When the box is more than say 40 or 50 pips, what do you do? A few weeks back is was pretty common for the overnight range to be 80-100pips or so.
LBS/20-50/1 for me (1 trade per day only) 
SanMiguel,
I haven’t done thorough backtesting for this, but by looking at the charts it seems to me that the overnight volatility is pretty indicative for the volatility in the coming day. And I look forward that the price is able to climb or sink the same distance as it has ranged in the box. But it also seemed to me that if the overnight volatility is too strong, it could have bad impact for coming trending.
I initially thought that 40-60 pips would be some sort of limit for this, but now I’m ready to consider ranges even up to 100 pips. If it goes over that, I’m out of the market for sure. In any case, if the chart pattern looks suspective for some reason, I’m not going to trade either.
The SL positioning is easier, it’s the opposite entry price. When placing the TP, the distance will not be more than the overnight range, but if there is some S/R level nearby or if the range is big, I will consider targetting at a bit lower. E.g. if the range was 90 pips, I might be targeting at 70-80 pips.
It may take a bit longer to meet these targets than with the usual LB times, but it’s ok for me.
LBS/B/1 for me.
San Miguel
What is beging of non trading period for mondays on your back test? Friday 19 or just start of the week?
Since the summer period is not idea for this system and there have been a few false breakouts recently, why not slightly adjust the method for summer as follows:
Add a further 10 pip buffer to the buy/sell and take this off your TP. Eg, if normal TP is 20, increase buy price by 10 pips and have a TP of 10. If normal TP is 24 increase buy price by 10 pips and have a 14 TP.
Obviously this will lower the R-multiple of the method but might increase win-ratio and decrease pips lost (will result in being closer to the original method from post 1). I have not back-tested this over summer months, just something to think about.
Happy trading
stevefromnaki.
What do you define as the summer period? If you include June and July, you would have missed out on a lot because they were very profitable months - it’s really only the last 2 weeks or so. Difficult one because we can’t test this and it’s not much data to go on. I agree, there’s seem to have been a lot of trades triggered, stopped out, then price goes on further. Is this stop hunting, I don’t know, I more inclined to believe that the mass of traders (wherever and whoever they are) that were pushing price at that time were not about and price was just ranging up and down. Stop hunting is usually a bit spiky as you see it hit a region and price jumps because a load of buys/sells just got triggered.
[B]Matt,[/B]
I noticed that you have asked questions about the relationship between the win/loss ratio and the risk/reward ratio,
first on this thread, and then today on another thread.
Maybe this will help.
Regarding Tymen’s formula, which you questioned, Tymen got his inequality backward. His formula should be:
[B]risk/reward * loss/win < 1[/B]. More on that in a minute.
Let’s start over. We can define three conditions — losing strategies, break-even strategies, and winning strategies — in terms of the two ratios in question here (the win/loss ratio and the risk/reward ratio). The three conditions are:
B win/loss < risk/reward — for a losing strategy, or a losing series of trades
(2) win/loss = risk/reward — for a break-even strategy, or a break-even series of trades
(3) win/loss > risk/reward — for a winning strategy, or a winning series of trades[/B]
You can plug various combinations of winning and losing trades, and risk/reward ratios into these formulas to satisfy yourself that they are correct.
Here’s just one example, based on the London Breakout Strategy discussed on this thread. Many traders using this Strategy use a fixed SL and TP on each trade. Then, they set entry orders, and let their trades run to either the SL or the TP, without manual intervention. In such a case, the pre-set SL and pre-set TP actually represent risk and reward.
Assume a trader using this strategy always places entry orders with a 50-pip Stop-Loss and a 40-pip Take-Profit, abbreviated SL(50) and TP(40). For these trades, the risk/reward ratio is SL(50)/TP(40), or simply 50/40.
[B]A series of trades using this risk/reward ratio would result in break-even if the win/loss ratio = 50/40[/B], which we can re-write as win/loss = 1.25, and that can be re-written as [B]win = (1.25) * (loss)[/B]. So, if the number of winning trades is 1.25 times the number of losing trades, then the series of trades has a net profit of zero.
If [B]win < (1.25) * loss[/B], then the series of trades produces an overall loss. And if [B]win > (1.25) * loss[/B], then the series of trades produces an overall profit.
Now, let’s derive Tymen’s formula for a “consistently profitable system”, to use his terminology.
We can do the same algebraic transformations on inequalities, that we do on equations. So, beginning with Condition (3), above, for a winning strategy,
win/loss > risk/reward
reversing the order, while maintaining the inequality, we get,
risk/reward < win/loss
multipying both sides of the inequality by loss/win, we get,
[B]risk/reward * loss/win < 1[/B]
which is the correct version of Tymen’s formula
Well one thing looks like it may be different. The price determination range so far is just under 40 pips.
Clint, Thank you for your clarification and excellent explanation, much appreciated
It was yet another day when staying away paid itself. Both directions would have been losing ones for me. I just wonder whether this pattern is typical for bank holidays like this - narrow overnight range, then either or both entries hit just to be stopped out a few hours later. I guess it could be.
Clint, thanks for the last year’s chart! (There we have an example of a range > 100 pips, but I wouldn’t draw any conclusions from that single day.)
