**Re: How to resolve Unknowable Uncertainty?**
In a sense I am a pattern trader...Ie I trade repeating proprietary hi-probability set-ups (patterns) that are comprised of a confluence of repeating tech factors based around price action which indeed is the trigger for entry at such a set-up. These set-ups also develop a secondary and most important pattern - repeating hi-probability combinations of these individual set-ups across different time frames. These set-ups/set-up combos are traded at repeating hi-probability combo's of potential support/resistance/sbr/rbs factors identified on the t/f (s) above that they develop on...all this giving a full repeating hi-probability 'full set-up' for market entry. I also keep a running record of the probability of a break or bounce and in what market conditions at these repeating combo's of potential supp/res factors, and these are graded accordingly for risk.
I have my own running stats (excel files) on the running strike rate and win/loss distributions of each set-up and set-up combo etc and this enables me to work out the running probabilities.
In other words, I know my edge, I know what to typically expect and what it may expose me to (ie it's likley maximum consec losing run over any given sample- albeit that this is very low probability - I leverage accordingly such that should this occur it does not destabliise me. This puts me ahead of most other traders. All of this takes work and effort but this is the price of a consistently profitable trading edge. Knowing this info gives me the confidence to trade the edge in that it is the greater expectation (provided I stick to the rules) that entering the market will result in a gain. [y proprietary set-ups were developed in the live market and I have been keeping these records in this format for over 3 years now with a very large total sample.]
With a postive expectancy ( more important than a high strike rate-per say) every trade is a winner even if it loses.
Ie lets say you have for example a modest-good strike rate of 65% (winning trades as a % of total trades) and a risk reward of 1:2, so 65% of trades win at twice the loss/trade of the remaining 35%. Using 20pips as the target and 10pips for the stop (risk) just to keep the maths simple tThe expectancy is therefore (65x20 = 1300) - (35x10=350) = 900 . Now divide by total number of trades in the sample = 100 and the expectancy per trade (win or lose) is a positive 9 pips/trade.
You need of course to ensure that the edge/set-up/pattern you are trading has a positive expectancy over a large sample preferably forward tested as well as back tested. Knowing the edge is at least theorteically profitable over a typical sample is the starting point in giving you the confidence to trade it.
G/L
__________________ *I can stand the despair - it's the hope I can't manage (John Cleese - Clockwork.)* *
Last edited by bbmac; Dec 7, 2011 at 11:29pm.
Reason: typo's
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