Wow... if that is your view... why the heck are you online here arguing with us??? And I think you're right about one thing for sure... I do have a pleasant personality. Huge problem here. If you are talking about one entry, this is one thing, if you are talking about a series of entries, this is a whole other issue. No trader will tell you that they know their next trade will work out. I do believe that some are operating at the 80% or 90% win rate, but that's at the top of the game and not necessary for consistent profitability. But what they will know is that if that trade doesn't produce profits after 10 or 20 outcomes, then something is wrong and needs to be changed. But moving right along to this: If this whole time you're talking about trader's without an edge... then why are we even arguing? Of course you can't make money if you don't have a statistical edge. Go flip a coin, go to the casino, etc. This is all a waste of time if there isn't an edge to begin with. Here is the thing about price action trading. Traders are people, and people do things because of how we are hard wired. You want to grab my attention? Get a pretty girl to walk past me and I am guaranteed to look up 100% of the time. You want to make money? Look at a chart and show we places where in the not too distant past, people all of a sudden started buying, causing price to rise, and as we get down to this level again, lets watch what happens. Have you noticed at the store, when you are shopping late, anytime something is on sale, drastically reduced, its never there when you finally show up? Whenever people see mouthwash at 50%... they buy it all up and there is nothing left for me. It pisses me off because it happens every time and I always shop late. Point being, people all react to incentives. Make it cheap enough and they will buy. Its really no different in trading. Not that its easier, trust me, but if I was a store manager and I knew we were about to run a 50% off mouthwash sale, I will order 3 times the amount of stock that I usually do because I know I will have no trouble getting rid of it.
First I select a setup using eyeball analysis. A setup is a price behavior pattern (for example, in a non-trending enviroment, price came from a swing low, tested the previous swing high, and turned without breaking through that high). I've noticed over time that when this occurs price has a strong tendency to find support at the swing low and make another attempt to visit the high. I now examine every appearance of this setup with a specific instrument during my selected trading hours and I note in a spreadsheet the results: How often does the support hold and how often does it break down? If it breaks down by less than N ticks, how often does price revisit the high? If it breaks down my more than N ticks how often is it possible to exit at break even before the risk:reward ratio becomes negative? Eventually this sort of study leads to a positive expectancy result based on rules. An example might be that if the support level holds or breaks down by less than 4 ticks, a 12 tick profit is possible 61% of the time. If the support level breaks down by more than 8 ticks, an adverse excursion of more than 12 ticks occurs 63% of the time. If the level breaks down by more than 3 ticks, but less than 9 ticks a break even exit is possible 73% of the time. So now I can create a set of rules based on this price behavior in this defined price environment and then apply the rules to 100 consecutive appearances of the setup and see how close to my original study the results are. If I find the result to be very close to the original study, I have a positive expectancy trade setup to add to my arsenal as follows: In a non-trending environment, price comes off a swing low to test a previous swing high and turns back down off that level. 1. Place a limit order to buy 1 tick above the previous swing low. 2. If filled, place a stop loss of 12 ticks and a profit target of 12 ticks. 3. If price breaks through the swing low by more than 3 ticks, move the profit limit order to the entry price.
This is the part that no one can do and it's why 99% of traders fail. Even Surf's hedgies eventually blow up because they think they can make a killing and deviate from the plan "just this once"
You calculate statistics on 100 observations; and then you check them on another 100 observations. In sample is the 1st set, out of sample is when you “verify” these stats...
Don't follow this. From a quick browse of his threads, looks like he's generally accurate and profitable. Of course no one gets every trade right. And I understand his group does PhD-level quant research, and offers out the results for free here. "Gift horse in the mouth..."