What I am going to do is take 2 trades every minute for 48 hours straight. Since 2 trades every minute is a lot of trades, I am going to use the trading bot we made in one of the previous videos. In the first experiment, I am going to tell the trading bot to use the 50-period moving average to find the trend, and then at every 60 seconds, take 1 trade in the direction of the trend. Set a tight profit target so the trade is won easily, and set the stop loss 10 times farther. Basically, use a 10 to 1 risk-reward ratio. I told it to do this on 1 account first, and repeat the strategy on the second account.
The theory is if what I am about to show you can actually increase the win rate of a trading strategy, the first account should perform better than the second account and should get a higher win rate. How do I know the first account will perform better? I will show you by the end of this video.
I will start the first experiment, and you keep an eye on the profit loss number as the trading bot takes new trades every minute.
30 min have passed since I started this experiment, and the account that is taking trades on what we think is the good chart has actually started off with a loss, whereas the account that is taking trades on the bad chart is up by 200 dollars. I gave a trade alert on Trading Rush Discord Server earlier to go short on this pair, so I am expecting the price to move in the downward direction on the good chart in the long run.
Now 1 hour has passed, and this time the bad market is the one with more loss. Interesting how 30 mins ago the bad market was sitting with a profit, but then it lost 3000 dollars quickly.
12 hours have passed, and the price on the good pair moved in the downward direction, which means the Trade Alert I gave on Discord earlier has reached the profit target. If we look at the two accounts, we can see that the good market has made less loss in the long run.
24 hours have passed, but the second account stopped taking new trades sometime after 12 hours and before 24 hours. It lost so much money that it ran out of margin to take new trades with the same position size. On the other hand, the first good chart account had more money and was still taking trades. Our theory matches the practical results, but there is one thing I overlooked before starting this experiment. You see, I told the trading bot to take trades in the direction of the trend and set 10 times bigger stop loss. But in reality, the 10 times bigger stop loss never got triggered even once. That’s because when the trend changed direction, the trading bot took opposite trades. If you have a long position open and you send a new short order, you close the running long position. That’s exactly what happened in the first experiment.
But even though we got the results just like we anticipated, the good account performed better than the bad account, it could have been just a fluke. If you want to make sure something works, try it again and see if you get the same results. In the second experiment, we are going to take 2 trades every 1 minute, but this time only in a downtrend.
Another 24 hours have passed, and what I am going to do is plot the balance on these 4 accounts using a chart and you will see something interesting. The total balance of the two accounts in the first experiment kept going in the downward direction. Obviously, this is because we used a bad trend trading strategy. But just like we anticipated, the second account performed worse than the first. And we know this was not just a fluke because, in the second experiment, the same thing happened. The first account performed better and the second account performed worse. But how did I know beforehand that the first account will get a higher win rate both times?
Here’s what I did and how you can get a higher win rate.
These are the two charts I am going to run the experiments on and what we are going to do is draw over the price movement.
You see, the price in the forex and stock market moves like this. A zig-zag pattern that is either moving up, down or in the sideways direction. If you are using a range market strategy, then you want the price to make this kind of zig-zag pattern. If you are a trend trader, then you don’t want the price moving in the sideways direction, you want up or down.
Now one might think, both of these charts are trending. The first one is trending in the upward direction and the second is trending in the downward. So in theory, if we use a trend trading strategy on these two charts, we should get a good and similar win rate. But that’s actually wrong thinking in this case.
You see, just because the price is trending now, doesn’t mean it will continue to trend for the most part. Most of the time the market is ranging and choppy. So instead of trading charts that are trending now, it is better to trade charts that will also trend for the most part in the future. How exactly do you find that?
Before starting the experiment, to see if the chart has a higher probability of ranging or trending for the most part, I first opened the entry timeframe. In this case, it was the 1 min timeframe since we were taking trades every 1 minute. Then I checked what kind of zig-zag pattern the price was making on the entry timeframe and made sure the direction of the price movement is not sideways. And then I checked what kind of zig-zag pattern is price making on the higher timeframe. Till now, there was not much difference between the two charts on the entry timeframe, but if we draw on the price movement on the higher timeframe, you will see something interesting.
The price movement on the two charts no longer looks similar. The zig-zag pattern on the first chart still looks like it is moving in the up or down direction, but the zig-zag pattern on the second chart is clearly moving in the sideways direction. The price has a higher probability of moving in the direction of the higher timeframe trend. If the trend direction of the higher timeframe, or in other words, if the long-term price movement direction is sideways, the price movement on the smaller timeframe will also be sideways for the most part.
If we go back to our entry timeframe and look at the price movement between the start and end of our experiments. You will notice that the chart that had a one-sided zig-zag pattern on the higher timeframe, also had a one-sided price movement on the smaller timeframe for the most part. Whereas, the chart that had a sideways movement on the higher timeframe, also had a sideways and choppy price movement for the most part.
In the stock market, when the price moves in the upward direction, people say the bulls have control over the market. When the price moves in the downward direction, they say bears have control over the market. But when everyone has a mixed and no one-sided market view, the price stays flat as we see in the second chart. If there is no one-sided view, using directional strategies won’t work that well. And as you can see, that’s what happened in these two experiments. The chart where the higher timeframe market view was flat, got a lower win rate.
In both of these experiments, the strategy didn’t make money in the long run because it was not really a strategy, it was just random trades in the direction of the trend every one minute. Although these random trades showed us the data we were looking for, what I am going to do in the third experiment, is take the highest probability trades for 24 hours straight. If everything I talked about till now is correct, the win rate I should get after 24 hours should be high and the profit graph should look like this.
