What are the odds?

Beginner Questions
1

Just fresh out of Pipsology here! I have just started researching charts to begin getting a feeling for the market this week and stumbled on something that caught my interest. I was just hoping for some thoughts on what ive seen. Could this be the goldmine of trading nine times out of ten, or could my two out of two turn into two out of a hundred?

When the news was released about the US debt ceiling the market seemed to go crazy, the dollar seemed to fall of the edge of the earth when paired with the Euro. This could have been great if you knew what was going to happen.

Early this morning there was some news released about CHF. The chart shot up like a fish out of the water after a meal. (USDCHF)

In both cases here, the dust settled and the market seemed to get back on track where it left off. The EURUSD hopped back on the same trendline that it had before the spike. Is following the dust back down to the ground by shorting it a winner? Is believing what ive seen in these two cases setting myself up for a trap in future events? I really dont have my hopes set to high when this occurs again, but I sure would love some input from some of yall with a little more experience.

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2

Firstly no trading method will give you close to a 90% win ratio. Secondly you say it reverts to the norm, 2 questions:

-how do you determine the top/bottom
-have you checked how this works historically over a decent period (years). I think you will find conflicting results as not all news events move the Market.

Basically what you are looking at is a type of trading-news traders. They tend to try to judge when to jump into a spike though…

If your interested in that type of trading, google it…

3

You’re asking whether buying at the bottom, and/or selling at the top is a winning strategy — during news releases — [B]just about the most volatile, unstable market conditions we ever see.[/B]

Almost a hundred years ago, the legendary speculator Bernard Baruch said:

“Don’t try to buy at the bottom and sell at the top. It can’t be done, except by liars.”

I doubt that you can prove Bernard wrong. But, try it — in a demo account, of course.

On Friday of this week, Non-Farm Payroll will be released at 8:30am EDT. NFP is the 600-pound gorrila of news releases, so that will give you an excellent opportunity for a test.

4

As a newbie I am just amazed at what an important news release can do. As for now it is extremely frustrating, definitely something to keep a keen eye out for though. I am excited to see what happens on Friday and maybe get back with you then. Thanks for your input!

5

So… you mean that people using 2:1 Risk-Reward ratios, or bigger Risk wise, can never make money trading??

Because that would require a close to 90% win ratio…

6

Eh? Doesn’t make sense. Want to explain further?

7

You said it’s impossible to achieve a near 90% win ratio…

But that simply means people can’t risk more than 2 pips for every pip… also known as Risk Reward of 2:1…

Because those setups require close to 90% win ratios.

8

Think you are confused here…90% win ratio as in what the OP said- 9 wins out of 10. what has r:r got to do with that? And you think winning 90% or your trades consistently is achievable?

9

It’s very simple. And RRs have absolutely everything to do with it.

And if you allow me to skew the RR ratio so much in favor of risk, I am sure anyone can achieve more than 90% win ratio, without any sort of market analysis.

10

Unless you are talking about winning 9/10 trades and losing money then your statement is wrong.

If you bought euro at the end of 09 you would still be down on your trade…let’s not forget the negative rollover too. Without limitless funds you are just plain and simply wrong…

11

My statement is very clear. If you use something like… a Risk of 35 to 1, then getting even more than 90% is actually pretty inevitable.

As for Euro… What are you talking about? Negataive rollover? You need to define a pair to tell weather there is a negative rollover or not…

12

To trade profitably with an inverted ratio of 35:1, yeah…you probably wouldn’t even make enough trades for you to form a reasonable statistic for average r:r with the amount you would lose on a losing trade. I like how you ignored my question, how long have you been profitable trading inverse r:r trades and how many trades you made?

Well what is the default base currency?! Oh yes its the dollar. So if I was to say long on the euro…could you not perhaps guess that just possibly it was in relation to usd? Or maybe I was referring to eur long against zar?!

I think you missed the whole point, the actual pair is meaningless. The point is, if you trade and that points happens to be a relative high or low, it could not be touched again for years. Therefore you needing essentially unlimited funds to sustain the drawdown.

