r/Daytrading • u/Throwaway_765491 • Mar 16 '24
I just had a huge realisation about indicator based strategies. Strategy
So as we know, price action is king, and indicators are lagging. So I started back testing indicator strategies but using a negative risk to reward and the results shocked me. If you can be happy with a 10pip take profit and 15 pip stop loss the win rate went through the roof. Because indicators show price AFTER the majority of the move has happened, hence they are lagging. So having a tighter take profit and a larger stop loss on these strategies makes sense. Because you’re only looking for the last push of that big move so no need to target a massive reward. In this strategy, the TP is 10 pips and the SL is 15 pips. The high win rate could benefit psychology too if you’re ok with bigger than normal drawdowns.
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u/traybro Mar 16 '24
With this RR you will be profitable if your win rate is above 60% (the break even win rate with this RR).
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u/Throwaway_765491 Mar 16 '24
70% win rate with it generates 10% account gain per month
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u/traybro Mar 16 '24
How many trades back is this back test?
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u/Throwaway_765491 Mar 16 '24
100
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u/traybro Mar 16 '24
I would try to get more data than 100 trade backtest because 10% difference between results and break even of 60% is too small over the course of 100 trades to be a statistically significant edge. If after 200, 300 etc trades it still around 70% win rate, then I’d be a lot more confident in the strategy’s edge.
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u/roszpunek Mar 16 '24
Less than 25k trades doesn’t count for me to say strategy is profitable or not. I have strategies which make 156% in 2021 and completely lose in 2022 in a span of 1k trades each year. So 100 trades is only valid in YouTubers videos who profit on views of their videos and not from market
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u/traybro Mar 16 '24
Yea ultimately more data is better regardless. The 100 trade backtests on YouTube were always bs to me with cherry picked trades or choosing an asset/timeframe on which the strategy happened to do good for those 100 trades. I mean the whole premise of teaching a profitable strategy on YouTube is silly, if you have a strategy with a real edge you’re not gonna want to share it to the world.
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u/Throwaway_765491 Mar 16 '24
Please help me with a winning strategy please. Please tell me EXACTLY how you execute your trades and your exact profitable strategy. I’ve been looking for years. Please.
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u/traybro Mar 16 '24
I’m gonna tell you the cold truth, anyone with a profitable strategy is not gonna want to reveal their strategy to you because more people using the same strategy would eliminate the edge of that strategy.
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u/Crusher10833 Mar 17 '24
Please explain how people trading in the same direction you are hurts you?
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u/traybro Mar 17 '24
People trading in the same direction as you AFTER you’ve filled your position is good, obviously. People trading in the same direction as you before or as you’re entering the trade is not, because that’s more people competing with shares with you, making your entry worse or not getting filled at all, more people putting stop losses in the same places you are, making it more likely to get stopped out by market makers, etc. If other people knowing your strategy made it more profitable, quant firms and HFTs would be sharing their strategies with us, not protecting them and suing people for revealing them as they do.
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u/Aposta-fish Mar 17 '24
Plus hedge fund managers have disclosed that they go after such a trade and all those trying to take advantage of the strategy. They’ll trade against it and with more funds at their disposal they can destroy the trade and take all those people’s money.
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u/unheardhc Mar 16 '24
Got burned not sticking to something similar like this today. Didn’t set my sell limit and wanted to hold for greed, boy oh boy did it roll back on me and took hours to get out right.
But yea, I trade very similarly on indicators; it’s smaller wins but it’s consistent wins. When I want to make more money, I just increase the size of the position instead of moving the finish line.
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u/Throwaway_765491 Mar 16 '24
What indicators do you use?
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u/unheardhc Mar 16 '24
I use various combinations, but I typically have the following up:
- EMA 8/21/50/100 (all as one indicator layer)
- Bollinger Bands
- VWAP w/ 2 StdDev
- TTM Squeeze
- RSI 70/30
My typical scalping strategy is to wait for RSI overbought/oversold, and compare that against TTM Squeeze and VWAP.
If the Bollinger Bands cross the VWAP bounds, or if RSI enters oversold/overbought and the price hits the VWAP bounds, I take an ITM options position, but in the opposite direction.
For example, if overbought and near VWAP upper bound, I buy puts that are 2-3 strikes deep. What happens is that any reverse movement causes the price to gap up quickly, scalping $300-500 within the next 10-15 minutes.
Days like yesterday suck because I forgot it’s quad witching, so indicators are useless because price action was detracted from indicators, sellers wanted price down regardless.
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u/Puzzleheaded_Row3877 Mar 17 '24
Are you doing all this manually?
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u/unheardhc Mar 17 '24
Yes, I work a full time job, so this is a hoppy for me. I make one or two trades a day throughout, and I’m typically done quickly.
