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mitsubishi

Beyond Taylor

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Assuming that in an uptrend the lows are made first more often than highs made first i took a look at my historical data from October 4th 2011 the last significant swing low 1074.7.

If you go back to the ideal cycle diagram (post #36) The cycle of intraday highs/lows would be L,L,H,L,L. At the end of the cycle we would expect price to be higher than at the beginning.In short,in an uptrend price must be going higher.

 

"A trader with any method or system of trading must develop and have a certain amount of confidence in it-with this means of trading he must believe in the occurrence and recurrence of the past pattern of movements" Chapter XV Pertinent Points

 

Since we can look back to 1074.7 in October and see the strong uptrend from that point,a test can be run to see within each week how often the low is made first compared to high made first day by day.Beginning on October 4th which was a tuesday,showing within each week the number of low made firsts,high made firsts and the weekly closing price.If the low is made first more often than high made first within a given week we would expect the weekly closing price to be higher than the previous week.The opposite should be true also,ie if the high is made first more often,then the weekly closing price should be lower than the previous week.So let's test that theory:

 

L-3 H-1 1155.4

L-5 H-0 1224.6

L-2 H-3 1238.2

L-4 H-1 1285.0

L-2 H-3 1253.2

L-4 H-1 1263.8

L-2 H-3 1215.6

L-2 H-2 1158.6

L-3 H-2 1244.2

L-4 H-1 1255.1

L-1 H-4 1219.6

L-4 H-1 1265.3

L-2 H-2 1257.6

L-4 H-0 1277.8 (corrected should not have been red)

L-3 H-2 1289.0

L-3 H-1 1315.3

L-2 H-2 1316.3

L-2 H-3 1344.9

L-4 H-1 1342.6

L-4 H-1 1361.2

L-1 H-3 1365.7

L-3 H-2 1369.6

L-3 H-2 1370.8

L-3 H-2 1404.1

___________________________________________

 

Total number of low made firsts =73

Total number of high made firsts= 43

--------------------------------------------------------------------------

 

In this admittedly short test (5 months) the theory appears to be confirmed.

The same theory should be true for the weekly H/L's ie the weekly low should be made mon or tues and the high made at the end of the week.I will test that next.

You could devise some kind of mechanical trading system from these statistics.For example as a kind of oscillator,So where you have a week with high made first 4 times,low made first once and the week closes down,you could say the "oscillator" is oversold and buy near the close of friday and hold until the following friday-one idea.

 

A couple of corrections were required to my last post

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In this thread I think it would be helpful to many who may be interested in the method if

1) someone described how Taylor resolved how and why the market apparently spends so many days off cycle

2) a current practitioner (like SILVER for example) explains how he or she resolves the market apparently spending so many days off cycle

3) how Beyond Taylor accommodates the market apparently being off cycle so much of the time

 

 

...surely I'm not the only trader who has ever seriously and sincerely pondered this question re TTT off cycle...

...surely there might be a reason WHY?

 

... and hopefully, post 46 is not the 'state of the art' Beyond... answer to 3)

i.e. the hare is right here behind you (waiting for you to cross the finish line. :) )

 

Maybe I should have put each of those questions in its own post ... :confused:

Maybe we're already beyond the basics :confused:

 

 

If the cycle was always the same then everybody could see it and nobody would want to take the opposite side of your trade...obviously.

Getting hung up about where the cycle should be and what it should look like shouldn't be a distraction from the price objectives which are just as an intrinsic part of the method.Are you also not happy about the price objectives? Perhaps you would also like me to re-arrange the order and price levels for you.Let me know and i'll see what i can do.

Sorry if the ship isn't moving fast enough for you,but sometimes,when attempting to reduce journey times you run the risk of hitting the odd iceberg.The passengers may thank me later or not as the case may be.

And btw, i did state at the start that this was hopefully going to be a joint effort-i don't have every answer.

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In this thread I think it would be helpful to many who may be interested in the method if

1) someone described how Taylor resolved how and why the market apparently spends so many days off cycle

2) a current practitioner (like SILVER for example) explains how he or she resolves the market apparently spending so many days off cycle

3) how Beyond Taylor accommodates the market apparently being off cycle so much of the time

 

 

...surely I'm not the only trader who has ever seriously and sincerely pondered this question re TTT off cycle...

...surely there might be a reason WHY?

 

... and hopefully, post 46 is not the 'state of the art' Beyond... answer to 3)

i.e. the hare is right here behind you (waiting for you to cross the finish line. :) )

 

Maybe I should have put each of those questions in its own post ... :confused:

Maybe we're already beyond the basics :confused:

 

Hi zdo,

We have not finished the basics, and everybody is adding his 2c worth.

And mitsubishi is forced to reply and defend his position. Rather than proceed with the basics.

Lets give him a chance and see what is posted.

I am also confused

kind regards

bobc

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Hi zdo,

We have not finished the basics, and everybody is adding his 2c worth.

And mitsubishi is forced to reply and defend his position. Rather than proceed with the basics.

Lets give him a chance and see what is posted.

I am also confused

kind regards

bobc

 

To me the question is part and parcel of the “basics”. It has invariably come up with the few others I have had conversations with who were in early stages of exploring the method … Imo, it needs to be dealt with at the beginning instead of putting it off, then glazing it over and 'getting back to it' like during the last half hour of a seminar or during closing Q&A

No need for him to get defensive. My question was simply a question, not a challenge, not my 2cents. … and I’m not trying to rush him, or the turtle, or the ship … or to push a string, or whatever. Mit, please tell me your not someone who can dish it but can’t take it. “say it ain’t so, Mit. Say it ain’t so” .

 

In any event, I reposted it again with all the fun removed so that there’s no confusion in distinguishing between the casual and the serious....

