The principle of 'the markets stop-loss'. Most people place stop loss related to their account not the market. 1% stop loss on account means something totally different then 1% stop loss on price. The market gyrations with the trend imply a 'market stop-loss', if the cyclical waves are 30 points on average, with deviations from this average being minimal. Then you have found the 'markets stop-loss', if deviations exceed the average, then the market is doing something that it hasnt in the past, and a trend reversal may be upon us. That is the principle of 'market stop-loss', where the market itself implies what it takes to alter its course. Once you have the market stop-loss then you work backwards to figure out what you can trade in relation to account size.
ohhh thats a little gem... i think after this thread elitetrader should ban mention of LR so that it doesnt become too popular
the problem with forex, is the 'markets stop-loss', quantified gets readjusted, and its highly variable. Thus market participants, get highly volatile signal environment.
The hard reality is you need accelerated rate of price change to make a big difference in account growth. If risk management stays the same. If your trading 10,000 and making 30% per year, after 10 years your account only grows to 137,858.49. If your trading 50,000 and making 30% per year, after 10 years your account only grows to 689,292,46. If your trading 100,000 and making 30% per year after 10 years your account only grows to 1,378,584.92 Nothing meaningful, it wont let you buy that island in the sun. And how many people can make 30% per year for 10 years? Most people give themselves 5 years at anything if at all, to become successful at that venture, till they call it quits mentally or financially. The math is against the trader. Lot of people compensate by taking excessive risk, in a nonaccelerated rate of price change instrument. Or worse take excessive risk in a accelerated rate of price change instrument against the trend. The probabilities dictate they will be blown out. Hitting homeruns repeatedly, making a months income in a day, while reducing the chances of being blown out, can only happen on days where high probability trades are at work.
This is something I learned long time ago, the hard way. You know, it's unbelievable 'cause I do look at % of my equity vs. market stop loss and most of the time they're close. I do give preference to market stop loss when volatility dictates. Even tough, I have never seen the gap between the two very far.
the markets stop loss, it took me five years to come across this principle on my own, and only after system testing. Each market has its own stoploss quantified. Recently for GBP/USD it was 100 pips. But that stoploss itself is becoming unstable. Whenever GBP/USD moved a 100 pips, then a trendreversal was upon us.
In one of the videos MF talks about the 'pulse' of the market, he states that if certain volatility conditions arent met, the market is not worth trading. The 'pulse', from my understanding of it, is price instability, or the ability of market participants to accept a larger deviation in price and trade it then normal. It means the expectations of the participants in that moment of time are one of greater rewards, and willing to take a interest by participating in the market. And thus minute to minute volatility is of a higher order then normal. Then you might ask yourself doesn't forex have the highest pulse? Not really. Just because the weekly bands are of a larger range doesnt mean, the pulse is high. From my understanding, pulse is a minute to minute, second to second slippage in price that persists for most of the session. Thus market participants are conducive to acceptance or willingness to trade.
High probability trades = pulse + trading dynamics adherence we defined what pulse is. trading dynamic adherence, means the market is basically doing something nonchaotic. ie adherence to support or resistance, trendlines.. anything that the human mind can rationalize. If pulse and adherence to dynamics arent met, then it isnt a high probability trade. The reward/risk ratio is not favorable. Even if your TP:SL is greater then 1, all it means is that your SL has higher probability of being hit, then your TP because of the chaos of it, the SL distance is shorter then the TP from current price. some people say you can trade chaos, but the only way you can trade it, is to expand your timeframe and reduce lot size. When you look at some timeframes the price looks chaotic in its movement but when you expand it out, it appears less chaotic. So putting all the above posts together the conclusion is, only trade highly probable moments in time, with expanding lot size as the session progresses. Intersession pulses and trading dynamics are the greatest in a bubble environment. Its where even the shoeshine boys can become wealthy. Save your capital till then, or trade news events as long as trading dynamics are adhered to. And you will have your hearts desire. Patience and discipline, wait for the moment.