So you want to get into price action?
Not fundamentals ey. But then one HAS to do all this backtesting, there is no dodging it.
Can't go into "TA" to dodge the FA work, and then want to also dodge the stat work xd
No magic trick here.
Let's get started immediately.
EURUSD 2020 covid trend (can't 100% dodge fundas, always good to know why we're going in a direction):
EURUSD 2018-2019 "thing" (trade war uncertainty and erratic tweets):
EURUSD 2017 trend:
We are starting to see trends last 1-2 years in recent history, so not much point looking at a 5Y chart.
It's also silly to be super zoomed in on some "intraday" or "swing trading" chart with no clue what is really going on.
EURUSD 2015-2016 ranging 2 years:
EURUSD 2014 violence some may remember:
Day gamblers looking for "10 pips" that hold bags were happy to go through a 3500 pips loss. Still has not recovered.
I can only imagine the incredible pain loss averse gamblers must have gone through.
The pain not only never ends but it just keeps getting worse and worse and worse.
Just no chance to breathe, only unbearable pain.
Well that's interesting, why am I licking my lips?
EURUSD in 2012-2013 does not look very fun:
EURUSD 2011 downtrend
Hey, starting to see some recurrent things here...
EURUSD 2010 uptrend
Backtesting tip: Doing it while playing a turn based game (alt tab between turns), or watching something that requires little attention, working out (between sets), "afk farm" games too...
No one lasts with "motivation", we all have to find tricks.
EURUSD 2010 downtrend
And before that, we go to the 2000s era where FX was popular with hedge funds and trends lasted more than 1 year.
2008-2013 saw most FX funds disappear.
Another tip: Maybe fundamentals can help predict when a trend will last, and avoid failing on this sad 3 impulses downtrend.
It worked for the Yen a few years ago when the BOJ almost literally told traders "Hey if you short our currency we will give you money".
And another tip: Eyeball backtesting. Have an idea? Want to know if it is worth digging in?
Well don't just go full fanatical try hard! Do not spend hours and hours writing every detail in excel.
Eyeball it with approximate numbers. Takes seconds.
Then 2 choices appear:
- Onto something ===> Go for the details
- Nah it's nothing ===> Congratulation you did not waste tons of time on nothing (small time loss)
Limiting losses, it's also valid with your time.
How about I go look at the GBPUSD in the 80s ey?
GBPUSD downtrend in 1980-1981
Aaaaaaaaaaand same story as usual ;)
Repeat this 10 times, for a total of about 100 excel lines and ~25 trends.
Then write some rules, and go backtest them on other charts.
Because yes, the major currency pairs (USD, EUR, JPY, GBP, AUD, CAD, CHF, NZD, CNH, MXN, SEK) more or less work the same, but don't take my word for it.
Choices appear. Does the aspiring money manager want to only go for 3 impulses? And then miss all the big winners?
Does he want to sacrifice winrate for bigger reward to risk ratios? Does he want a higher winrate (noob).
Sometimes there are 5 impulses, does he (or she) go for 5? Or consider it is worth it to give up some winners?
Weak hands or strong hands once in a trending winner? Most people have weak hands with winners but doesn't mean one has to absolutely ALWAYS hold.
Holding all the time and letting it retrace hard would probably be a mistake.
The noob that took the time (really it would barely take a few days of honest work) could already get started.
I said get started, I don't know if it would make money. Maybe?
Clearly 2R is a beginner thing. What if you could get 38% winrate with 2R and 22% winrate with 4R!
Clearly worth it, but as always the majority of people are loss averse and choose the bad choice, trading is just not for them.
One has to some stats, have a good working memory for many reasons, be able handle numbers like "I3 - .6 - Fast - EURUSD" (2 variables 2 constants).
If someone cannot quickly juggle with numbers this is the wrong job. The variance is important for example, if an average pullback is .5 but 45% are in the .25-.45 range, and 45% in the > .8 range, here there are 2 groups to separate. Obviously here we would want to only go for the .25-.45 range, get a 4 or 5 or even greater reward to risk, let losers chase high winrate with gigantic stops. If 30% of the time the price bottoms in a .2 range and extends 1 at least, here that's a 5 risk to reward on double the breakeven winrate.
Then what happens to the 70% who cares? A few bottom further away, a few turn into a new opposite trend, a few go sideways, they all stink. All for illustrative purposes, but it's typically what happens. I don't really know.
What about some ways to increase the winrate, tips, and for those that have a hard time sticking to rules, especially cutting losses and holding winners? Surely, Mr Renev that said motivation did not work knows some tricks to fix all of that.
Find tricks... I know no tricks in fixing gross mediocrity, just follow the rules, non negotiable. It's really simple. Can't do it ==> Wrong job.
Can mediocre make money? I don't know I do not deal with mediocre.