It was not a ‘what’s wrong’ with the model question. It was a how does

1 Taylor

2 current practitioners of the classical model and

3 Mitsubishi, the innovator

resolve this issue ???

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Nice test,Mitsu....

 

As far as I am aware Taylor does not get into why or how the cycle goes off beat at times,IMO he either never spent a thought on it or kept it to himself or thought it is unimportant.

So I only have my thoughts on it...

 

To get a reason why cycles go off-beat you need to assume a certain position on what cycles are.

A cycle represents timely connected activities of market-participants that influence prices and by that have the power to drive a market for a period of time.

It represents the combined power of an unknown number of market-participants that share the same sentiment at that point in time.

As long as your cycle is on beat it represents those market-participants that collectively dominate the direction a market takes with their actions.To have a functioning market any trade needs someone that takes the counter-position,so while you follow the dominating players in a working cycle there also have to be counter-parts for their trades,which represent those market-participants with the opposite market sentiment at that point in time.

The sentiment is based on individual interpretation of past and present information and it is the interpretation that leads to a shift in sentiment which is followed by a change of direction of the actions.So at this point you follow a cycle and by that a collective of participants with the dominating sentiment in that point of time. Now as time goes by the individual interpretation may lead some participants among your identified cycle to a change of sentiment and by that lessen the impact of the collective that created your cycle originally.The impact can be diminished to a point that another collective becomes dominating the drive of the market and that is when your cycle gets off beat.This is a complex idea and I think that is why you dont find simple answers for that question.You could also assume a perspective on cycles as in wave theory but all that does not help one bit in working with TTT IMO.

 

How can you handle these violations?My handling changed with my understanding TTT,in the beginning you concentrate on your cycle only,what day is it,watch the price objectives and then they get not reached or violated and you get an understanding of what the pages in the TTT on these violations that did not really make sense when read first time are useful for.I had an inflexible idea about the TTT and used it in a fixed frame.At this point you need to get back and study it again and once you have been duped that one time too often by that sell short day that started a rally and actually had been the perfect buy day you see the days flexible as concepts.Any day of a cycle can become a buy day.Now to make use of that the challenge is to know either intra-day or in advance when your cycle has changed/is about to change.Here is where I find TTT falling short and I retreat to other techniques to find indications or patterns that come along with a changed cycle.

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Results of the weekly test.The theory being,as with the intraday H/L's,that in an uptrend the lows should be made first,and in a downtrend the highs should be made first.So on a weekly basis,the uptrend from October 4th 1074.7 should show the weekly lows being made first,ie at the beginning of the week and highs made last at the end of the week.This is exactly what the test shows.This 24 week period showed the theory was correct 20 times,wrong 4 times.Meaning when the weekly low was made first the index closed up on the week,high made first,closed down on the week.

Now this result might seem pretty logical and obvious to some people.You might be thinking,big deal so what? If so,it would be interesting to compare the difference between how many weekly points are available and how many you actually captured.

But i'm willing to bet that there are many would be traders out there who just don't make these simple observations and tests and formulate a plan accordingly.

That,in essence,is what the Taylor book is all about.Getting you to focus on maximizing the number of points you capture by using simple logic and observation of repeatable patterns

So when he says avoid selling the high made last on a sell short day it's because you are likely against the main trend (long) where,as we have seen the lows are made first and highs last.In this case (high made last on a sell short day) the safer play for a short trade is for the momentum to follow through to the next morning and to look for signs of exhaustion where price has penetrated the price objective (prev day high) or failed to penetrate.This being a much safer short trade;where buyers are looking to take profits.Looking to sell (take profit) the high made first,or short sell the high made first,or both.If a trader believes this is a place to take profits,presumably he believes that price will start dropping from here,and logically a good place to go short.

It does not matter how you label the days because there is a rule for every play.And as we have seen,different traders have different cycles.There is also a probability for every play and that probability can be calculated in advance based on what happened today and what the trend is and where the likely cycle turning points will come.

A penetration of a previous high in an uptrend tells you something by the way it is made,when it is made and whether it holds.A violation of a previous low in a downtrend tells you something by the way it is made,when it is made and whether it holds.But substitute downtrend for uptrend and that violation must be considered with a different probability.Substitute penetrate with failure to penetrate,and violation of a low with a higher low and the probabilities shift accordingly.You may think that thinking in terms of a 3 day cycle is superfluous to these ideas,but since we are talking about a cycle of buying,selling,selling short and repeating,it is actually intrinsic to how the market actually moves

So this book is for the trader who wishes to learn how to read a market and formulate his own strategy,based on the probabilities outlined by Taylor.It is not for the trader who wishes to be told exactly what to do without thinking.

 

Does Taylor explain why the ideal cycle doesn't appear as often as we like? No.But since each trader begins his cycle in a different place it's obvious my cycle could be more ideal at any one time compared to yours.Or maybe the cycles look better in commodities which is what he traded.Or maybe the cycles were more obvious in his day.Frankly,i don't really care.It is through Taylor's book that i was able to take my trading to the next level and still,i find new ideas that are based on his methods.

And that is why the thread is called "Beyond Taylor".

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To me the question is part and parcel of the “basics”. It has invariably come up with the few others I have had conversations with who were in early stages of exploring the method … Imo, it needs to be dealt with at the beginning instead of putting it off, then glazing it over and 'getting back to it' like during the last half hour of a seminar or during closing Q&A

No need for him to get defensive. My question was simply a question, not a challenge, not my 2cents. … and I’m not trying to rush him, or the turtle, or the ship … or to push a string, or whatever. Mit, please tell me your not someone who can dish it but can’t take it. “say it ain’t so, Mit. Say it ain’t so” .