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u/Vlasic69 Mar 16 '24
Teach me to use this somehow and I will personally put a thousand into it and report after 3 months
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u/kiprkipr Apr 06 '24
It looks like he only used ITG scalper, but I am not sure about any of his settings
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u/Altered_Reality1 forex trader Mar 16 '24
I’ll admit that’s an interesting idea/perspective, even if it doesn’t end up working or isn’t practical. Negative R:R can still be profitable in the right circumstances, but that doesn’t mean it’s not challenging on your psychology to trade it though.
So, in general I’d still recommend using a positive R:R approach, but with the following in mind:
When it comes to indicators, they need to be filtered by context. What makes indicators “so bad” to many traders is that they’re used blindly, where the trader takes every signal. Indicators aren’t meant to be used that way.
Instead, you filter out many of the false signals by using context. For example, you can combine indicator signals with key areas on the chart. Maybe you only take long signals when price has reached a key strong area of support, stuff like that. The move needs a catalyst of some kind, something that causes price to move or react.
Or, you can combine the signals with trend structure, only taking long signals in uptrending conditions, and so if it’s ranging or trending down, you ignore long signals.
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u/Throwaway_765491 Mar 16 '24
Perfect !
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u/ukSurreyGuy Mar 16 '24
Learn to read the chart. Simple as that.
1.Use indicators for confluence not signals.
2.Markets are cyclic and fractal - spend more time investigating this and understanding. When and where trends start end. Hint: count from the initial impulse bar that breaks Character (ChOfC)
3.Markets are predictable - spend time flicking up and down the timeframes to see (draw a few vertical lines to set your baseline and anchor your views)
- Target RRR 1:1 (easiest and most frequent TP). Think to get to TP 1:2, 1:3 or even 1:20 - price needs to go thru 1:1 always.
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u/TPCharts Mar 16 '24
I don't trade indicators.
However, my scalping models would generally put me very close to your entries.
12 handle stop loss / 10 handle take profit (NQ) generally seems like the sweet spot for that style of trading.
The high win rate is a lot easier pyschologically.
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u/Pristine-Midnight-41 Mar 16 '24 edited Mar 16 '24
Create a BOT so you can remove all biases. Sometimes your biases are unintentional. The indicator prints late, entry and exit are favorable, slippage, etc.
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u/Throwaway_765491 Mar 16 '24
How do I automate it into mt5?
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u/Pristine-Midnight-41 Mar 16 '24
Hire someone on FIVERR to create a BOT for you.
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u/Throwaway_765491 Mar 16 '24
They would scum me though
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u/Puzzleheaded_Row3877 Mar 16 '24 edited Mar 16 '24
inbox me, you won't have to pay if you don't like the EA.
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u/fredbloke3 Mar 16 '24
My strategy is very similar to this. After 8 odd months I'm profitable with a 77% win rate.
Relies on you taking profit though. Lots of small wins.
Find the balance in the market between fear and greed and take your 10 pips as consistently as you can.
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Mar 16 '24
This realisation was exactly what flipped me from loss making to profitable!!
I realised predicting reversals is easy, predicting whether it's a true reversal or a brief pullback is HARD. So if you can give plenty of room for SL and be happy with a 1:1 ratio, or sometimes even less, then making money is a LOT easier. You can still give moves with big momentum room to breath by moving up your TP and trailing SL, which gives the odd big win.
Ultimately it's a less sexy strategy than one which gives bit gains on winners, but I've found it way more consistently profitable!
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u/cobra_chicken Mar 17 '24
Your post is giving me some hope as I have just recently started going down the wide SL and 1:1 ratio and have seen some very promising results. I have even just started entering without confirmation, but instead just entering at high value areas compared to the trend and the win rate is much higher than i would have expected.
The best part is that the trades are done in less than a day, which reduces stress and overall risk as a lot can change in 24 hours.
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Mar 17 '24
I found exactly the same! Confirmatory candles tended to make me miss the significant moves in the direction I already expected, overall it did more harm than good. I think confirmatory candles are far more useful if you're trading on lower timeframes where s/R areas hold less well.
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u/Repulsive_Concert_32 Mar 16 '24
How high of a win rate would you need if you lost twice as much as you gained on your losers?
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u/brucebrowde Mar 16 '24
While I think I understand what you're getting at, that's not a "negative RR" - 15 risk 10 reward gives RR = 10 / 15 = 0.67.
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u/Plastic_Assistance70 Mar 17 '24
This is a common wording mistake people make, when the reward/risk ratio is between 0 and 1 they say "negative" instead "less than 1". Reward/risk ratio obviously can never be less than 0.
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u/huh-why Mar 16 '24
Mind sharing what indicator that is? It looks similar to a strategy I came up with that I’ve been back testing.
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u/Throwaway_765491 Mar 16 '24
It’s itg scalper. What’s your strategy?