Also we can try to zoom in, but ideally only after having mastered the timeframe presented in this article.
This is what I do, I zoom in.
Let's take my 2020 idea "The pound is a 500 years old ponzi going to zero"
So here is the full chart (1 year):
Go H4 on I3:
Then we can even go to H1:
The target is 450 "pips" which for GBPAUD is in the 1 week ATR range, but better than the average.
In a recent "tips" idea I showed:
- Day gamblers working on a 8 hour ATR realistically need a PF of 1.15 (very best scenario) - 1.25 just to breakeven!
- Swing Gamblers on a 2D ATR need a PF of 1.05 on EURUSD to breakeven.
- And I won't look at scalpers because they can't possibly be serious. I think they are actually trolls.
With this weekly ATR a PF of 1.02-1.03 is the breakeven rate. I am not bleeding much money compared to going long term.
Day gamblers miss out on so much, AND they need an exceptional profit factor, ok not that amazing either (for day gambling it is) JUST TO BREAKEVEN.
All that wasted money, how does it not drive them nuts? They're just throwing away a 20% margin. I just want to pull my eyelids out.
To make money with Forex, many questions will have to be answered, and for this only one way, as we say in France "Va falloir aller au charbon!"
(literally "Have to go to the coal"), means it will take time and effort and actively getting things done.
So many questions: What trends can be eliminated? What trends SHOULD be eliminated? What impulses to go for?
What is the optimal WR & RR compromise area? Do I just go for ABC first? Where to exit? What are solid Support and Resistance?
Do I go for uptrends starting from a multi year low only (to dodge ranges)? How many ATR are each wave? What does 2 extend to?
What other questions could I ask? How do I get inspiration to find more questions?
Do I exploit this strategy enough? Can I optimise it more or should I look for something else?
Hey and each of these questions will direct to more questions.
"When I have this, this, and this, where do I exit".
Like "Where I'm in the presence of a creeper trend", "fast trend", "clean trend"...
Each trend has its own set of questions, all the same I listed, plus a few specific ones.
It is essential to approach the study of markets in general and charts more specifically in manageable chunks.
All while following economic news and checking on charts regularly.
A day that makes sense could be one with 4 hours of backtesting, 4 hours of analysing charts, 4 hours of "fun" watching videos and reading and writing (all about investing), and 4 hours of time to eat and do unrelated stuff.
All of this for 1 simple strategy. Answering these questions is a task to accomplish over years.
Not fundamentals ey. But then one HAS to do all this backtesting, there is no dodging it.
Can't go into "TA" to dodge the FA work, and then want to also dodge the stat work xd
No magic trick here.
Let's get started immediately.
EURUSD 2020 covid trend (can't 100% dodge fundas, always good to know why we're going in a direction):
EURUSD 2018-2019 "thing" (trade war uncertainty and erratic tweets):
EURUSD 2017 trend:
We are starting to see trends last 1-2 years in recent history, so not much point looking at a 5Y chart.
It's also silly to be super zoomed in on some "intraday" or "swing trading" chart with no clue what is really going on.
EURUSD 2015-2016 ranging 2 years:
EURUSD 2014 violence some may remember:
Day gamblers looking for "10 pips" that hold bags were happy to go through a 3500 pips loss. Still has not recovered.
I can only imagine the incredible pain loss averse gamblers must have gone through.
The pain not only never ends but it just keeps getting worse and worse and worse.
Just no chance to breathe, only unbearable pain.
Well that's interesting, why am I licking my lips?
EURUSD in 2012-2013 does not look very fun:
EURUSD 2011 downtrend
Hey, starting to see some recurrent things here...
EURUSD 2010 uptrend
Backtesting tip: Doing it while playing a turn based game (alt tab between turns), or watching something that requires little attention, working out (between sets), "afk farm" games too...
No one lasts with "motivation", we all have to find tricks.
EURUSD 2010 downtrend
And before that, we go to the 2000s era where FX was popular with hedge funds and trends lasted more than 1 year.
2008-2013 saw most FX funds disappear.
Another tip: Maybe fundamentals can help predict when a trend will last, and avoid failing on this sad 3 impulses downtrend.
It worked for the Yen a few years ago when the BOJ almost literally told traders "Hey if you short our currency we will give you money".
And another tip: Eyeball backtesting. Have an idea? Want to know if it is worth digging in?
Well don't just go full fanatical try hard! Do not spend hours and hours writing every detail in excel.
Eyeball it with approximate numbers. Takes seconds.
Then 2 choices appear:
- Onto something ===> Go for the details
- Nah it's nothing ===> Congratulation you did not waste tons of time on nothing (small time loss)
Limiting losses, it's also valid with your time.
How about I go look at the GBPUSD in the 80s ey?
