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As I trade on my week off from work, I want to share with you a realization that I’ve made in trading. After I made this realization, never will I trade like the way I used to ever again. The method doesn’t involve any complicated indicators (although, I use the Saver0 – Currency Multi Power to make it easier to see the trend). This is a direct application of the Recurrent theories and probability that I spent months experimenting.
First of all, I will explain the basic nature of the markets that I concluded through years of experimentation.
Above chart shows the location of a short trade that was made. The only things we can control is the TP (Take profit level) that can be set at any distance (TP1 to TP Infinity) and we can wait any amount of time (T1 to T Infinity). The basic nature of the markets is that longer we wait, the higher the probability of price reaching TP and lower the amount of TP the higher the probability of price reaching it. Read the previous sentence couple of times. Markets are that simple in nature. Longer we wait, the higher chance that the price will reach it and lower the amount we want to take as profit also higher the chance of price reaching it. Now all we need to do is use the nature of the markets to our advantage.
Forex is the world’s best casino where you can set your own odds. You can either take a 99.999% probable trade or take the 5% probable trade. It’s up to you! Most of us end up taking a 0-40% probable trades. The reason is, we lack the patience to wait and/or we have high TP targets, this is the opposite of the nature of the markets! Also in Forex brokers have inherent limits by nature because we simply cannot wait an infinite amount of time with a margin account (draw-down would take you out). Knowing these, we can use it for our benefit.
Nature of the markets
Now into more of nature of the markets and how I made this conclusion (feel free to perform these experiment yourself). If you are familiar with Transient and Recurrent theories (Click here to read about it), what we can conclude is that the markets are highly recurrent. Recurrent meaning, any price level at a given time will be revisited again within a specific amount of time with a P% probability. And if we generalizing it by removing H-Left, meaning any price in time would be revisited within H amount of time even if that price is not previously transient (opposite of recurrent, price existing T-H ago (T minus H), where T is the current time), then price at T+H would still be recurrent with a very high P% probability. And the amount which it is recurrent we can state it as K pips. When you perform this experiment what you get is the above nature of the markets. Smaller the K (TP) and larger the H (amount of time we wish to wait), higher the probability of price reaching K. What you will see is similar results to this, for 3pips and H of 1.5hrs, probability of about 99.9%. For even smaller K like 1pip and H of 48-72hrs, you will see probabilities greater than 99.99%
Probabilities
Let me ask you a question. If you walked into a casino and you find a slot machine where you can bet as much as you want and you knew for sure that the probability of you winning is 99%, how much would you bet? If you understand this game well enough, the question which you should ask before you put a penny in that machine is, “sure, there is 99% chance of me winning, but how much do I win?”. What if the casino said, you will win 0.5% of the money you put in. Now would you take the trade?
Here are questions for you to answer and solve:
How much would you win or lose after playing the game 100 times if the chance of winning is 99% and you won 0.5% of the money when you win and lost your bet when you loose? Tell me the dollar amounts (assuming you won the first 99 trades and lost the very last). The short answer is you would end up losing.
Here is my second question, what profit percentage is needed for you to make a 100% return after 100 trades (assuming you won 99 of the trades and lost the very last one).When you can answer these questions correctly, you will have the basic probability and compounding knowledge required to move on to applying the most powerful tools available to be the boss of your very own “casino” we call Forex and call your own shots.
Compounding
If you made 0.5% each day, 21 days per month, how much would you have in 1 year, 2 years?
Answer: 250%, 1,120%
If you made 1% each day, 21 days per month, how much would you have in 1 year, 2 years?
Answer: 1,130%, 14,960%
This means, if you started with a $10,000 account, you will have about $1.5 million in 1 year! More on this later.