To find trades more frequently, I am going to use a smaller timeframe like 5 min as the entry timeframe, and then use a higher timeframe like 30min to see if the price movement is worth trading or not. Basically, I am using the 200 period moving average on the entry timeframe to find the trend direction, and I am making sure the zig-zag pattern on 30 minutes higher timeframe is not moving in the sideways direction.
On this pair, the higher timeframe is not moving in the sideways direction, but the entry timeframe is. Just because the 200 period moving average is looking flat, doesn’t mean the price is not moving sideways. Moving Averages are lagging indicators, they show everything late. In this case, I know the price has started ranging because the price has stopped making new lower lows.
The price on this pair is good. The entry timeframe is trending in the downward direction and the higher timeframe is not moving in the sideways direction. Also, the price is near weak resistance. If you have seen the Live Trade Analysis Posts on Patreon or other videos on the channel, you know I also use the 200 moving average on the higher timeframes as well. But to keep things simple in this experiment, I am only using it on the entry timeframe. Since this chart is good, I am going to take a short trade with a reward risk ratio of 1. The trade will look something like this. We check back on this trade at the end of this video.
On this pair the price on the entry timeframe is extremely good, but if you look at the higher timeframe, you will see that it is not exactly moving in one direction. If the direction of the price movement is not one-sided, we don’t want to use a directional strategy on it.
There can be also situations like this, where the price on both entry and higher timeframe is bad. The price is moving in the sideways direction on the entry timeframe and has sudden big choppy moves on the higher timeframe. This is not something we want.
This chart is just like the previous one. The entry timeframe is ranging and the higher timeframe has sudden big moves.
This chart is an interesting one. The price on the entry and higher timeframe is moving in one direction, but the quality of the trades on this chart will be low. That’s because the higher timeframe is actually choppy. A good clean price movement looks like this, but on this chart, the price movement is like this. On these kinds of charts, the probability of losing the trade increases, because when the price moves like this, the indicators become less reliable. Even if you don’t use an indicator to take trades, the chances of your stop-loss getting triggered because of these choppy price movements are higher. So I am going to avoid this chart even though the entry timeframe pullback looks like a good discount.
Nothing is happening on this pair. The higher timeframe is ranging and the entry timeframe is not in a good trend.
This chart is interesting. The price on the higher timeframe is moving in the upward direction. It is not exactly a good trend, but it is better than a ranging market. But on the entry timeframe, the price is moving in the sideways direction. Looks like the price broke below the 200 period moving average. But, I can see that the price found support from this area before. And as we have seen in the previous video, if the price found support from an area before, it can do it again. So what I am going to do is take a support resistance trade. In this case, a long trade at a support area. Something like this. We check back on this trade later.
On this chart the price movement is excellent, but right now there is nothing to trade. We will wait for the price to give a discount. In other words, a good pullback.
This chart is probably the best of all. The price is reversing from the 200 period moving average resistance in a strong downtrend. The higher timeframe is also not flat. What we are going to do is use the highest win rate trading strategy we have tested on the Trading Rush Channel. According to the MACD strategy, the entry is when the short crossover happens. But if I enter right now, the 1 to 1 reward risk ratio profit target goes very close to swing low support. It is better to wait for the price to move in the upward direction. I don’t want to risk money on a trade where the reward is lower than my risk.
Actually, now waiting for the price to move in the opposite direction is not going to work because the price already made a good move in the entry direction. This was an excellent setup, and the trade would have looked like this if the price would have moved in the opposite direction a little.
After a few hours, I found two pairs where the price movement was good. Since this chart is trending in the downward direction, I’m looking to take short trade when the price starts to reverse back in the direction of the trend. We will use the Momentum Indicator to see the pullback reversal.
The MACD gave a short signal above the moving average which is against the entry rules. We want the short entry below the moving average. So what I will do is switch to one timeframe higher, and see if the price starts to move back in the trend direction. This was the 5 min timeframe, so one timeframe higher will be the 10 min timeframe. If the price goes back in the trend direction on the 5 min timeframe, MACD should give a short entry signal on the 10 min timeframe as well. We will take that entry instead.
Unfortunately, the same thing happened again. The price made a strong move in the entry direction, just before the entry signal. Now the trade is not worth it because the reward risk ratio is low.
I found this chart with a strong downtrend. Since the price is moving strongly in the downward direction without giving any bigger pullbacks, we will use the Beep Boop indicator we made in the previous videos to take short trades. It has made money three times on this trend already, and if the downtrend continues, it will most likely make money again.
The Beep Boop indicator did give a good entry signal, and a few minutes later it did make money. The price touched the profit target easily.
In total, I scanned over 10 charts multiple times throughout the day and was only able to find 3 setups that were actually good. We were only able to find 3 good setups because there was not much to trade in the first place. We filtered out the bad charts and traded on the few good charts that we found. Remember, most of the time markets are ranging and not worth trading. So if you are finding trades every time you open your charting platform, you are most likely not filtering out the bad charts. That’s why some traders get a 60% win rate with the same strategy, and some only get a 50% win rate. The secret is the chart selection process.
In the first experiment, we saw how different charts can give different results. The bad chart that was looking like this on the higher timeframe, performed worse than the good chart that was looking like this.
The practical results matched the theory, but to make sure it was not just a fluke, we ran the experiment again, and we got similar results.
Then in the third experiment, you saw how to filter good vs bad charts in the live market, and now you know how to increase the quality of your trades and get a higher win rate.
That’s all. Get Trade Alerts, see how I take high probability trades by supporting Trading Rush on Patreon. Thanks for watching.