13

Oh and when I said touched again for years, I should have added if ever

14

I am not claiming to be able to make any profits, so your question makes no sense that’s why I ignored.

As for the currency pair, it’s not obvious that you are talking about Eur/USD, because the interest rates differential is actually net positive in favor of buying EUR, therefore it depends on your broker spreads weather you have a positive or negative spread.

Get your stuff straight before making me questions. You can’t put words on my mouth.

15

Ok I will take back the negative roll comment as that is dependant on time and broker.

As for you saying you never mentioned any profits, ok fine.

16

This thread has turned into an unnecessary (and rather stupid) cat-fight.

The OP referred [I][B]rhetorically[/B][/I] to the “goldmine” of trading, and put a number on that — “9 times out of 10” — which has sparked a minor war here.

It was a [I][B]rhetorical[/B][/I] statement, [B]WildChancer.[/B] Let it go!

[B]CheckDavid,[/B] you are absolutely correct that the W/L ratio (whether it’s 90/10, or 50/50, or some other number) is only half of the equation. The other half is the R/R ratio. Without knowing both the W/L and the R/R, you can’t even discuss the profit potential (the expectancy) of the OP’s suggested strategy, or any other strategy.

That being said, David, your numbers are not correct. You said that a strategy with a R/R of 2:1 (risk = 2 times reward) requires a win-rate close to 90%, i.e. a W/L = 90/10.

The correct number is 67%, i.e. a W/L = 2/1

It is not a coincidence that the break-even W/L is identical to the assumed R/R (provided R/R means Risk/Reward, and not vice versa).

[B]thedjwcc,[/B]

Unfortunately, your thread got a little trashed. Don’t be put off by that. Sometimes it happens. Heated debates are fine on this forum, but when things degenerate into name-calling, then it’s time for the authorities to put a stop to it.

Your thread was closed temporarily, while the Moderator stepped in and applied a little adult supervision. The offensive name-calling has been deleted, and things are back to normal now.

All of the squabbling over W/L ratios and R/R ratios has nothing to do with the experiment you’re planning to run on trading “news spikes”. Tomorrow morning at 7:30am (your time), NFP will be released, and I hope you will proceed with your experiment. Let us know how it goes.

17

Last post on this thread but I think quite clearly I’ve been made to look like I’ve been unreasonable.

I think if you’ll read my original post, I was actually making one point. That it was not the gold mine the OP originally referred to. The 9/10 thing was something another poster picked up on from my post when in fact that was not point-it was a quote from the OP but like him, it was not the point of the post.

I clearly mention tops and bottoms which you in fact you repeat clint after my post.

Basically, I think your ‘let it go’ comment is wrong and directed at the wrong person.

To the OP, agreed that this should not have hijacked you thread but hopefully you got the meaning of my original post.

18

LOL man… don’t manipulate the quotes, I said:

But that simply means people can’t risk more than 2 pips for every pip… also known as Risk Reward of 2:1…

Because those setups require close to 90% win ratios.

I didn’t say 2:1, I said more than 2:1 in the favor of risk.

And the problem here is that saying “Close to 90%” is very relative lol

19

Now that that “banter” calmed down a bit just my half cent:

It’s all more academic if it comes to a singular trade. Cut your risk so far down that you can’t lose more than 50% alltogether on say 30 losses in a row, if your system has a 50:50 w/l trades expectancy. Something like that. If your w/l ratio is more in favor for the winners, say 80 winners and 20 losers of 100 trades, you can increase the maximal risk per trade a bit, because the probability of the same number of losses in a row decreases.

Anyways, at the end of the year one single trade is unimportant. What is way more important is the max. drawdown and not the risk per trade. Those forums are full of crowd “wisdom”, but the crowd never makes money trading. Food for thought! Almost nobody speaks regarding dd. Drawdown is way more important, if you just follow the rule what I stated in the first paragraph regarding risk of single trades.

Regarding rrr of any single trade it depends on the winner ratio as well. If you have 80 winners and just 20 losers out of 100 trades, then your reward could be less than your risk of any trade and you would still make nice money.