Do the math and tell me how I arrived at these numbers.Power of 1pip
Based on this understanding, we know what we need to aim for. That is, small TP and wait patiently for the probabilities to realize itself. For a small TP of 1pip, we can expect very high probability of success within a short time frame of 2 hours. All you need to do is adjust the lot size (leverage) so each trade brings you 0.25-0.5% return from that 1 pip. For example, with a 1:50 margin account, you can purchase about 0.40 lots of EURUSD, which means $4 from a $1000 account = 0.4%. You could easily place 1-5 trades like this a day so you can aim for a daily gains of 0.4-2% per day.
You still need to be careful because think about it, even with 99%, if you take a trade every minute, how many trades would you take in a day? The answer is 1440 trades. Which means you will have 14 trades that fail (didn’t hit TP within 2 hours) but if you have enough margin to wait for days, then those trades could eventually end up being winners because probability reaches > 99.99% as you wait for longer than 2 days. But when you trade with such high leverage and use the entire account for a trade, the margin call is just a few days away. This is the reason why you still need some trading experience so you can tell what a trend is and take that 1pip trade towards the trend whenever price spikes away from the trend (while the trend is still valid, avoid news – very risky).
Applying it all to build a trading system
Let’s apply everything we learned to build a trading system that would yeild probabilities even greater than 99%. The rules:
- Avoid news (slippage and spread spikes aren’t worth it)
- During active market sessions only (best is London or NY session), you want volatility, this is when the market is most recurrent giving you even greater than 99% probability.
- Use the indicator that you have the most experience in. It doesn’t matter what it is. It can be Price Action/Candles, MA, Stochastic, WPR, or my own which I have linked. What you need to be able to tell are, what is the trend (flat, up or down)? Is it showing signs of trend ending (higher high, lower lows, etc).
- Apply the indicator to M15 chart so you can see the sessions trend info (we don’t care for the daily or weekly trend since all we are interested in is the 1pip).
- Trade only the major pairs with very low spread, less than 1pip for spread is ideal but 1.5pip could work because remember 1pip TP with 1pip spread really is a 3pip trade. Commission only broker might be the best but for experimenting and to master the skills, stick to a volatile low spread pair such as EURUSD.
- Open the M1 chart to execute the trade (tick chart is ideal).
- Wait patiently for your favorite indicator to tell you that a trend is established. Then open the M1 or tick chart and wait for price to go against the trend and make a retracement and wait for it to indicate the retracement is complete (higher high, lower low, double top, double bottom, head and shoulders, reverse head and shoulders, etc).
- Finally set the lot size so the trade with 1pip TP would yield 0.25-0.5% of the account size and execute the trade.
- Wait patiently for TP to hit.
- Repeat
I like to give myself at least a 15 minute break after each trade so I clear my head and get emotional excitement out of me.
When you follow these rules perfectly, you will see the 1pip trade ending rapidly, within 1-15 minutes. And with these rules, the probability of success is extremely high. You can execute the trade as long as the trend is valid and there are no signs of the trend ending. This means easily 3-5 trades in an hour or so = 1 – 2% per day. With a very high leverage account with 1:500 margin for example you might be thinking, hey I could make 10-20% per day. Well, you could, but instead of having yourself that extra 2 days for price to return, now you have only given yourself 2-4 hours so I wouldn’t recommend it to anyone. Even with a very high leverage account, you should only have a TP of 0.25-0.5% per trade.
As I make EAs and Indicators to help me with this system, I will share them here. For now, you can get the tick chart indicator from here, and download my currency power indicator that I use to tell the trend from here. Read the thread to find out more about the indicators. I use it like this:
Let me know what you think and if you have any questions. Green pips!
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Update 6/24/2015
I now use the tick chart creator found at FX-Blue (Requires a free account to download): http://www.fxblue.com/appstore/app.aspx?id=12
This is because the attached tick chart creator doesn’t send the new tick signal so EA’s don’t work as wellAttached is the new EA which you can use to harvest 1 pips. It shows you all the vital information. Place the Tick_Trader.ex4 in MQL4\Experts folder and the ffcal_net.ex4 in the MQL4\Indicators folder. Feel free to use the attached template as well.