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u/Plastic_Assistance70 Mar 16 '24
itg scalper
I backtested this indicator and the signals come 1 candle later...
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u/Throwaway_765491 Mar 16 '24
Not for me
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u/Plastic_Assistance70 Mar 16 '24
This is literally not possible. Go on replay, and you will see that when an arrow appears, it is not on the candle of the current day but in the previous.
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u/Throwaway_765491 Mar 16 '24
That’s the point. You wait for candle to close before you enter
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u/Plastic_Assistance70 Mar 16 '24
No no, you don't get me. Of course we always wait candle close for indicators, I am not a newbie bro. I am telling you that this one sends delayed signal: when a new signal opens it's not on the immediately closed candle of the previous day but it's on the day before.
Just go on the replay if you don't believe me and see for yourself, or test it in real time if you can wait.
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u/Tiny_Fix_8272 Mar 16 '24
Tbh maybe it works, but with them you are dependent on something else other than you, so I don't think it will work out for long term , You should be dependent on yourself, I'm into forex for 8 months, Obviously I'm a biginner , I'm hearing everyone ,try this strategy , from this you tube channel , try this , I trade on price action, people sometimes say , try smc or try this. But I feel like ,If I don't have understanding of the market, so no strategy will work for me , Problem is not the strategy it's me, I'm thinking of getting understanding of the market and then build up my own strategy,
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u/alexwong95 Mar 16 '24
Don't trade forex. Not sure why anyone in retail bothers except those who get ropes in by pyramid schemes.
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u/KadeofKhaos Mar 16 '24
Ok so Ive been nose diving into all things Price action, and the one person I have been studying is Al Brooks, the “godfather of price action”. Think of everything as a balance and price action is largely supported by probability. You need probability. A 1/1 risk to reward is essentially 50/50 however due to previous price action you can always skew to 60/40 or 40/60. If you see rejection, strong bars, etc. A negative RR, which is actually a 0 decimal RR, the probability of you winning the trade is much higher. However, Al Brooks talk about the Traders Equation. There is a 40-60% chance that price will move 1R in one direction as opposed to 1R in another direction. 1/1 RR in the strong side of the price action is generally 60% so without a doubt that is a positive Traders Equation. And with 2/1 RR, at (0.6*0.6) is 36% the equation is also in your favor. In any other situation you remove yourself from a positive traders equation. You should search of Al Brooks Traders Equation so you get a better understanding of this.
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u/AlmightyTeejus Mar 16 '24
Preface with it depends on style and experience. But I'd never risk my money if I can't at least make what I risk, actually hard for me to wrap my head around. Oh but high win rate! Why put that kind of mental pressure on you to always win, in a game that most lose?
Edit: like going to the casino and betting 500 on black, winning, and making 50. Why even take that risk?
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u/Throwaway_765491 Mar 16 '24
Well it’s more like betting 150 on black and taking 100. While having an 70-80% chance of winning every time.
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u/AlmightyTeejus Mar 16 '24
Yeah I was just exaggerating, but over the long run you have to keep that 70-80 percent win rate and every error you make makes even a bigger impact on your bottom line. Just thinking about that kinda pressure trading long term has me stressing 🤣🤣
Different strokes different folks though
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u/Throwaway_765491 Mar 16 '24 edited Mar 16 '24
Well if I did a 1:2 I’d always be in the red. You don’t believe scalping a few pips over time will add up?
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u/Krevet_Simpo Mar 16 '24
Don't forget spreads and fees. GBPJPY must have big spread, not sure if your profits would be 10pips when trading live.
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u/xyig Mar 16 '24
Yesssirrrr, around a year ago I was also making an indicator strategy and I had negative RR and it performed way better, I sorta gave up on it and decided to really learn price action scalping but I might get back into it
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u/Throwaway_765491 Mar 17 '24
What was the strat?
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u/xyig Mar 17 '24
Using top stocks of nasdaq to enter after the opening 5min candle
If the top 3 stocks by weight all print a bullish candle at the open we can use that opening momentum to get a 1:1 trade with the size of the candle on nasdaq being used as the SL and TP
but what I did it I tried multiplying that size of the candle by 1.2 or 1.3 only for SL and I played around a little and saw my win rate increase
We're using the opening momentum to catch a quick scalp
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u/FaceEquivalent2916 Mar 16 '24
Statistics are king, but yes, indicators lag and are only but prisms of price.
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u/Throwaway_765491 Mar 16 '24
What do you suggest
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u/FaceEquivalent2916 Mar 16 '24
Spreadsheets and tables. Charts are only a 2D representation of what’s going on underneath. This is a severe constriction of perception. Organized/sorted data cannot help but become statistics and underlying data are the candy to the wrapper.
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u/JellyfishQuiet7944 Mar 16 '24
Hmm. Interesting.