 

In any event, I reposted it again with all the fun removed so that there’s no confusion in distinguishing between the casual and the serious....

It was not a ‘what’s wrong’ with the model question. It was a how does

1 Taylor

2 current practitioners of the classical model and

3 Mitsubishi, the innovator

resolve this issue ???

 

"it ain't so" ;) the record shows,i took the blows....and did it.....myyyyy waaaaaaaaay.

 

3)- By widening price targets,stops and time frames.Looking at the bigger picture while focusing on smaller time frames for signs of change within the bigger picture and for short term trade opportunities with the main trend. By being as dumb as possible for 80% of the time and as smart as possible for 20% of the time.The market is smarter than the trader.I think the statistics will bear me out on that.

 

2) Current practitioners of the model please keep contributing.

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To me the question is part and parcel of the “basics”. It has invariably come up with the few others I have had conversations with who were in early stages of exploring the method … Imo, it needs to be dealt with at the beginning instead of putting it off, then glazing it over and 'getting back to it' like during the last half hour of a seminar or during closing Q&A

No need for him to get defensive. My question was simply a question, not a challenge, not my 2cents. … and I’m not trying to rush him, or the turtle, or the ship … or to push a string, or whatever. Mit, please tell me your not someone who can dish it but can’t take it. “say it ain’t so, Mit. Say it ain’t so” .

 

In any event, I reposted it again with all the fun removed so that there’s no confusion in distinguishing between the casual and the serious....

It was not a ‘what’s wrong’ with the model question. It was a how does

1 Taylor

2 current practitioners of the classical model and

3 Mitsubishi, the innovator

resolve this issue ???

 

ZDO

Of course, you have honed in on the monkey wrench in Taylors system. Sooner or later any one who studies the methodology will face the issue and try to answer it. Most people glaze over it because most are still mixing the glaze and have not yet put it on the donut. It goes beyond being "basic". It is THE CRITICAL ELEMENT.

 

The solution one arrives at and implements concerning this issue determines results they have trading Taylors methodology.

 

1) How Taylor dealt with it is in his book but one has to dig it out. I am not sure how much you have studied his writings on the matter. But, in summary, he kept the labeling of the days the same (choosing to not change them...probally because it would mess up his neat little handwritten booklet..remember he didn't have a computer to make calculations..so he had to devise the system to work in "his world") and just came up with new categories to define when a cycle wasn't the ideal cycle. It is all in the book.

 

2) Current practioners..well that will differ depending on how much one understands the concepts propounded by Mr Taylor and how one chooses to implement those concepts in todays world. Example; silver has described how he views it. He actually views it much like Taylor viewed it but Taylor labeled the abberations to distinguish an abnormal cycle from an ideal cycle. Silver is apparently content with just coasting along making less money on the cycles as the magnitude flucuates or else he may be changing his tactical entries/exits to align better with magnitude of the cycle and hence still make money. Only silver knows that. I have my own way of dealing with it which I doubt I will be sharing unless someone happens to catch me in a very generous mood one day and on a whim I spill the beans on how I deal with it. Here is a hint to those followers of Taylor or those seekers trying to understand and APPLY his method: To deal with this issue you will have to either change the labeling of the days to coincide with the markets (in other words you let the market label the days for you) or you create new labels and tactics to deal with the "not so ideal" cycles but keep the naming and order of the cycles the same. Just remember this; the cycles are observable and they are a given. The rest is a playground. Taylor was in his world. We are in our world. His world was like our world in the sense that the cycles were then, and they are now. Nevertheless, technology changes and that affects how we look at the cycles and how we deal with the issues such as the one you brought up. Then ALGO trading has to be factored in, such a thing Taylor never factored in, nor understood, since it didn't exist in his world. In my opinion..but I could be wrong..I actually think ALGO trading will make the cycles more precise. Only time will tell if that is so or not.

 

3) Mit is attempting to show us how he views the concepts and applies them. That is generous of him. Whether or not it is feasible remains to be seen but I would think it good to wait and see what he says. I think it well that all of us at least listen to what others say and how they apply Taylor if they are willing to share. We must keep in mind that Taylor is simple but it is complicated to explain. So, we have to have patience and interact. As time permits I will be occasionally posting and lurking. And perhaps sharing a few things that may be useful. What is useful to me may not be to you or what is useful to you may not be to me depending on how each of us fit it into our construct of Taylor. I might say that Joe Ross studied Taylor and he has a handwritten copy of Taylors book (written by Taylor himself) and has studied Taylor extensively. Ross says it is the most important trading book he has read. He claims to have read Taylor 50 times and discovered the secret hidden in it. He basically says Taylor is "eternal". He further states that the secret he has learned from Taylor he will never reveal. However, he is quick to say there isn't a grail, and Taylor isn't the grail but Taylor put you on the right path. That is another persons view of Taylor. My view is that if I had to get rid of all my books on trading I would want to keep four of them. Taylor is one of the four.

Edited by WHY?

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March 16th was a SS day. March 19th a BUY day. March 20th was a SELL day. March 21st 2012 should be a SELL day that will be repeated again. That is, for June ES contract .

Edited by WHY?

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Nice test,Mitsu....

 

As far as I am aware Taylor does not get into why or how the cycle goes off beat at times,IMO he either never spent a thought on it or kept it to himself or thought it is unimportant.

So I only have my thoughts on it...

 

For the reader,the rest of this post on how SILVER deals with the problem is seen on post #55.

 

This passage from Chapter XV "Pertinent Points" may give us some more insight on what he thinks about cycles.