Please look at the following screenshot to understand what each thing means. No need to change any of the settings if you are trading based on the rules. The only thing you may need to change is the Percent_Return if you want a lower percentage (to last longer due to draw downs).
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Update 6/30/2015
Couple of small updates were made. You can now turn on and off the pip grid lines. There is also the option to turn on the candle view so you can see like the M5 candle in the tick chart.————————————————————————————-
Update 7/1/2015
Fixed a bug in the EA that was making it run slower and added the Hour_Offset for news.Focus, Patience, Determination & Order in chaos
Thanks a lot Saver0. This is really brilliant. About the CMP, do you use the Divergence or the crossing of Magenta and Aqua line to identify the trend ?
What are the Magenta and Aqua lines ? Are they the MA (simple or exponential) lines that attached over the CMP ?
Thanks in advance
When do you accept that a trade is lost? And what happens when you loose two trades after another?
Hi Saver0,
You are right about the power of compounding. Having 1% profit per day, trading 21 days a month. In 1 year (252 trading days), with Initial balance of $10,000 at the end of the year we will get $ 122,740 (profit $122,740 – $10,000 = $112,740 or 1,127%) and at the end of second year, we will get : $ 1,506,511. Wonderful result. The problem is, how can we get small draw down (assuming we are not using Stop Loss / Hedging). May be we need another indicator as filter to avoid big draw down ?
Edit:
When do you accept that a trade is lost? And what happens when you loose two trades after another?
Good question muuh. It means we will use SL (without SL, it is dangerous). How much SL is a good choice here? If we have 10 pips SL, 10 winning trades will be eliminated by only 1 loss trade. If we use 2-4 pips SL, may be SL will be hit before TP.
When do you accept that a trade is lost? And what happens when you loose two trades after another?
Good question! Let me try to answer this question with another question. If the probability of any single trade being a success is 99.99% and if you place 4 trades a day (each trade bringing 0.5% profit, for a total profit of ~2% per day), how many trades would it take for you to end up with a losing trade? Before then, how big would your account be?
This means out of 10,000 trades, only 1 would fail.
With the answer to this question, you will see that at a certain point, you can cash out the account and start all over again. Even when you experience that rare event of having the 0.01% failure trade, you would still end up being a BIG winner You should be able to cash out with a huge amount around 500 trades even! 2% a day is huge, thats about 1000% gain in 6 months! Even if you lose that one account, the chance of you losing again is really really small. We are talking about a single failure in 10,000 trades! Tell me how many years of trading that is if you were to take 10,000 trades total with it being 4 trades per day.Also, let me be clear, you will not have 99.99% with stop loss. SL is not part of this system. Think of trading like a casino. It’s ok to have the broker win the jackpot once in looooong while, you win almost all the time! The odds are in your favor
The main point I want you to understand is the power of probability and compounding and also the nature of the markets. You can adjust the system to your liking and personality. But I will tell you, taking 1 pip TP is the easiest and the least stressful
Just be good at telling the trend and that’s something that’s very difficult to teach and will take some time to master. But even for a rookie with complete random entries, we are talking about > 99% probability off the starting line simply due to the nature of the markets!Focus, Patience, Determination & Order in chaos
About the CMP, do you use the Divergence or the crossing of Magenta and Aqua line to identify the trend ? What are the Magenta and Aqua lines ? Are they the MA (simple or exponential) lines that attached over the CMP ?
They are just MA lines placed on the CMP indicator. Trend is not based on just the MA lines.. its a bit difficult to explain quickly. Tomorrow I will write more about it
Focus, Patience, Determination & Order in chaos
The key to this concept is, what hapens in that 0,1 % scenario.How much time and how much money does that 0,1% consume and at what point on ones compounding path does this scenario happen….risk control.
There are a lot of succesfull high leverage scalpers out there..
