Know the why, not just the how

Knowing the statistics pays off. I’ll give you a solid example. I use Pivot lines to watch for market stops and gauge where I think I should set my personal trading Targets and Stop Losses. I know a bit more about my set of Pivot Lines than most people know about theirs.

I was reading an article several years ago written by a well know market analyst.  You know how long winded some of them can be. He definitely wasn’t. His article was short to the point and he had Statistics to back up his explanations, and all the examples seemed to really make sense.

I found that article a year or so ago, and decided to start running the numbers. I didn’t just open my strategy and start looking at new settings or new indicators to add to it. I looked deeper. I wanted to know what the numbers were behind my strategy. So I did the same thing he did. This is what I found out.

1.       On a daily basis the EUR/USD only crosses the first Support or resistance line 42% of the time.

2.       The Resistance and Support lines 2 are only breached 16.62% and 18.15% of the time.

3.       Even less, the outside Support and Resistance lines are only touched less than 3% of the time.

These matched the numbers closely that I had read about in the article. This spurred my desire to look even deeper. As Robert Frost said “Two roads diverged in a wood, and I-- I took the one less traveled by, And that has made all the difference.”

So when this morning’s punch in the EUR/USD happened, I was prepared. 60/40 was on my side. Even better, 80/20 was on my side. I wasn’t drawn into a break out trade because there wasn’t a single other indicator showing a move higher. Incidentally it has fallen to last night’s opening area.

Take the time to get to know the numbers behind the numbers. Don’t just kick the tires, get in drive, open the hood, check the oil, check the belts, do a compression test, really get to know your strategy and your trading will improve.

Contact us if you want the spread sheet for the EUR/USD break down

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