 

"A trader should make up a book on several of the grain options and on a few stocks,then study them for their movements.After deciding on the one he intends to trade in,take only that book to market with him,or at most two books,one for a Short Sale Objective and the other for Buying Objective"

 

Ah ha?..... a possible short sale and/or a possible buy...on the same day...in 2 different markets...on instruments running different cycles?.And before he comes to market he chooses one,possibly two options/stocks having selected those particular ones because?.... "study them for their movements"

Perhaps he is selecting those whose cycles are easiest to read,and are the most likeliest candidates to fit with the market's next probable move? He is hedging his bets by selecting candidates that may give him a buy or a short (or both) today.

So how much does trading in only one market,such as i do,put me at a slight disadvantage if i draw these conclusions?

 

"In the beginning this eliminates a lot of the confusion by watching,or trying to watch them all,for as one option moves the others will usually be in line.

After making up several books on the grains and stocks,he will find that some of them will differ,in that one may be at a Buying Objective,while another at a Sale or Short Sale,but this is the continuity,so follow them that way.

There is nothing inconsistent with this so far as the trader is concerned;as an example A trader may have a book on two Wheat Futures,Corn or Soybeans-the same with stocks-one a buy and one a Short Sale on the same day.Now on this same day and before the opening,if the trader has not already done so,he will review the market of the previous day on both the Buy and Short Sale options and will note the signal mark for the possible trend in each.

He then expects an up or down opening he watches for either.On the up opening he watches for a Short Sale option to reach the Short Sale Objective-that of selling through the Sale Day High (the previous day high,sell day)-if so,this would be the trade to make,a short sale,for it would be happening first......"

 

Note that he is looking to trade early because he believes the best opportunities come early.How much advice have you read about waiting for the market to show it's hand first,settle into a trend,wait for confirmation etc? Traders generally fear the open but the key point is at which price level is the market likely to show a reaction? Taylor focuses on the price objectives which are the previous H/L's and he is always looking to trade early.If this is something you find difficult,then it fits with the idea that the hardest trades are very often the correct trades.And further,if you wish to take your trading to a higher level you have to take on what is difficult and counter intuitive.The main players count on the fact that you wont and that you can't.And they are mostly correct i believe.

 

To continue with the same trading day:"On an action of this kind his Buy Day Option or stock will probably be in line with all the others,and it too would probably be up-we know that a reaction generally takes place from a high made FIRST on a Buying Day,so he would watch it but not buy it for a while....." no,because that is not a favorable play to buy an early high.A safer play is to buy an early low- a dip in an uptrend with the expectation the market reverses and continues higher which is exactly what up trends do.

Sometimes the market will open up and continue moving up from this point with hardly any pullbacks all day,say a gap and go day.Taylor advises you to stand aside and await a short sale the next day on a high made first-for a reaction play which you don't hold long because it is a fade against the main trend.Personally i tend to avoid these trades.

 

...."Now,should the opening be down,it would be making the low FIRST for his Buying Option,so this would be the trade to receive first attention"

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March 16th was a SS day. March 19th a BUY day. March 20th was a SELL day. March 21st 2012 should be a SELL day that will be repeated again. That is, for June ES contract .

 

Well i have a different cycle as do we all,but.....You threw some bait in the water just then, dangling your carrot is frowned upon in this establishment sir .... pint of bitter for the gents,glass of wine or fruit juice for the ladies,those are the rules...uh ,no not those rules......

The trader is the holy grail not the system,your secret is safe with us:)

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Silver and WHY? I really appreciate you taking the time to write those posts up for us.

 

And Misubishi, Ditto. Many thanks for sharing your thoughts.

 

So do ya’ll think the following is safe thinking?

Any ‘error’ is simply in his use of the word “Day” (as in Buy Day, Sell Day, etc)

Replace “Day” with ______ ("Period" ?, "Time" ?, ??? ie nomenclature that is more ‘accurate’ ) and all is well ?

ie the ‘concepts’, as someone termed it above, are sound?

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Silver and WHY? I really appreciate you taking the time to write those posts up for us.

 

And Misubishi, Ditto. Many thanks for sharing your thoughts.

 

So do ya’ll think the following is safe thinking?

Any ‘error’ is simply in his use of the word “Day” (as in Buy Day, Sell Day, etc)

Replace “Day” with ______ ("Period" ?, "Time" ?, ??? ie nomenclature that is more ‘accurate’ ) and all is well ?

ie the ‘concepts’, as someone termed it above, are sound?

 

 

 

Replace days with cycle.

A period of buying,a period of selling,period of short selling= 1 cycle.How do you measure the cycle? By measuring the rallies and declines and observing price reactions around the price objectives.The cycle itself varies in time and is not seen- it is the effects of the cycle that is seen,perhaps in the same way as the summation principle works..I think so.

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Silver and WHY? I really appreciate you taking the time to write those posts up for us.

 

And Misubishi, Ditto. Many thanks for sharing your thoughts.

 

So do ya’ll think the following is safe thinking?

Any ‘error’ is simply in his use of the word “Day” (as in Buy Day, Sell Day, etc)

Replace “Day” with ______ ("Period" ?, "Time" ?, ??? ie nomenclature that is more ‘accurate’ ) and all is well ?

ie the ‘concepts’, as someone termed it above, are sound?

 

Hi Zdo

"Cycle"............Austrian?

Hmm.

regards

bobc

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March 16th was a SS day. March 19th a BUY day. March 20th was a SELL day. March 21st 2012 should be a SELL day that will be repeated again. That is, for June ES contract .
Don't know if anyone else noticed PA today but in my post above I said that by my count 20th was a sell day and 21st would be a repeat sell day. As it turns out 21st was a repeat sell day. In the overnight session it traded to it's high of 1405.75 penetrating the the high of the previous day (20th) then traded down and by 10 a.m. had made its low of 1394.25 for the day. So in Taylors scheme of things 19th was a buy day then traded up same day and with the rally on the 19th one would probably have exited same day or held longs and exited with a little less profit on the 20th or 21st two repeat Sell days albeit not ideal sell days.

