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After working to integrate the trader's equation, a question continues to cross my mind; please excuse a possible repeat question..
If two setups appear such as a LH MTR that forms simultaneously with a Major Wedge Top, can the probability increase from 40% to >60%.
The concern is that such a probability increase may not necessarily follow with an increase to Initial Risk, thus violating the principle of Fair Trading.
Another very close study of the MTR section is required, but if possible, please explain whether only one pattern is used to measure probability, or if there is an increase in probability when two MTR patterns exist simultaneously.
This is assuming a standard PA move with two MTR patterns present; not a high-probability BO.
Thank you!
Here is an example
Hi Robert,
Perhaps someone here will be able to quote the exact probabilities, but something to also keep in mind is that in a strong trend MTRs will keep failing. All successive and nested reversal attempts will keep failing. So the first step is to be sure that a trend is over and the market is transitioning into a TR. Then you might want to check that the market is also at a top or bottom of some HTF TR and a reversal is reasonable to expect. Otherwise, it's possible to get trapped fading a temporary flag before the trend resumes.
Another thing to remember is that after >20 bars in a trading range, the likelihood of breaking to the upside or downside becomes 50/50.
So actually you could say that if before the chance of MTR succeeding was only 40%, then after an extended TR it increased to 50%. And after an extended TR you may find nested MTR patterns in there as well like in your slide.
However, you are probably looking for a higher probability like >60%. Unfortunately that only happens after strong breakouts (or exhaustions leading to climactic reversals) that firmly set a new Always-In direction. So either you can wait for a breakout to the upside that fails strongly or wait for a strong breakout to the downside and enter small or wait for a pullback sell.
Hope that helped!
CH
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So essentially, the market cycle (TR, Trend) always takes precedent over possible patterns when analyzing an MTR which is why Probability cannot exceed 50%.
Which means that when trading, I am simply trying to understand what the market is doing and never expecting to accurately forecast any move with more than 40% certainty.
Your answer was definitely helpful,
Happy Trading