GBPUSD downtrend in 1980-1981
Aaaaaaaaaaand same story as usual ;)
Repeat this 10 times, for a total of about 100 excel lines and ~25 trends.
Then write some rules, and go backtest them on other charts.
Because yes, the major currency pairs (USD, EUR, JPY, GBP, AUD, CAD, CHF, NZD, CNH, MXN, SEK) more or less work the same, but don't take my word for it.
Choices appear. Does the aspiring money manager want to only go for 3 impulses? And then miss all the big winners?
Does he want to sacrifice winrate for bigger reward to risk ratios? Does he want a higher winrate (noob).
Sometimes there are 5 impulses, does he (or she) go for 5? Or consider it is worth it to give up some winners?
Weak hands or strong hands once in a trending winner? Most people have weak hands with winners but doesn't mean one has to absolutely ALWAYS hold.
Holding all the time and letting it retrace hard would probably be a mistake.
The noob that took the time (really it would barely take a few days of honest work) could already get started.
I said get started, I don't know if it would make money. Maybe?
Clearly 2R is a beginner thing. What if you could get 38% winrate with 2R and 22% winrate with 4R!
Clearly worth it, but as always the majority of people are loss averse and choose the bad choice, trading is just not for them.
One has to some stats, have a good working memory for many reasons, be able handle numbers like "I3 - .6 - Fast - EURUSD" (2 variables 2 constants).
If someone cannot quickly juggle with numbers this is the wrong job. The variance is important for example, if an average pullback is .5 but 45% are in the .25-.45 range, and 45% in the > .8 range, here there are 2 groups to separate. Obviously here we would want to only go for the .25-.45 range, get a 4 or 5 or even greater reward to risk, let losers chase high winrate with gigantic stops. If 30% of the time the price bottoms in a .2 range and extends 1 at least, here that's a 5 risk to reward on double the breakeven winrate.
Then what happens to the 70% who cares? A few bottom further away, a few turn into a new opposite trend, a few go sideways, they all stink. All for illustrative purposes, but it's typically what happens. I don't really know.
What about some ways to increase the winrate, tips, and for those that have a hard time sticking to rules, especially cutting losses and holding winners? Surely, Mr Renev that said motivation did not work knows some tricks to fix all of that.
Find tricks... I know no tricks in fixing gross mediocrity, just follow the rules, non negotiable. It's really simple. Can't do it ==> Wrong job.
Can mediocre make money? I don't know I do not deal with mediocre.
Also we can try to zoom in, but ideally only after having mastered the timeframe presented in this article.
This is what I do, I zoom in.
Let's take my 2020 idea "The pound is a 500 years old ponzi going to zero"
So here is the full chart (1 year):
Go H4 on I3:
Then we can even go to H1:
The target is 450 "pips" which for GBPAUD is in the 1 week ATR range, but better than the average.
In a recent "tips" idea I showed:
- Day gamblers working on a 8 hour ATR realistically need a PF of 1.15 (very best scenario) - 1.25 just to breakeven!
- Swing Gamblers on a 2D ATR need a PF of 1.05 on EURUSD to breakeven.
- And I won't look at scalpers because they can't possibly be serious. I think they are actually trolls.
With this weekly ATR a PF of 1.02-1.03 is the breakeven rate. I am not bleeding much money compared to going long term.
Day gamblers miss out on so much, AND they need an exceptional profit factor, ok not that amazing either (for day gambling it is) JUST TO BREAKEVEN.
All that wasted money, how does it not drive them nuts? They're just throwing away a 20% margin. I just want to pull my eyelids out.
To make money with Forex, many questions will have to be answered, and for this only one way, as we say in France "Va falloir aller au charbon!"
(literally "Have to go to the coal"), means it will take time and effort and actively getting things done.
So many questions: What trends can be eliminated? What trends SHOULD be eliminated? What impulses to go for?
What is the optimal WR & RR compromise area? Do I just go for ABC first? Where to exit? What are solid Support and Resistance?
Do I go for uptrends starting from a multi year low only (to dodge ranges)? How many ATR are each wave? What does 2 extend to?
What other questions could I ask? How do I get inspiration to find more questions?
Do I exploit this strategy enough? Can I optimise it more or should I look for something else?
Hey and each of these questions will direct to more questions.
"When I have this, this, and this, where do I exit".
Like "Where I'm in the presence of a creeper trend", "fast trend", "clean trend"...
Each trend has its own set of questions, all the same I listed, plus a few specific ones.
It is essential to approach the study of markets in general and charts more specifically in manageable chunks.
All while following economic news and checking on charts regularly.
A day that makes sense could be one with 4 hours of backtesting, 4 hours of analysing charts, 4 hours of "fun" watching videos and reading and writing (all about investing), and 4 hours of time to eat and do unrelated stuff.
All of this for 1 simple strategy. Answering these questions is a task to accomplish over years.