 

So, what is possibly in store for 22nd? Well, because of price action the 22nd now has become another SELL day. Since it closed weak on 21st I would look for a violation of the previous days low early in the session. For all practical purposes (and for establishing price objectives) the 21st has now become a buy day. So, what I would be looking for is a possible slide down below the low of 3/21 which was 1394.25. When the slide down stops I would look to go long and exit long on any good rally back towards 1394.25. I want to see this slide down early in the session (day session of 22 within first 2.5 hours) or better yet in the overnight session, beforehand. Only time will tell if it will pan out but those are the probabilities that I see in the way that I use Taylor. I know it might seem strange but because of PA the market has actually recycled and 20th, 21st, and 22nd and ALL are SELL days (i.e. the second day of Taylors cycle). I have my ways that I calculate any recycling and it works pretty good for me. Of course, it isn't 100% (what is?) but it does keep the cycles more in tune with actual PA hence answering ZDO main concerns since he has hit the proverbial nail on the head with his observations. Of course, I am not exacty saying the "nuts and bolts" of how I figure my recycling (I have developed software that does it for me) but what I am showing is the strategic side of how I handle PA and cycle location and identification.

 

If my "take" turns out wrong then stop losses will take me out and I will then recalculate on the fly to see what is actually going on as the market advances throughout the session. Some abberations in PA actually make an intra day change of the cycle after intraday calculations are done thus causing me to look at things differently and perhaps even change my tactic for the day to trade with the new intraday cycle after the stop loss was hit.

 

Taylor, again, is always looking for the probabilities and remaining flexible while at the same time recognizing the cycles and playing them for profit. If things don't look right then exit at breakeven or small profit, or even a loss, and wait for a better position.

 

Maybe I haven't made things more confusing??

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Silver and WHY? I really appreciate you taking the time to write those posts up for us.

 

And Misubishi, Ditto. Many thanks for sharing your thoughts.

 

So do ya’ll think the following is safe thinking?

Any ‘error’ is simply in his use of the word “Day” (as in Buy Day, Sell Day, etc)

Replace “Day” with ______ ("Period" ?, "Time" ?, ??? ie nomenclature that is more ‘accurate’ ) and all is well ?

ie the ‘concepts’, as someone termed it above, are sound?

I have done away with the terms buy day, sell day, Short sell day, in usage of the system. Except in this thread I use Taylors terminology. However in my day to day use of Taylors ideas I basically call it Day1, Day2, Day3 of the cycle. Each day has its rules to trade by. You could call it time period 1,time period 2, time period 3. However, just changing the labels will not make all well or fix the problems because you still have to deal with the BIG problem that you ZDO have discovered as you studied Taylor, namely; What do you do when the cycle seems out of sync with actual price action? You have to develop a mechanism to deal with this issue. Trust me it can be done. You just have to really think it through.

 

Like I said IT IS THE CRITICAL ELEMENT.

 

Believe me, the cycles exist. I think we can safely move on from trying to convince ourselves that the cycles do exist. Or, we could linger there if others see the need to do so. But, I, for one, am satisfied that they exist and they can be played for profit. And I have studied taylor for years and actually developed my first software in the year 2000 to help me deal with the issues that seem to throw monkey wrenches into the whole system clogging up the gears.

 

Now, I will throw another concept (this is really "beyond" taylor) out there for all to think about and play around with. Can we do away with day 1, day 2, & day 3, terminology and call it say time period 1, time period 2, time period 3, or maybe even cycle phase 1, cycle phase 2, cycle phase 3? Why you might ask? Well, what IF the cycles even exist in all time periods? What if there is a fractal component to this Taylor idea of cycles? Could they (cycles) possibly exist in any time period? 1 hour? 30 min? 5 minute? For you programmers I am sure you could code something up to test this. I am too old for that programming BS. I have already tested it within my software that I already have and see the possibilities, up to a point. Too small of time frames will finally result in an impractical use of the system at least with my software as it was basically developed as EOD. I have adapted it for intraday, however, it doesn't accept a live feed of data so intraday data has to be put in manually and that gets tedious in very short time frames and impractical for live trading. But I have found some possibilites in recognizing a fractal component in Taylor down to as low as a 15 minute time frame.

 

Good night. Gotta go to bed. Guess nothing doing but to wait and see if the slide down comes or not for the 22nd. I see price has already broken below low of the 21st but it is such a little bit. Need to see at least a 4 or 5 point slide below 1394.25 to make it profitable to trade unless one is swinging a large line of contracts and is happy with a 1 point profit. But then kind of does away with the whole purpose of Taylor which is catching a large portion of the daily spread.

 

We will see what 22nd brings.

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One final thought. any solutions solved at the Daily level would be fractal and would solve the same problems for different time frames. For instance, a solution developed for the better correlating actual PA with the cycles on a daily time frame would also be solving it for a 30 minute or 15 minute time frame.

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WHY?

 

You're analysis is fine,

And pretty in line,-with my own,

You re-define the day's label.

And as far as you're able,

Are bringing good insight to the table,

For it is working quite well,

As far as we can tell,

Price moves to deceive,

no matter what we believe,

Cycles,they are sound,

Though they may shift around,

Previous price action is king,

That is always the thing,

So we can free Taylor's rigidity,

in the interests of liquidity,

And alter the plan,

To suit every man,

Beyond Taylor,beyond Gann,

But the declines and the rallies,

Exactly how do they tally?

That is the question next,

For some readers may be vexed

Where is the next turn?

That is our concern,

So let us follow what has been said,

And continue with the thread.

:)

 

.

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WHY?

 

But the declines and the rallies,

Exactly how do they tally?

 

.

