FxTaTrader


Forex Technical Analysis based on experience and research.

Statistics and Probabilities

The calculations for the FxTaTrader Model are based on statistics because the success of the indicators themselves used in the different Time Frames are by definition also based on statistics. Based on the settings and the currency pair you can determine what the chances are when using back testing or forward testing. These chances are no guarantee for the future!

The Ichimoku and MACD are Trend Indicators and lagging. They are best for determining the main trend and not for defining pullbacks and/or for getting in the first possible trade in the opposite direction of the current main trend.

The overviews generated: "Currency Score", "Currency Score Strength and Comparison" and the Rating used in the "Ranking and Rating list" are based on the most basic ideas of conventional technical analysis which is that a trend, once established, tends to continue. So it is just a matter of a higher probability for pairs in a stronger trend. When using multiple Time Frames the probabilities may also differ compared to only using a single Time Frame.
The volatility used in the list (Ranking and Rating list) makes it possible to have a Ranking based on the possible earnings by using the ATR. It is obvious that a strong trend with a high volatility offers the highest profit.

There is no such thing as a free lunch and one should always do his/her own due diligence and as a good practice place a Stop Loss when getting into a trade just in case of strong pullbacks. By no means any overview provided can be used solely or combined as a basis for a trade. The overviews provide information from the past and based on the assumption that trends, once established, tend to continue.

The lowest time Frame used, the 4H, has the strongest weight in the Model and for that reason the pairs in e.g. the list will fluctuate with the development of the pairs every week. However, the Model takes into account that higher Time Frames have enough influence to define the main trend.

It means that pullbacks and/or trend reversal in the 4 Hours during a period are in the beginning more likely to be defined as a pair being Neutral in case of a strong trend in the higher Time Frames. Once the 4 Hour and the Daily Time Frame start to reverse the influence of the lower time frames (4H and Daily) will become stronger and so on when the Weekly Time Frame starts to reverse. There is a point when the Rating in the list moves from Neutral to Up or Down. The stronger the trend the higher the Rating in that direction. The rating is defined as +++, ++, +, +=, =, =-, -, --, ---.

Once all Time Frames are looking in the same direction the Model will give the highest Rating which is +++ or --- depending on the direction. This way, it is possible to have a clear overview of the trend of the 28 pairs without the need to go through all the 4 Time Frames of all the 28 pairs being used in the Model. Furthermore, by using all this information combined the relation between currencies can be determined even better because these are interconnected. For more information read the article: Introduction to the FxTaTrader Forex Models

The Overviews provided contain information about the trends only but there are many other Technical Analysis factors that also could be of influence, like e.g. Candlestick (patterns), Trend lines, Pivot Points, Elliot Wave, Fibonacci, Different types of Patterns etc. etc. The overviews are only there to provide more transparency regarding the trends but are not in any way a substitute to doing your own research in the decision making processes.

Like everything in life, it is only possible to learn from the past and not from the future! Technical Analysis is no exception and although many may have the impression that Technical Analysis is a way to predict the future, it is in fact just another way to learn from the past by doing analysis. There are many types of analysis done in the world for different reasons. It is a complete Industry on its own, each sector has its own characteristics and also for that reason more or less risk and higher or lower probabilities. Each sector may also have a separate approach and thus a separate type of Study. There is one thing that they all have in common and that is that data from the past is used and statistics and probabilities are being calculated with it. When looking at Technical Analysis from that perspective it is not that different from other analysis.

The roughly explained method here is a part of the strategy that I am currently using for the FxTaTrader system. This method is not used on its own because e.g. money management also plays an important role in the whole. The risks can be high depending on the stop loss placed and experience determining the direction. Although the explanation may seem simple and clear there is always risk involved. I added a disclaimer to my blog for this purpose.

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