The Skill Check | Foreign Exchange EA Download - MT4/MT5 Resources - MetaTrader 5 Resources
The system is simple, easy to understand, and backed by numbers. With that said, it's all about testing your skills and seeing if you can make it work. Remember, even if you guarantee a 10% advantage, most people will still lose heavily.
Technically, one might say it's half a system, but I digress.
Now, let's get into the system.
What we need to do is create a pattern in the market that happens consistently, creating opportunities.
This may sound very difficult, but it is not. There are basically countless ways to do this, but there's no reason to make it overly complicated, so we're going to go with one of the simplest methods I know of. We'll do this using tools that everyone is familiar with.
This tool is a pivot. Just pivot. There are no other levels.
If you didn't know, the pivot is essentially the 1 period Typical Price (HLC/3) MA moving forward 1 period.
What's really interesting is that there is approximately a 75% chance of hitting the pivot each cycle. This has nothing to do with the currency pair you are trading, nor the time period in which you draw your pivot points (daily, weekly, monthly, 1 minute, 5 minutes, etc.).
The hit rate is at least 70%, sometimes as high as over 80%, but usually around 73-76%.
This is our model for creating sustained opportunities in the market. It essentially creates opportunities every day, every week, every month, every hour, etc.
We can set our trading rules now .
In this case , we are trading traditional pivots that are drawn daily. If you're looking at the weekly pivot, switch week by week, etc.
We can only enter into long trades under the following circumstances:
- The next day begins with price below the pivot point.
- The price has not hit the pivot yet.
We can only trade short if:
- The next day begins with price above the pivot point.
- The price has not hit the pivot yet.
We can only withdraw from a transaction if:
- The price hits the take profit you set at the pivot point.
- Price hits your stop loss.
Skill Check: Your job is to figure out where to place your stop loss, how to manage/ trace and when to enter if the above entry conditions are met.
Remember: Pivots can be drawn using any period, you don't need to follow a daily period. You can use larger or smaller periods. I would say that using smaller periods will make your trades more difficult because your trading costs will be very high relative to the trading opportunities created. I would like the spread to be less than 10% of the opportunity created. If the spread is 3, I would like to see an opportunity of 30 pips or greater.
Let's say you like to trade using 1:1 RR. The skill check is to see if you can catch an event with a 75% chance of occurrence, and at least a 51% chance of occurrence, using a 1:1 RR.
Let's say you prefer to use 1:2 RR. So using these parameters can you capture this action more than 33% of the time? Remember, this happens 75% of the time, so if you know how to time the market, there 's a good chance you can catch it at least 34% more of the time.
Some people will say it can't be done, but it can. Many people trade pivots, which is why pivot trading is profitable for some and not for others. Some people have skills, some don't.
Now let’s talk about the rules for engaging in this topic so that we can keep it alive and, more importantly, a place where action can be taken.
Rules of participation:
- If you want to publish trades/charts you must determine the following:
- The pivot level for the trade (what period it is, and what currency pair you are trading).
- All pivot levels must be shown using the provided tools, your own tools, or hand-drawn tools.
- You don't need to share your entry/risk management approach other than the rules shared on the first page. Feel free to do so if you wish. For those who think I'm doing a disservice to other traders by "hiding" my rules, using someone else's rules will most likely cause you to lose money anyway (see research above).
- Everything related to the System Skills Check section can be discussed/developed here. If you would like to share entry/risk management ideas and build on other ideas, please do so. However, if you are sharing, everything must still contain the original rules beyond skill checks.
Tools provided:
Attached is an indicator I wrote for us. Very simple MTF pivot. You can set the period pivot you want to view and it will plot it on the chart. If you want to show pivot hit probability as well, it will also plot that probability.
I have also included a picture that new traders will find useful. It essentially shows you the different win rates you need to break even based on your RR ratio.
More tools are coming...
I posted this on Friday on purpose. For those of you who read it and find it interesting, you have a weekend to download the indicator, look at the chart and think about how to pass the skill check.
Come on Monday I'll be posting all the weekly opportunities created as well as some daily opportunities that look interesting.
For those who want to share their entry plan, please feel free, and for those who just want to share the trade after the fact, please feel free. We are all looking for the same opportunities. The difference between boys and men is those who can pass the skill check, and those who can't.
Trading/First Chart Example:
Here's a trade I made this morning. Go long USDCHF with 1:2 RR. Remember, 78.50% of the time, price will move to the pivot point like this. It's very possible to catch the move with a 1:2 RR over 33% of the time (if you have any skills at all). Today is a relaxing day. If you had bought at any time before hitting the pivot point, you would have made money at a 1:2 RR. Most days are not like this.
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