 

Taylor of course tabulated them to give him an idea about how far they may run. Then he a used a little tape reading to fine tune his entries. One can do these type of tabulations especially if you an program up software to do it for you, however, if one is proficient in tape reading it is alot easier to just get the day of the cycle right giving one a viewpoint on the general probable direction of the market and then use tape reading to determine when the decline/rally stops. For instance, today (3/22) the slide down has been made (by 10:00 central time in the ES) but I would not yet go log as the tape is still indicating weakness. Of course 3/22 is a BV (buying day low violation) since 3/21 has been changed to a BUY day or Day 1 ...period 1..cycle phase 1.. of the cycle and I am looking to go long near the bottom and get out on any rally up towards 1394.25 that gives me a profit. The PA is what I want to see per Taylor because it is important that the slide down on a BV happens early in the day session (within first 2.5 hours) or in the overnight so that there is time in the rest of the day session for some sort of rally back towards my price objective of 1394.25. We may soon (it is 10:13) get a reversal but I would want to see some fairly strong evidence that the trend down is reversing and not just a pullback with a continuation of the downtrend. That is the point I would go long at.

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For those that can't program and don't want to tabulate manually each day I think there used to be some guy on these Taylor threads Rich Bois or some name like that that offered a service where he does the tabulations for you daily. I remember looking at it a few years back and thought his pricing was really decent. One could get his service for the tabulations (of rally/declines/bv..etc) and then devise ones own methodology to determine the day of the cycle. Tams (since you seem to like vendor hunting) and you will probally find this post I am not connected to this service in any form, shape, or way. Neither do I have anything to sell. Neither am I promoting said website above. I am not real sure of the link. But I imagine one could google and find it...Maybe Taylor and Rich bois?? I am simply putting this as information to some individuals who read this post. They may want something like this. I cannot vouch for the service nor the tabulations. One would have to check that out on their own. I donot need it nor use it..nor sell it. My own software is not for sale.

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Some thoughts and questions…

(btw: while any questions herein may reference or quote a particular poster, answers and perspectives are welcomed from all. thx.)

 

Replace days with cycle.
For my own work in Taylorworld, instead of “Replace days with cycle” I would Replace “days” with “phase”. The ‘cycle’ word is already over used (and misused) enough

 

A period of buying,a period of selling,period of short selling= 1 cycle

Why aren’t’ there 4 phases instead of 3?

Buy Phase, Long Phase, Sell Phase, Short Phase…

What makes 3 phases work better than four?

This ? may be ‘getting historical’ ie what did Taylor experience and conclude from his experiences of the auctions on the floor, etc. ?? I’m certainly not locked in but my enduring guess = this reflects a ‘long’ bias,. If anyone has insights or quotes and clues from his work, it would be appreciated. (… had the book, but when I looked in the library didn’t see it, so temporarily can’t read for myself – hope I didn’t give it away…)

 

 

 

What if there is a fractal component to this Taylor idea of cycles? …
and
…would solve the same problems for different time frames. For instance, a solution developed for the better correlating actual PA with the cycles on a daily time frame would also be solving it for a 30 minute or 15 minute time frame.
That’s interesting. In my world, any pattern self similarity between timeframes that we notice are coincidental… but I’m biased… have some serious issues with how traders in general throw the ‘fractal’ word around.

Geometrically “fractal” = ‘as above, so below’

Years ago, I did extensive research on the ‘similarity’ of inter time frame price pattern ‘cycles’. On charts “Fractal”, in the strict sense, is a myth! They are statistically weak even in the loosey goosey way that many traders use the word! Why? (literally, not the poster) My current thinking … The ‘crowds’ making these auctions / cycle levels are not “fractals” of each other !!!!

 

Could they (cycles) possibly exist in any time period?
Have you studied JM Hurst?

 

...maybe the cycles look better in commodities which is what he traded.Or maybe the cycles were more obvious in his day.
My impression is that things are still basically the same. However, in modern times at any given time 2-4 more ‘off-floor’ timeframe ‘crowds’ are independently involved in engineering their own ‘campaigns’ than in his day…

 

re

Ross
eternal
ie Taylor could have ‘solved’ the intraday wheat, etc delta before Jim Sloman was even born

or something like that?

 

 

 

re

just changing the labels will not make all well
Any day of a cycle can become a buy day.Now to make use of that the challenge is to know either intra-day or in advance when your cycle has changed/is about to change.Here is where I find TTT falling short and I retreat to other techniques to find indications or patterns that come along with a changed cycle
.
Silver is apparently content with just coasting along making less money on the cycles as the magnitude flucuates or else he may be changing his tactical entries/exits to align better with magnitude of the cycle and hence still make money. Only silver knows that. I have my own way of dealing with it which I doubt I will be sharing unless someone happens to catch me in a very generous mood one day and on a whim I spill the beans on how I deal with it. Here is a hint to those followers of Taylor or those seekers trying to understand and APPLY his method: To deal with this issue you will have to either change the labeling of the days to coincide with the markets (in other words you let the market label the days for you) or you create new labels and tactics to deal with the "not so ideal" cycles but keep the naming and order of the cycles the same.

It’s interesting that much of what has been said to describe traders’ development in TTT has very similar streams in other models. Delta, just mentioned above, is one example where the ideal is often temporarily masked / vaporized – just like the ideal ‘day’- ness of TTT is intermittent, etc.

… and In my own work with cycles, the issue of knowing when certain cycles will have some ‘kick’ in them is basically working on the same issues as was posted about throughout…

 

In light of the quotes above and "Taylor advises you to stand aside and await a short sale the next day on a high made first-for a reaction play which you don't hold long because it is a fade against the main trend.Personally i tend to avoid these trades". , plus WHY?’s post 65 , etc. , do ya’ll dynamically adjust your size and holding periods? For example, I personally will not be loading up on / sticking with any “Buy Phases” until ~ late the day 3/28

 

 

PS

"Cycle"............Austri an?
bobc, wtf r u talking about ? :);)

 

Thanks all.

 

zdo

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I think I will test the market out here and go long at 1385.50 to 1386.00. If a rally doesn't start from this point I will get out quickly and wait for another opportunity. Price onjective any good rally back towards 1394.25

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"ie Taylor could have ‘solved’ the intraday wheat, etc delta before Jim Sloman was even born

or something like that? "

 

Not so dramatic. I think he simply mean't that he thinks taylor saw (discovered?) something that was in his time..before his time..and will probally be as long as trading exist. Much like this: as long as human DNA doesn't wildly mutate then trading will be the same as humans trade much the same way they did in Taylors day and since their trading creates the market PA we will continue to see the same type of cycles again and again as long as trading exist. Algo trading I think will add some precision to the cycles but since programs are devised by humans the same cycles will exist. Then again Ross may have mean't something else. I guess you could ask him?

Edited by WHY?

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PS bobc, wtf r u talking about ? :);)

 

zdo

 

Hi zdo

Your favourites... Austrian economic theory and their business cycles.

And your introducing cycles into TTT.:(

I was just wondering if this was a new approach to TTT:confused:

And WHY confirming my thoughts.:roll eyes:

And now I am more confused than I was in 2006 when I first tried to read Taylor.

Sorry about the subtlety

Kind regards

bobc

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.

And your introducing cycles into TTT.:(

I was just wondering if this was a new approach to TTT:confused:

And WHY confirming my thoughts.:roll eyes:

And now I am more confused than I was in 2006 when I first tried to read Taylor...

bobc

 

.. not really introducing 'real' cycle work into TTT ... was just noting how some of the core issues in several methods are VERY similar...

 

re "more confused " Serious?

What's the best part about TTT for you?

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We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair     Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. Why Do Many Forex Traders Lose Money? Here is the Number 1 Mistake David Rodriguez 11-14 minutes We look through 43 million real trades to measure trader performance Majority of trades are successful and yet traders are losing Reward to Risk ratios play a vital role in capital preservation Why do major currency moves bring increased trader losses? To find out, the DailyFX research team has looked through over 40 million real trades placed via a major FX broker's trading platforms. In this article, we look at the biggest mistake that forex traders make, and a way to trade appropriately. Why Does the Average Forex Trader Lose Money? The average forex trader loses money, which is in itself a very discouraging fact. But why? Put simply, human psychology makes trading difficult. We looked at over 43 million real trades placed on a major FX broker's trading servers from Q2, 2014 – Q1, 2015 and came to some very interesting conclusions. The first is encouraging: traders make money most of the time as over 50% of trades are closed out at a gain. Percent of All Trades Closed Out at a Gain and Loss per Currency Pair   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart shows results of over 43 million trades conducted by these traders worldwide from Q2, 2014 through Q1, 2015 across the 15 most popular currency pairs. The blue bar shows the percentage of trades that ended with a profit for the trader. Red shows the percentage of trades that ended in loss. For example, the Euro saw an impressive 61% of all trades closed out at a gain. And indeed every single one of these instruments saw the majority of traders turned a profit more than 50 percent of the time. If traders were right more than half of the time, why did most lose money? Average Profit/Loss per Winning and Losing Trades per Currency Pair Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. The above chart says it all. In blue, it shows the average number of pips traders earned on profitable trades. In red, it shows the average number of pips lost in losing trades. We can now clearly see why traders lose money despite being right more than half the time. They lose more money on their losing trades than they make on their winning trades. Let’s use EUR/USD as an example. We see that EUR/USD trades were closed out at a profit 61% of the time, but the average losing trade was worth 83 pips while the average winner was only 48 pips. Traders were correct more than half the time, but they lost over 70% more on their losing trades as they won on winning trades. The track record for the volatile GBP/USD pair was even worse. Traders captured profits on 59% of all GBP/USD trades. Yet they overall lost money as they turned an average 43 pip profit on each winner and lost 83 pips on losing trades. What gives? Identifying that there is a problem is important in itself, but we’ll need to understand the reasons behind it in order to look for a solution. Cut Losses, Let Profits Run – Why is this So Difficult to Do? In our study we saw that traders were very good at identifying profitable trading opportunities--closing trades out at a profit over 50 percent of the time. They utlimately lost, however, as the average loss far outweighed the gain. Open nearly any book on trading and the advice is the same: cut your losses early and let your profits run. When your trade goes against you, close it out. Take the small loss and then try again later, if appropriate. It is better to take a small loss early than a big loss later. If a trade is in your favor, let it run. It is often tempting to close out at a small gain in order to protect profits, but oftentimes we see that patience can result in greater gains. But if the solution is so simple, why is the issue so common? The simple answer: human nature. In fact this is not at all limited to trading. To further illustrate the point we draw on significant findings in psychology. A Simple Wager – Understanding Human Behavior Towards Winning and Losing What if I offered you a simple wager on a coin flip? You have two choices. Choice A means you have a 50% chance of winning 1000 dollars and 50% chance of winning nothing. Choice B is a flat 450 point gain. Which would you choose?         Expected Return Gains Choice A 50% chance to Win 1000 50% chance to Win 0 Expect to win $500 over time   Choice B Win 450   Win $450 Over time it makes sense to take Choice A—the expected gain of $500 is greater than the fixed $450. Yet many studies have shown that most people will consistently choose Choice B. Let’s flip the wager and run it again.         Expected Return Losses Choice A 50% chance to Lose 1000 50% chance to Lose 0 Expect to lose $500 over time   Choice B Lose 450   Lose $450 In this case we can expect to lose less money via Choice B, but in fact studies have shown that the majority of people will pick choice A every single time. Here we see the issue. Most people avoid risk when it comes to taking profits but then actively seek it if it means avoiding a loss. Why? Losses Hurt Psychologically far more than Gains Give Pleasure – Prospect Theory Nobel prize-winning clinical psychologist Daniel Kahneman based on his research on decision making. His work wasn’t on trading per se but clear implications for trade management and is quite relevant to FX trading. His study on Prospect Theory attempted to model and predict choices people would make between scenarios involving known risks and rewards. The findings showed something remarkably simple yet profound: most people took more pain from losses than pleasure from gains. It feels “good enough” to make $450 versus $500, but accepting a $500 loss hurts too much and many are willing to gamble that the trade turns around. This doesn’t make any sense from a trading perspective—500 dollars lost are equivalent to 500 dollars gained; one is not worth more than the other. Why should we then act so differently? Prospect Theory: Losses Typically Hurt Far More than Gains Give Pleasure Taking a purely rational approach to markets means treating a 50 point gain as morally equivalent to a 50 point loss. Unfortunately our data on real trader behavior suggests that the majority can’t do this. We need to think more systematically to improve our chances at success. Avoid the Common Pitfall Avoiding the loss-making problem described above is very simple in theory: gain more in each winning trade than you give back in each losing trade. But how might we do it concretely? When trading, always follow one simple rule: always seek a bigger reward than the loss you are risking. This is a valuable piece of advice that can be found in almost every trading book. Typically, this is called a “reward/risk ratio”. If you risk losing the same number of pips as you hope to gain, then your reward/risk ratio is 1-to-1 (also written 1:1). If you target a profit of 80 pips with a risk of 40 pips, then you have a 2:1 reward/risk ratio. If you follow this simple rule, you can be right on the direction of only half of your trades and still make money because you will earn more profits on your winning trades than losses on your losing trades. What ratio should you use? It depends on the type of trade you are making. We recommend to always use a minimum 1:1 ratio. That way, if you are right only half the time, you will at least break even. Certain strategies and trading techniques tend to produce high winning percentages as we saw with real trader data. If this is the case, it is possible to use a lower reward/risk ratio—such as between 1:1 and 2:1. For lower probability trading, a higher reward/risk ratio is recommended, such as 2:1, 3:1, or even 4:1. Remember, the higher the reward/risk ratio you choose, the less often you need to correctly predict market direction in order to make money trading. We will discuss different trading techniques in further detail in subsequent installments of this series. Stick to Your Plan: Use Stops and Limits Once you have a trading plan that uses a proper reward/risk ratio, the next challenge is to stick to the plan. Remember, it is natural for humans to want to hold on to losses and take profits early, but it makes for bad trading. We must overcome this natural tendency and remove our emotions from trading. The best way to do this is to set up your trade with Stop-Loss and Limit orders from the beginning. This will allow you to use the proper reward/risk ratio (1:1 or higher) from the outset, and to stick to it. Once you set them, don’t touch them (One exception: you can move your stop in your favor to lock in profits as the market moves in your favor). Managing your risk in this way is a part of what many traders call “money management”. Many of the most successful forex traders are right about the market’s direction less than half the time. Since they practice good money management, they cut their losses quickly and let their profits run, so they are still profitable in their overall trading. Does Using 1:1 Reward to Risk Really Work? Our data certainly suggest it does. We use our data on our top 15 currency pairs to determine which trader accounts closed their Average Gain at least as large as their Average Loss—or a minimum Reward:Risk of 1:1. Were traders ultimately profitable if they stuck to this rule? Past performance is not indicative of future results, but the results certainly support it. Our data shows that 53 percent of all accounts which operated on at least a 1:1 Reward to Risk ratio turned a net-profit in our 12-month sample period. Those under 1:1? A mere 17 percent. Traders who adhered to this rule were 3 times more likely to turn a profit over the course of these 12 months—a substantial difference. dont forget- like subscribe Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com   Data source: Derived from data from a major FX broker* across 15 most traded currency pairs from 3/1/2014 to 3/31/2015. Game Plan: What Strategy Can I Use? Trade forex with stops and limits set to a risk/reward ratio of 1:1 or higher Whenever you place a trade, make sure that you use a stop-loss order. Always make sure that your profit target is at least as far away from your entry price as your stop-loss is. You can certainly set your price target higher, and probably should aim for at least 1:1 regardless of strategy, potentially 2:1 or more in certain circumstances. Then you can choose the market direction correctly only half the time and still make money in your account. The actual distance you place your stops and limits will depend on the conditions in the market at the time, such as volatility, currency pair, and where you see support and resistance. You can apply the same reward/risk ratio to any trade. If you have a stop level 40 pips away from entry, you should have a profit target 40 pips or more away. If you have a stop level 500 pips away, your profit target should be at least 500 pips away. We will use this as a basis for further study on real trader behavior as we look to uncover the traits of successful traders. *Data is drawn from FXCM Inc. accounts excluding Eligible Contract Participants, Clearing Accounts, Hong Kong, and Japan subsidiaries from 3/1/2014 to 3/31/2015. Interested in developing your own strategy? On page 2 of our Building Confidence in Trading Guide, we help you identify your trading style and create your own trading plan. View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com     View the next articles in the Traits of Successful Series: Trading Leverage - A Real Look at How Traders May Use it Effectively Do the Hours I Trade Matter? Yes - Quite a Bit Analysis prepared and written by David Rodriguez, Quantitative Strategist for DailyFX.com
    • Waiting for one constructive comment from you guys..anyone dont forget to like and subscribe
    • enjoy.. good profits in forex dont forget to like and subscribe          
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