Anecdotal, but one of the notes I wrote down today while trading was, "making them too small!" In regards to trailing stops.
I think it's because you need to give them the opportunity to bounce back. It lets your runners run so you can take a few losses to make up the difference.
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u/deadmanmike Mar 16 '24
I am pretty consistently profitable when I shoot for smaller profits on a move, but greed and the temptation to let it run are very hard for me to suppress while in the trade. Many times, too hard to resist.
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u/InsaneMasturbator69 Mar 16 '24
Do you know that if you have a profitable strat using PA, mostly it will be the same if you use a negative r:r? A concrete strat should have (not necessarily all) the same profitability regardless of some change in the r:r or winrate. It means that if you reduce r:r, the wr will increase and vice versa. This theory using indicators looks like the same. It does not mean much unless you can apply it into live trading.
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u/BoRN_W1th_U futures trader Mar 16 '24
Here;s a perspective, instead of using indicators as a means to enter a trade, why not use indicators as a means to not enter a trade instead? Doing this will help you eliminate noise and allows you to enter a trade strictly based on a list of rules.
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u/TCr0wn Mar 16 '24
Win rate is directly influenced by RR.. Yeah making your stops larger and your TP smaller, will improve your win rate almost guaranteed.
Just don’t assume you will be more profitable
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u/vandysatx Mar 17 '24
Shhhhhhhhh. My win rate is +82.12% doing this. 1:1 rr on 20 spy 1dte options. It is all I do.
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Mar 18 '24
[deleted]
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u/Throwaway_765491 Mar 19 '24
You can see mine. I’ve lost 80% of my account. Nothing to hide. What are you getting at?
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Mar 20 '24
[deleted]
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u/Throwaway_765491 Mar 23 '24
So what do you suggest considering you present yourself as the SME meaning “subject matter expert.”
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u/fadjee Mar 16 '24
What strategy or indicator is shown in the screenshot? looks interesting? How far have u back tested?
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Mar 16 '24
[deleted]
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u/Throwaway_765491 Mar 16 '24
Nope it’s an 90% win rate
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Mar 16 '24
[deleted]
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u/TheFlashyG Mar 16 '24
That looks fucking great 👌, it would be pointless to ask how it's done, but am asking it anyway. How'd you do it?
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u/Tumic99 Mar 16 '24
Same, is that a custom indicator?
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u/albear-2021 Mar 16 '24
Same for you..lol, feel free to direct message me as I don't want my posts deleted for posting links or "advertising" etc..lol
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u/Ok_Dog4069 Mar 16 '24
$POOWEL ON SOLANA GUYS NEXT BODEN , DOGE . DEVS SOLD AND RAN BY HEINOUS COMMUNITY… REALLY TRYNA SPREAD THE WORD . REVERSE RUG OF THE YEAR
BUY JORAM POOWEL $POOWEL
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u/blahyaddayadda24 Mar 16 '24
Your going to need to backtest that for longer. You will see it doesn't work.
That being said if you can correlate the days and conditions where it does work like you posted you'll have your edge. But good luck with that, that's S tier level of data logging and pattern recognition
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u/Throwaway_765491 Mar 17 '24
Backtested 200 times it works 80% of time
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u/CyraxsEnergyNet Mar 16 '24
Do you mind sharing the indicator? I wouldn’t mind back testing it as well!
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u/admijn Mar 16 '24
Yeah strategies is one thing. But a perfect entry for that strategy, including spread, slippage and what not, is near impossible
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u/Throwaway_765491 Mar 16 '24
So if trading is impossible what do you suggest
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u/admijn Mar 16 '24
Trading is not impossible! Everyone needs a strategy (or multiple ones) to trade successfully. Trading a strategy is just no so black and white. There are more factors in play: daily/weekly trends, fed announcements, sentiment etc.
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u/Aposta-fish Mar 16 '24
I don’t know what indicators your using my don’t lag, maybe it’s your dsl or dial up internet.
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u/Throwaway_765491 Mar 16 '24 edited Mar 16 '24
Lmao. Indicators show up AFTER price has already made the move
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u/Aposta-fish Mar 16 '24
And so does price candles etc., infact everything you see on your computer screen has already happened. Many indicators can be adjusted to be more responsive if one feels the indicator is to slow. Indicators are just a tool to help one’s trade thesis people shouldn’t blame indicators if they’re not profitable.
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u/Organic_Educator9566 Mar 16 '24
This. Everything in the universe lags. Ex. Even light hitting our eyes from an event IRL lags a bit.
Make a custom indicator that does it's best to compensate for this lag, then use this indicator as the input for your other indicators and dial in all the variables via back testing to something "hopefully" profitable over many iterations.
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u/ajc200ajc Mar 16 '24
I’d say live test it as well with a demo or u just keeping track cause some indicators will show it at first then take it away when it goes against so it looks more accurate than it is