1.451843823

So if we were playing 17 of these games simultaeously, and all ame up against us, -1, we would have an immediate drawdwon of at least 99.99723% (the obejective function is our geometric mean holding period return, what we would expect to make, on average at theend of each toss of so many simultaneous tosses)

But these are coins, so the correlation between them is nonexistent. If, say, one of the components had perfect negative correlation to the others, then our sigma f would be infinitely high.

Now, to finish going over the dynamics of this, let’s go back to playing one of these games alone. SO far, what I have mentioned is all in the asymptotic (Q->infinity) sense. If our horizon were one play (Q=1), and since there is a positive mathematical expectation, we would maximize expected geometric growth at f=1. If we were toquit at Q=2, we would have maximized growth trading at a fraction of .375. As we increase Q, it ultimately approaches (but never quite reaches) .25. Similarly, with multiple, simultaneous games, the sigma f starts at 1, and as Q increases, the peak reaches it’s asmptotic value along the given axes at the asymptotc expected growth optinal points.

The caveat to all of this is when a play cannot result in a loss, either for a single component, or, where an aggregation ofcomponents (due to correlation) does not permit a period to transpire that would be a loss. In these cases, expected geometric growth is maximized by usingf value(s) of infinity.

Those are the dynamics.

<<I’m still trying to make sense of the equation in trading terms; like what would be the horizon in my system. The components? are they the pairs traded or the number of plays. I need to time to sort of grasp it. >>

This is the crux of the matter. One must determin a criteria – what are you doing in this endeavor, what are you trying to achieve. If the answer is simply “To make a profit,” that’s too vague. Too vague to use this framework to your advantage anyhow. A lot of guys want to just survive, and make a profit. Now, I;ve said in the past, you;re always on this curve in one component, surface in N components, and likely moving about it, you jsut dont know it and the rulesof the geometry apply to you. So, if a guy is just looking to survive and make a profit and trade until his golden years, then you want to be tucked away down in the corner near f=0. trade one lots, set a maximum loss, and go from there. There’s nothing wrong with that – you’ve defined your criteria, including your time frame (trade, essentially “forever,” thus, the asymptotic curve/surface shape applies to you).

However, let’s say you are mamanging a pension or work for an insurance company, or even a hedge fund. Now you have some pretty well-defnined criteria to satisfy. As part of defining criteria, horizon is germane to that.

Suppose your criteria is to “Maximize quarterly risk adjusted returns overthe next five years.” Nowyou have a framework to pursue precisely that type of thing.

<<But you mentioned my criterion and I want to address this. I understand your work about reaching an optimal f within a predefined tolerance for a drawdown. The problem I have with that, is that the result is limited by the trader’s intolerance to drawdown. I want to do this with a drawdown of a 100%, so the actual inflection point. Not just that I want to create a situation where that inflection point is 1.

It may be impossible to do but there is no better authority to ask than yourself. I know you said its realistically impossible but bare with me… Am I crazy? >>

It’s a little long-winded of an answer here, too much so to include here. Thisis covered at-length in the Risk Opportunity book (Addendum 1 to Chapter 5 Üsing only a percentage of the stake so as to constrain risk") as well as the 1992 book where it addresses the notion of “Coninuous Dominance.” The quick answer is that you CAN do it, you pay a small price for doing so however, due to certain efficiency losses, and you then also end up with two surfaces or curves you are actually upon for your specified criteria.

Ralph Vince

Thank you so much for taking the time to reply. I own Risk Opportunity Analysis so I’ll re-read the highlighted chapters with that in mind. I will look to buy the 1992 (I’m assuming its Money Management Mathematics).

Hopefully after I read them we can proceed with our conversation (and I with their application.)

[DarrenK]

Anyone else using EMA200 as a direction filter?

[meads797]

Anyone else using EMA200 as a direction filter?

I think a few folks (jw1981) use it as such and also as a strong dynamic S/R indicator.

[jw1981]

So everyone’s gone quiet… hmmm!!!

[jw1981]

Anyways… i’d like to continue along.

The AUDJPY long failure might have scared some into moving on in their hunt for the holy grail.

Here’s the before & after chart.

AUDJPY - Long Entry

AUDJPY - Recovered

I’m sure if you check AUDUSD that too made a nice recovery. It all comes down to how well your money management is. This AJ and AU failed trades could have either given you a big loss or if you managed the trade well, it would have at best scared you.

I don’t think i’ve come across any other method that can do this.

There are tons of ways this method can be traded and i mentioned in the chat room to others, this system/strategy is a ‘framework’ and you can simply build up your own methods accordingly.

One way to trade is to use divergences in price & stochs.
For those unclear about divergences, here’s a very good resource: trading-naked.com/Divergence.htm

Another way to trade is make use of trend lines or even median lines or just combine with price action. Example chart below shows a combination of phil’s method in conjunction with median lines and chart patterns such as flags and when they all add up, it gives a great boost to confidence in your trades.

And here is the most recent trade which i’m sure would be recovered sooner than later but applying divergence, the system was shouting at you not to short.

USDCAD before/at the time of signal

USDCAD: few candles later

[doughayman]

So everyone’s gone quiet… hmmm!!!