I also stayed away, but will be checking to see how things look tonight.
CLINT
Errr… (fumbles through dog eared text book on advanced mathamatics) very enlightening? What do they say, there’s lies, dam lies and statistics… just kidding 
So whats the verdict tonight? Its been trading all day in a very tight range. I’ve had a trade on all day (11 hours to date) and its been hovering at around the mid range 5-6 pips. Either more of the same or a big breakout?
Sorry. should clarify. I was on EUR/USD. Pretty boring, think I’ll switch back to the GU!
There were some decent scalping opportunities Monday morning, between 2am and about 3:40am EDT (06:00-07:40 GMT).
But, the price action was treacherous for our London Breakout Strategy (the LBS, as kaalilaatikko has christened it).
I didn’t trade the Strategy Monday morning, and I hope you didn’t, as well.
There was one successful LBS trade possible Monday morning: long with a 15-pip TP. Larger TP’s on the long side were not hit.
And the short side was another stop-hunting disaster.
Here’s what the 5-minute chart looked like at about 7:10am EDT (11:10 GMT), just before the start of the big (115 pip) Monday morning down-move.
I have overlaid our typical LBS entry points, plus 20-pip TP’s (long and short), and 30-, 40-, and 50-pip SL’s (long and short),
to illustrate the grief we avoided by staying out of the market Monday morning.
More later.
Clint
Something I’ve been watching on the Daily chart.
This doesn’t affect us tonight, or probably even this week — but, in the next week or two, we might get an early indication
of a fall trend from this chart.
Very interesting stuff Clint.
It was definitely a Labor Day disaster for the LBS and I am glad that I did not trade it. As can be seen from your chart the shorts using a SL of 30, 40 and 50 where taken out. Also for those guys (due to sleeping at night) that did not make it in time to cancel their long positions for the same SL 30, 40 and 50 you would have lost again.
Looking at the current pre trading period, we just had a mini fake out in the GBP/US. If I recall correctly that is a good thing when it occurs before our trading period. Now if it stays in the middle range at about 1.634 or so for another two hours we may end up getting a solid break out come the London open.
What do you think Clint?
Firstfx,
I don’t know what that spiking was about. I checked some news-feeds that I watch, and saw nothing that would account
for that action.
Maybe the Pound is just eager to bust out of this range. Maybe we’ll get a decent breakout Tuesday morning.
Here’s an overview of the past three “overnight” periods:
And, here’s this week’s Calendar of medium- and high-impact news releases affecting the GBP and the USD:
Notes on the London Breakout Strategy for Tuesday morning:
Tonight’s set-up looks promising. We certainly have an interesting pattern within the box. And the range is very narrow: 41 pips.
I’ve been wanting to increase my SL and TP, to make them equal; and this morning looks like as good a time as any to try that.
My numbers are at the bottom of this post.
Resistance and Support Levels for Tuesday morning:
R – 1.6443 – September 7 high – VERY STRONG
R – 1.6413 – September 3 high – STRONG
R – 1.6400 – century mark
R – 1.6375 – September 1 high – STRONG
H – 1.6362 – Period HIGH
L – 1.6321 – Period LOW
S – 1.6300 – century mark
S – 1.6285/75 – September 4 low / August 17 low – VERY STRONG
S – 1.6260/47 – August 26, 27, 31, and September 1 multiple candle highs and lows
S – 1.6234/30 – August 26, 27, 31, and September 1 multiple candle highs and lows
Scheduled News Releases for Tuesday morning:
At 08:30 GMT, British Manufacturing Production figures, month-over-month, for August.
This report has the potential to move the market. However, if pressure is building for a breakout at the Zurich or London opening, the breakout will likely not be delayed by this news release.
Entry Orders:
This morning I will try a new stop-loss and profit target: SL(40) and TP(40).
BUY (HIGH + 9 pips) 1.6371, SL(40) 1.6331, TP(40) 1.6411
SELL (LOW - 6 pips) 1.6315, SL(40) 1.6355, TP(40) 1.6275
My short TP is right at the bottom of a zone of support. So, if a short trade is triggered, I might have to manage out of it, depending on how strong that support proves to be.
New people continue to join this thread. So, from time to time, I think I need to repeat this disclaimer:
[B]This post is intended for general guidance only.
This is not a signal service. Be very careful, if you choose to trade my numbers.
You should learn this strategy, do your own analysis, and trade your own numbers.[/B]
Good luck, this morning, guys.
Clint
Assuming your using a Buy Stop & Sell Stop OCO, the above is a solid way to trade a momentum break to either side. Although your edge definitely has to come from being accurate more times than not and you run the risk of having a fairly tight stop within the range of your trade, rather than a stop outside the range, which could lead to a quick liquidation, which is fine but a 1:1 to me isn’t a great trade, if I am biased either way I would sooner get into my trigger earlier and have a my stop used more effectively biased one side over the other, based on price action, and have my reward greater. But that’s just my style. That would be a Limit Order. But I can trade that biased style with a Buy/Sell Stop also if the price action / candle data calls for a sling-shot like momentum move in one direction, for example to play the break of an inside pinbar formation. I can do that too, but my entry and stop is always biased and for good reason which is risk to reward.