Reply To: Engulfing candles that let us at least break even.
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Hi Lewis, this is great research that you have shared with us. And Rich’s comment that confidence is important is surely true.
But I am just thinking that we would need to see an average amount of profit on the ‘yes’ candles to be in profit in the long run. Not just break even.
Taking EUR/GBP as an example. 130 yes, 70 no. I think we would need a profit of 1.54 units on average, if each loss was 1 unit.(If I can calculate this right.) I know that the losses and profits for each candle would vary, ie the 70 ‘no’s would have different loss values, so this is very difficult to quantify. And I don’t mean to be negative, I just look at both ‘best case scenario’ and ‘worst case scenario’.
If we are looking at the 4/10 trades ratio, we need to make sure our profit ratio is higher than 1.54, I think.
Just to end on a positive note, I believe that the law of averages can give us quite a long string of losses from time to time and still give us our 4/10 ratio, so we should not be put off by this and keep focusing on the long-term.
ps it would be good if we could start a thread where members of the forum could post how many trades/winning trades they have made, whether it be demo or live…