I’m still lurking about - Some of that esoteric money management talk was well above my pay grade too. I’m currently playing around with some system optimizations, looking into adopting my back-testing technology to FX, and will report back on any good findings I have. Anyone looking for the “Holy Grail” should be shown the door; it’s all about steady income over the long haul, and trying to get a small edge. Losses are part of any system.

[PhilipPirrip]

@jw1981

Anyways… i’d like to continue along.

The AUDJPY long failure might have scared some into moving on in their hunt for the holy grail.

Here’s the before & after chart.

AUDJPY - Long Entry

AUDJPY - Recovered

I’m sure if you check AUDUSD that too made a nice recovery. It all comes down to how well your money management is. This AJ and AU failed trades could have either given you a big loss or if you managed the trade well, it would have at best scared you.

I don’t think i’ve come across any other method that can do this.

There are tons of ways this method can be traded and i mentioned in the chat room to others, this system/strategy is a ‘framework’ and you can simply build up your own methods accordingly.

One way to trade is to use divergences in price & stochs.
For those unclear about divergences, here’s a very good resource: trading-naked.com/Divergence.htm

Another way to trade is make use of trend lines or even median lines or just combine with price action. Example chart below shows a combination of phil’s method in conjunction with median lines and chart patterns such as flags and when they all add up, it gives a great boost to confidence in your trades.

And here is the most recent trade which i’m sure would be recovered sooner than later but applying divergence, the system was shouting at you not to short.

USDCAD before/at the time of signal

USDCAD: few candles later

See this is where you and I disagree on divergence. That double divergence you described there is one of the most important sell signals an RSI would ever give. First thing is it gives us a bullish divergence (telling us trend needs to correct) then gives a hidden bearish divergence (telling us trend will continue downwards.) This is very bearish for USDCAD based on RSI/stochastic. You can see that our system basically gave both a buy and a sell signal. I expect both to be recovered but my bias would be bearish based on stochs not bullish.

[PhilipPirrip]

I’m still lurking about - Some of that esoteric money management talk was well above my pay grade too. I’m currently playing around with some system optimizations, looking into adopting my back-testing technology to FX, and will report back on any good findings I have. Anyone looking for the “Holy Grail” should be shown the door; it’s all about steady income over the long haul, and trying to get a small edge. Losses are part of any system.

Well the idea is very simple Dough actually. I want to thank Mr. Vince for clearing somethings up for me. I did read the mathematics of money management but my copy of Risk-opportunity hasn’t arrived.

The idea for money management is you should sort the trades based on pairs. Then do optimal f for each pair. Then you find $f: this tells you how much to bet of your balance on a particular pair based on its optimal f.

Now we mentioned that optimal f goes from 0-1. Think of it as 0-100. 100 being a very risky trader who risks his entire balance when he trades. Versus the very conservative trader who risks less than 5% of his balance.

Once you have your criterion, safe versus risky investor, you construct your trades to get what you need.

So for example I want to risk 100% of my balance when I trade. So lets say I have a balance of $10,000.
Let’s say that there are trade signals for USDJPY and EURUSD and gold for example. Additionally, I know that my optimal f was $1,000, $2,000 and $3000 respectively. That means I risk $1,000 for one mini lot of USDJPY, $2000 for one mini lot of EurUSD and $3000 for gold.

1000+2000+3000= 6000.

(6000/10000)= 60%

That means trading 3 mini lots of USDJPY, EURUSD and gold (1 mini lot each) will risk 60% of my balance. I adjust the size of the lots based on my tolerance for risk. If I want to risk 100% I will increase the lot size in accordance with my optimal f (so the ending total would be 3 USDJPY mini lots, 2 EURUSD mini lots and 1 gold mini lot)

That’s the gist of it.

Once I move my funds to the new account I will share myfxbook page for it and do the analysis for every trade I take. Hopefully this will make things clearer.

Of course I’m still learning on the money management subject just like yourself. We live and learn I guess.

[jw1981]

See this is where you and I disagree on divergence. That double divergence you described there is one of the most important sell signals an RSI would ever give. First thing is it gives us a bullish divergence (telling us trend needs to correct) then gives a hidden bearish divergence (telling us trend will continue downwards.) This is very bearish for USDCAD based on RSI/stochastic. You can see that our system basically gave both a buy and a sell signal. I expect both to be recovered but my bias would be bearish based on stochs not bullish.

We’re rather in agreement here than disagreement as stochs made a lower high, indicating the bearish trend is in control. But I won’t be trading this, considering its become a bit choppy of late.

[jw1981]

So babypips was down over the weekend and I was checking the aspect of correlations into this strategy.

I noticed myfxbook has a neat little correlation section now with daily/weekly & 1 month.

My theory is as follows:

Say you come across a sell signal on EURJPY. Everything lines up.
Then, using the correlation tool, we find GBPJPY having a >90% correlation.
So the idea is to start looking for (or enter) sell signals on GBPJPY as well

This approach, I think will help traders to cut down on scanning multiple ccy’s and could in fact build up a basket of ccy’s to trade.

What do you guys think about this?