GBP/JPY has not been reacting well to our scalp lines recently. So obviously it’s time to throw my method away and go find another method…..
Ok, hopefully that got rid of the 95% of trader who will never succeed in Forex! Thank you for being one of the 5% who stayed.
I am going to think this one through a little and discuss some simple concepts that will bring my method back to it’s 80% win rate. Before that though, I just want to inject some logic into this situation.
For all of 2007 and 2008 and up to May of 2009 this method has a 70%-80%. If like me you’ve been trading it since that time these few recent losses would mean very little. There are always going to be bad periods with any trading method. Successful traders ride them out while everybody else abandons ship.
Ok logical stuff done, now onto what we can do to optimize the method.
I have discussed a few times before so I won’t go in to too much detail suffice to say to succeed in this business you need to be able to adapt. Changing market conditions or world economic conditions can have a drastic long-term effect on price action. Recently we have seen drastic changes in the world’s economic stability. These changes are reflected by a change to erratic and jumpy price action.
So what do we do? Should we just quit trading?
NO! Of course not.
We should adapt to the new market conditions. Forget about the silly 95% who left at the start of this blog post. You and me are part of the 5% of successful traders. What we need to do now is analyze the market and figure out how to optimize the method.
This probably won’t be easy as several changes to how the method is traded may be needed. However, some of us have already started optimizing the method so we’re half way there.
Metalhawk who you may know from the site has done some very extensive back testing. He went over his records and compiled a list of all trades take since mid 2008. Using the 5 min chart he then tested how well the trades would have worked with different targets and stops. Surprisingly the results conclusively show that on scalps the best target and stop since mid 2008 until now for scalp trades is:
Target = 85 pips
Stop = 65 pips
Trading completely manually this target and stop combination would give you a 62.5% win rate. You’re right that doesn’t sound great. However, once you throw in some discretion the win rate would be up in the high 70% or even 80% area.
It seems pretty clear by those statistics that I should officially change the target and stop for my method. I am currently testing to see how effective this would be though.
I am also currently reviewing:
1. How I select scalp lines I might be making a few changes to optimize lines.
2. The addition of trend lines to identify stronger lines.
3. Different pairs that can be traded instead of GBP/JPY
Metalhawk is also looking into which sessions statistically have the most losing trades. This would help us know when to steer clear of the market.
The point is that just because the method is no longer working at peak efficiency we shouldn’t just abandon it. Instead we should adapt it to the changing market conditions. Adapting is one of things that separates the winners from the losers.
Ok now here is the most important part. A new e-Book is coming very soon with an updated version of the method.
If you want to discuss this comment below guys: