Trading Evolution

Markets are never wrong - opinions often are

Why it is enough to know when EUR is going to move

I see that many new traders are focused on finding right entries based on price for example they are looking for support & resistance, breakouts, moving averages, momentum etc. There are countless number of past price based indicators. Here I would like to talk about why for small trader it is enough to know when the market is going to move. And you do not need sophisticated options strategy to take advantage of it. Let's look at hypothetical example. We noticed that on Wednesdays at 11:30 am EUR/USD pair starts to move. One Wednesday it moves lower, another it moves higher and next time higher again. We don't have any idea about move direction but we see consistent start of a move at that time. It might be some bank starts to execute clients order or big trades start building position ahead of some economic release. It doesn't really matter to us.

My point here this time based pattern is enough to build profitable system. There are exactly four outcomes at 11:30: you go long EUR & it drops, you go long EUR and it rallies, go short & it drops, go short & it rallies. Two out of four are profitable. Lets say it usually moves about 30 pips and we have a stop-loss 12 pips. At 11:30 we ask our girlfriend, or spin the dice, or do whatever to pick a direction and enter the trade with stop. 2 out of 4 times we will be stopped out and will take loss but the other two times we will make profit of 30 pips. Our average P/L per trade should be 9 pips (50% loss of 12 and 50% gain of 30).

Remember move is random and our position is random. The only constant here is time of entry.

Day_##MoveOur PositionP/L
Day 130Long EUR30
Day 2-30Long EUR-12
Day 3-30Short EUR30
Day 4-30Long EUR-12
Day 5-30Short EUR30
Day 630Long EUR30
Day 7-30Long EUR-12
Day 830Short EUR-12
Day 9-30Short EUR30
Day 1030Short EUR-12
Total P/L after 10 trades is 90 pips.