@Saver0. I can imagine that, that isn’t the problem. Let’s assume my 30th trade is a loss where the market goes against me 200 pips over 4 or 5 hours. When do you pull the plug? Should we pull the plug? 200 pips in drawdown takes a long time to get out with 1 pip TP. Or let’s imagine 400 pips drawdown. That means 100 days to get out of it with 4 trades a day/1pip TP.
How would you handle this?
Oh and the only way this can work is when we find an automatic entry. The cost of you or me screwing up the entry is way to high in my opinion.
What about your TZ EA you tested when you first found the 97 percent probability? Why not using this as an entry?
The key to this concept is, what hapens in that 0,1 % scenario.How much time and how much money does that 0,1% consume and at what point on ones compounding path does this scenario happen….risk control.
I can imagine that, that isn’t the problem. Let’s assume my 30th trade is a loss where the market goes against me 200 pips over 4 or 5 hours. When do you pull the plug? Should we pull the plug? 200 pips in drawdown takes a long time to get out with 1 pip TP. Or let’s imagine 400 pips drawdown. That means 100 days to get out of it with 4 trades a day/1pip TP. How would you handle this?
There is no SL and the SL is a margin call. You play with the account as the stop loss. The goal is to reach the 99.99% success rate by trading with the trend. Taking 1pip TP at high volatile times for this 1pip is the easiest thing you can do. Just take a look at a tick chart. As long as you follow the rules, you will have 99.99% success rate. This means 1 failed trade in 10 years or 1 out of 10,000 trades! It only takes 1,500 trades to turn $1,000 into $1.5 million. This is what the math yields. So I’m not concerned about stop loss or failure at all. I’m practicing with demo currently and working out very well.
There are no need for an EA because an EA cannot make the entry. It’s difficult for a computer to tell the trend (and when the trend is showing signs of ending). Telling the trend accurately is the difficult part. With any random entry with no care for the entry, you will have 99% probability of success but when you perfect reading the trend, you will have > 99.99% (certain trades). Read the rules over and over again, its important to not ignore a single one of the rules. This is exactly the reason why EURUSDD’s trades were less than 1pip in size. Market is certain for really small TP pip size, especially the EURUSD pair because it’s well balanced.
I will however be making an EA to automatically set the 1pip TP and one with BUY/SELL button that will place the trade of perfect lot size so each trade brings me 0.30-0.40%. Entry is easy and it has taken me just a few minutes of my time to place 2-3 trades a day. It’s very easy to master!
I’m sharing this with everyone because I believe in giving and honestly I find building trading systems and indicators and sharing more rewarding than trading. I spend little time trading and more time solving challenges. Money has no value to me if it isn’t earned
If I teach this to just a handful of you, maybe then I have earned it. Try this out with a demo.Focus, Patience, Determination & Order in chaos
Oh and the only way this can work is when we find an automatic entry. The cost of you or me screwing up the entry is way to high in my opinion.
The chance of me screwing up is 0.01% (1 / 10,000). That means if I trade a 10 Thousand times, I would fail once. Heck, I will take 1 out of a thousand. With this system, you are starting out with 1 out of 100 failures if you just blindly Buy or Sell. I’m sure you are a pretty good trader already that knows how to read the trend and can spot patterns. So you should easily be at 1/1000 or even 1/10,000 range. Like I said before, it only takes 500 trades to make a 1,000% gain. So even when you have that one failure, you would lose only 1/10th of your gains. You have to cash out at some point and start over again. Maybe you can make 300% gain and then cash out but with another account, cash out at 1000% etc. It’s up to you. Forex is gambling, so you have to be a good gambler and trade with the odds on your side. Be the Casino instead of the gambler, give out the jackpot once in a while but you will be racking in the money 10x or 100x more than the jackpot
Focus, Patience, Determination & Order in chaos
As I wrote these posts, I already made 2 trades. I’ll make a few more and then I’m done for the day. The 2 trades took only about 5 minutes of me quickly glancing at the charts. I don’t think it can get any easier than this
Focus, Patience, Determination & Order in chaos
Hi Saver,
Really thanks for the inspiring explanation and I need that as a reference guide for me, because I am also been trading without SL for a few months already. Same as you have been deriving a trading system of my own. Currently I am a day trader, I will spot the trend and input trades for major pairs and TP of 20pips each pair. If accuracy is there, you can easily double the account by one month.
