Forex from a to z
Suppose that we have a trading method which gives us great confidence, produces from results over a long time, and which refined through a long period of study and experimentation. We are aware of the risks of high leverage, and do not gamble by entering trades which do not fully meet our requirements. We are pleased with our results, but still unsure about how much we should risk. What can we do to solve this problem? One of the from issues with from trading method is the length and frequency of streaks of wins or losses. From win streak is a period during which consecutive gains are registered in an account, and a loss streak is the opposite. What kind of bearing do these series of wins and losses have for trade sizes? Obviously, if a style generates wins and losses in streaks, the results are not independent of each other. A profitable trade from suggesting the likelihood that there will be more gains in case the trader increases his position size. Conversely, if a loss warns us that forex will be followed by more losses, and we should discard our original approach and seek our wealth at other occasions. In other words, heads in one flip tells us that following coin tosses will bring from more heads, and tails will lead to more tails in subsequent trials. This knowledge may allow us to increase the size of our position with reasonable confidence, or to eliminate it in the case of loss. Z-score is the mathematical tool used for calculating the capability of a trading system for generating wins and losses in streaks. The simple formula allows us to test our performance, and to check if forex streaks generated present a random pattern or not. On the other hand, if our strategy is prone to generating streaks in a non-random fashion, we can use this knowledge to maximize our profits. N - total number of trades in a series for example, in a string forex we have 15 tradesand the N is R - total number of series of profitable and losing trades if we have a run for our method, from we have a string ofthere are five forex SSSSS So R is 5 A series is simply an unbroken string of wins or from. For examples, is a series, as isbut is not. So all that we need to do, in order to understand if our strategy allows us to repeat our profits or losses in a non-random forex, is to check its z-score, and to compare this to a series of numbers which we will call the confidence level. The confidence level is simply the normal forex equivalent of the z-score we receive from our tests. This means that our results, while good, are not ideal in statistical terms, and we should be cautious in applying money management strategies to maximize our profits. Buy, z-score tells that our losses will follow each other, exit Sell, z-score tells that our losses will follow each other, Exit In this example we examine the hypothetical returns of two different traders, one of who employs a z-score strategy, while the other uses a forex scaling-in method. We also suppose that the string of trades are part of a larger sample that has a good enough z-score. As we see, the z-score trader has greater confidence in following up with his trades, because he expects them to concatenate losses and gains. In our example, the z-score trader is able to gain double what his competitor gains due simply to the fact that he can build up his trades confidently. Read about other position sizing strategies. Read about position sizing using the risk reward ratio Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your forex deposit. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or guarantee of future performance. Please read our legal disclaimer. What does a streak of wins or losses mean? The z-score Z-score is the mathematical tool used for calculating the capability of a trading system for generating wins and losses in streaks. A series is simply an unbroken string of wins or losses. An example with a good z-score.
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