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Thread: Do you have to validate your trading ideas?

  1. #1
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    Do you have to validate your trading ideas?

    Hi, traders!

    This is Value trader, I’m back from vacation and I want to start my activity on the forum with the article on pretty interesting thing that is rarely spoken about.

    How do traders find their trading ideas? Process of finding any trading idea or building algorithm consists of several steps – first they find idea, then they test it on historical data, calculate profit-factor and other parameters (if they aren’t satisfied with). In other words, they validate their hypothesis – they find confirmation for their ideas in the past. This type of thinking is very popular and wide spreaded, though it might not be very efficient – markets rarely provide good setups with linear correlation between event and outcome.

    The opposite type of thinking is to find events that don’t happen or happen very rarely and bet against them. Our brain might be confused with that – we are taught to find repetitive patterns and validate them with historical examination. But once you find a good pattern, you may notice that its' efficacy decreases over time. The more and more traders will notice a pattern and good opportunity will disappear or become less profitable as more traders try to benefit from a pattern. It is especially true when we talk about very popular currency pairs (or other trading instruments), for example – EURUSD, this pair attracts many traders and is often very overcrowded.

    It’s harder to think in terms of what will not happen rather than in terms of what will happen.

    Let me provide you couple of examples.

    Many traders like to trade-off possible reversals. If we see price that we consider as «high», we tend to seek for possible reversals whereas it is very tough to identify exact moment when price is starting to move in the counter-trend direction.
    If you would like to validate the idea of reversal, you would have to seek for possible reversal patterns that may look like this:

    Attachment 10883

    But if you examine real price action using strategy tester in MT4 trading platform or any other software that allows you to simulate historical data, you would recognize that it’s pretty tough to spot a reversal – you would have approximately 4 losing trades in a series of 5 trades. Of course, if you keep your losses small and gains bigger, you can eventually trade with a profit. But if you start to think in terms of what will unlikely happen, your view has to become completely different. You may examine fake reversals and find most of reversal patterns can provide you good entries in the direction of the existing trend. You may have more modest profit/loss ratio in this case, but nevertheless you can achieve 2/1 or greater. And what is important – you will have probabilities on your side.

    I have put fake reversal patterns in the screenshot below with possible continuations. I employ them in my own trading, so can you.

    Attachment 10884

    When it comes to reading real market context, we could have seen very obvious situation on GBPUSD so far. Strong trend could allow you to trade in the direction of existing trend at least 2 times:

    Attachment 10885

    Those trades may not seem very attractive, moves are modest, but after all, you build your account out of winning trades, not of losing ones, don’t you? Two winning trades are better than two losing ones, that’s obvious.

    Good luck!

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  2. #11
    Registered user mohabbat's Avatar
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    Quote Originally Posted by vipuldevkar View Post
    As pr my experince i use the validation in my trading strategy to confirm the trade idea.Like validating the wave pattern by counting all the waves or validating the chart pattern by all the properties.So validation give us more probability to get the success in trading.Validation is confirmation.
    Dear vipuldevkar ! this is very wonderful market analysis , and I think your calculation very pure, but I think validating the chart pattern very strong from wave pattern, but there is trend is fact for secure analysis. and when you follow to wave pattern then it is not more safe, so I am focus to chart pattern from H1 to W1 .

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    Don't loss you hope.

  3. #12
    Registered user nsawork's Avatar
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    Quote Originally Posted by mohabbat View Post
    Dear vipuldevkar ! this is very wonderful market analysis , and I think your calculation very pure, but I think validating the chart pattern very strong from wave pattern, but there is trend is fact for secure analysis. and when you follow to wave pattern then it is not more safe, so I am focus to chart pattern from H1 to W1 .
    Using the Pattern analysis is being considered as the best trading by many traders since they are able to see where the markets are heading and then they can make use of this knowledge in their trading to gain income. We also know that both Trend identification as well as Trend validation are important for us.

    And deciding on the time frames for our trades is what we have to learn and take advantage of

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  4. #13
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    In the Forex trading platform validating the chart is so much familiar by traders. It is so much strong position in the Forex trading platform. Some traders briefed that it is also more energetic then wave pattern. There are more traders using this wave pattern. They are describe that wave pattern is less secure than validating chart pattern.

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  5. #14
    Trader dkarev's Avatar
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    basically trading is based on the experience we are having to do this business,if we have a better experience to handle this business we are bound to be able to make something in this business when trading,we need to have a better experience in this business to be able to make good decision when trading,this business can be very tricky when trading

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  6. #15
    Registered user Quid's Avatar
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    Quote Originally Posted by ceasarswan View Post
    Whenever we are usually seeing market movement next You will discover a couple of possible choice. Market can progress your own trend or perhaps It is going to beginning for you to reverse. It means we must validate This primary to be able to follow your current movement. regardless of whether we already sure all about market direction then my spouse and i still need to be able to select the Simplest timing to be able to open order. your last step is information about Whenever my spouse and i must close your location AND acquiring maximum profit.
    We will discover many things in the market for the multiple choice that we have discuss about that,the progress on that way could even break the position but sure the beginning which is made finally can make the opportunity in the account,with good validation on it.

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    Finally successful traders

  7. #16
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    [lang=id]Only the traders that have the knowledge can validate their own tradings. surely that there are many people in this world need some validations like that to get a good mental condition but before we can do that, we will need a lot of knowledge and experience first.[/lang]

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  8. #17
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    Dear valued trader, I am awaiting to see new topics from your end always. Through your educator, I am getting many good lesson through which I am able to know many new aspects of this trading. I really appreciate the efforts to teach the newbie like me through your continuous efforts. I want to become a good traders and for that I am trying to learn from this forum on a continuous basis.

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  9. #18
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    Quote Originally Posted by Jamuna View Post
    Dear valued trader, I am awaiting to see new topics from your end always. Through your educator, I am getting many good lesson through which I am able to know many new aspects of this trading. I really appreciate the efforts to teach the newbie like me through your continuous efforts. I want to become a good traders and for that I am trying to learn from this forum on a continuous basis.
    That is good but you need to know what are the things you have learnt from here as well or else it would be nothing at all. if you can't even start believing in yourselves then it will be hard for you in the end since if you did not understand anything in here then you can't improve. Unless you just blabbering nonsense, i think you need to properly state your analysis and what you have learnt.

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  10. #19
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    Quote Originally Posted by Jamuna View Post
    Dear valued trader, I am awaiting to see new topics from your end always. Through your educator, I am getting many good lesson through which I am able to know many new aspects of this trading. I really appreciate the efforts to teach the newbie like me through your continuous efforts. I want to become a good traders and for that I am trying to learn from this forum on a continuous basis.
    There is nothing better than filtering your trading decision, and I relate this directly to the validation of the trading signal the trader ahs seen in the market at any point in time, this is the best that will happen to nay trader if they are careful about it, but it still need the management of the forex trader after all for success.

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  11. #20
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    [lang=id]i got the problem like it, when the market goes up or down, i always thing to get the top or bottom of chart, and start to bet it,then everything was done, i always put it against the market, and gave me floating minus, it was not caused by my lack knowledge to know the trend, but there was something in mind to push and do it, and although i knew it was wrong, and then i tried to change it with reverse position before enter the market, and then it works, i do not know what is the problem with me[/lang]

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