Scissors
Glad to hear Scissors! TP of 20pips is pretty high for me but if it works for you, then that’s great. The highest accuracy (probability of success) is for lower TP size. With 20pip TP, my guess is that the probability is probably at around 60% (60% recurrent) with random entry but I’m sure it can be very high if you are really good at reading the trend
Got my 4 trades for the day, 4 pips
Average time in the market 3 minutes = 1.6% return. I’m busy making an EA to make entries even quicker and easier. I will post it when I’m done.Focus, Patience, Determination & Order in chaos
I m tempted to try this with a portion of my real acc. If 1000–>1 mil takes 1500 trades, than 100—> 100k takes 1500 trades also right?
I m thinking if i watch the charts prety much all day, i could rack 10 1-pip trades easely and it would give me something to do, while i wait for my main trades.
@SaverO
How much space in pips are you planing to use? Meaning, how many pips must a price go against you in order for you to get margin call?
Another thing…what trend are you planing to use as a direction. weekly/daily…or lower like hourly..or even lower?
I m tempted to try this with a portion of my real acc. If 1000–>1 mil takes 1500 trades, than 100—> 100k takes 1500 trades also right?
It’s all based on how much profit you take from a single trade. My goal is 0.40% from each trade. Here is the calculation you can do to figure out how much the final gain would be after X number of trades.
G = Percent gain in decimal (i.e. 0.40% = 0.004)
X = Number of trades
Then percent gain after X number of trades = ((1+G)^X)*100
For example, (1+0.004)^1500 = (1.004)^1500 = 398.62*100 = 39862%
$100*398.62 = $39862The $1000->1 mil with 1500 is if you made 2% gain per day assuming you made 0.5% per trade making 4 trades a day.
So if you make 10 0.5% trades a day, that’s 5% gain per day, that’s a HUGE gain. You will turn $100 into $170k in one year
I don’t recommend anyone start off trading this with a real account but if that’s what you do (I know some people won’t touch Demo), feel free to test it out. In theory it should work. I only have a few weeks of experience trading this system and I’m still on Demo with it. But I love it! Made 8 trades today while I write the EA, easy quick trades
One advice is, try to limit it to just a few trades, I think 5 is max. There is no need to go for 5% gain per day. All you need are few really good trades. This is not a mad scalping system where we place a ton of trades. The goal is few carefully ideally placed trades that guarantee returns. 2 trades is enough, 3 is excellent, 5 just too many and absolute max. If not, its possible to take reckless trades. What we have is 99%, that means 1/100 there could be a failure if we ignore or misread the trend. The > 99.9% or even > 99.99% is only when trading with the trend and trading pullbacks off of a tick or M1 chart towards the trend.. I will show examples later.
I look at the M15 trend during active hours. Like I said before, I trade the pullbacks off of a tick chart! Pullbacks that are away from the current trend that form a double top/bottom, head and shoulders, etc. Only these are the perfect trades.
Focus, Patience, Determination & Order in chaos
Here are all the trades that were taken today as an example. I enter the pull-backs in tick chart that were against the trend direction of the M15.
Focus, Patience, Determination & Order in chaos
Saver0 I meant your EA that traded the Rare-Rare TZ Event or whatever it was. Use this for your entry because we as humans make mistakes, so your “I’m wrong only 0.01 percent” isn’t going to work. Think about what happens after you “loose” a trade. You are going crazy when you realize what happens to your account, or better said how much time is needed to get back out of your drawdown.
Thats why I really suggest trying it with your TZ EA on a seperate account. Since we don’t care about drawdown your TZ EA would be the perfect candidate for the 1 percent a day gain
“I’m wrong only 0.01 percent”
I’m not sure if you are still getting my point. If anyone is wrong only 0.01% of the time, it’s fine to blow up the account when that 0.01% event occurs.
The TZ EA was a different concept. This is not TZ trading. It’s very difficult for an EA to read the trend correctly, not impossible but its much easier to spend 15min a day to place 2-3 trades. Human brain is far superior to a bunch of if else statements.
0.01% failure rate means 1/10,000 trades would fail. It’s as close to a “holy grail” or whatever as it could be. The main point is, probability is the most important factor.
Let’s say after 5000 trades, I do experience this black swan event, the failed trade, abnormal market behavior and I do hit the margin call. Let’s look at the numbers.
Account balance starting off: $1,000
Account balance after 5,000 trades: 1000*((1.004)^(5000)) = 466191171 * 1000 = $466,191,171,710
The margin call would make me lose about 70% of the account (based on the broker) to end up with = $139,857,351,513
That is $139 Billion! So you see, even a margin call is fine hahaObviously it will never get to that high of a number because it’s smart to cash out every year. Also as the account size gets bigger, slippage will cause issues. Close to million you would face problems filling the order etc so such high account balances are impossible. This only works for accounts I think under $200k etc. This is why brokers and big banks have other ways of making money. Only small users like us can exploit the nature of the markets for our benefit.
Focus, Patience, Determination & Order in chaos
Here are all the ideal places with lower high for short entries off of the tick chart (since its short trades that I was looking for based on M15 chart)
Always wait for a good setup on M15 and then this type of setups on the tick chart to make the entry.Focus, Patience, Determination & Order in chaos
I get that 0.01 percent and I’m not saying your math is wrong. You can calculate your error rate only as a “statistic”. But for that you need a sample that is big enough. A big enough sample would be let’s say 10000 people that trade like this. You said “If anyone is wrong only 0.01% of the time” Exactly this is my point. You and I are individuals and not a machine that has a specific failure rate. Your not a statistic, you are an indivdiuum. You as an individuum won’t have a 0.01% failure rate. Your black swan event will hit you way faster and more often then you think.
The $1000->1 mil with 1500 is if you made 2% gain per day assuming you made 0.5% per trade making 4 trades a day. So if you make 10 0.5% trades a day, that’s 5% gain per day, that’s a HUGE gain. You will turn $100 into $170k in one year
I don’t recommend anyone start off trading this with a real account but if that’s what you do (I know some people won’t touch Demo), feel free to test it out. In theory it should work. I only have a few weeks of experience trading this system and I’m still on Demo with it. But I love it! Made 8 trades today while I write the EA, easy quick trades 
One advice is, try to limit it to just a few trades, I think 5 is max. There is no need to go for 5% gain per day. All you need are few really good trades. Thanks for the explanation Saver! With my 50 leverage acc, i can only do app. 0,3 % per trade. If i wanted to run 2% per day, i d had to take app. 7-8 trades per day, which is not a problem for me and the up side is, i have bigger pip-space for the black swan scenario.There are tons of small trades i see and don t bother with each day. I don t think it s necessery to demo this aproach, because one can rack 1 pip trades wth every solid strategy out there. You don t need tick charts and you can start with 50 bucks acc. 50 buck is money you spend in the pub with your friends..so why bother with demo Interesting read, and strangely compelling. I have to admit it always compelling when someone starts mentioning millions….
What if we use the excellent renko indicator to determine trend, I have been using a simple renko of 10, with a 15%shift and a huge 400% flip, no accelaration, I then use a 9, with a 15% shift and 100%shift to confirm. I attahc a screenshot of todays 10pips and 9pips charts.
Have a look
Thanks for your work on this, great job.
Been missing the posts here, good to see some activity.
Hm … rare event does not mean it will not happened. GU M5 some hours ago (23.05 GMT time), it was failed to build rare event (now fully resolved). May be i need a filter …
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