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Quantitative analysis as a market assessment method
I am sure that every trader at least once thought about the correlation of the current market movement with a similar section in history and, based on this, try to predict the behavior of the chart. I had exactly the same thoughts.
There are no technical difficulties in quantitative analysis. It is not so difficult to write an Expert Advisor that will compare any movements with history.
And what and with what do we need to compare? This is the main problem. On the chart, at any given time, you can select a dozen different variants of movements. If we start to relate all of them to history, we will simply drown in an ocean of unnecessary information. This approach will not work.
I solved the problem simply - I introduced a filter by the size of the movement. The combination of movements is not taken into account, the Volatility Limit script estimates only the distance traveled by the price.
Take a look at the markup that the Volatility Limit script executed. The chart has passed at least 100 points
We'll talk more about the script and how to use it at the webinar on May 27 at 18:00 Moscow time. I will share not only the theory, but also show how the method works in real trading.
Leave a request at the link below right now!
Quantitative analysis method
The Volatility Limit script not only makes markup, but also collects data on movements. It can save information on the directions of waves in the form of a table. It also determines the distance traveled after the turn (columns Vol. 1 and Vol. 2).
The script captures every significant movement of the chart
In this example, over a year, the script has identified 81 significant movements in a given period of time. Next, we measure the last not yet completed movement. Let's say it is 110 points.
In the table, we count the number of movements exceeding 110 points and below this threshold. In the example, 11 movements did not exceed 110 points, and 70 exceeded this value. This means that in 11 cases, after passing a distance of less than 110 points, a pullback of at least 100 points followed.
Let's move on to mathematics. The probability of a retracement by 100+ points is 11 x 100/81 = 13.58%, the probability of continued movement is 86.42%.
If the chart passes without a significant pullback, for example, 310 points, it turns out that only in 6 cases out of 81 the wave size turned out to be higher. The probability of a 100+ pips retracement is 92.59%.
This is how the calculation results look
All calculations are automated and performed by an advisor. The results are displayed in the form of a table, showing the probability of a rollback of different depths - from 50 to 150 points.
How to use quantitative analysis in trading
This technique is not a stand alone strategy. Rather a powerful filter for finding entry points.
Using the table, you can track the probability of a rollback to a given depth for a given currency pair.
USDCAD is likely to retrace by at least 50 points
You can click on USDCAD and the button 50 (first column) will open the chart of the desired currency pair. The last wave is automatically built on it, the levels with the probability of a rollback from them are indicated, the position of the take profit is also displayed.
The zone can be used to search for entry points based on statistics rather than on your own guesses. For example, after completing 100 transactions according to the pattern in this particular zone, we can close from 84 to 88 transactions in plus. It turns out to be a very good win rate.
Quantitative trading results
I already use this technique in trading and for clarity, I will give several of my deals. For WTI crude oil, we managed to enter at the very bottom with a very narrow stop of 43 points. The stop to take ratio is about 1:30. The probability of a reversal at this time was estimated at 99%.
Oil deal on rebound from the level
According to the S&P 500 index, the take-to-stop ratio was at the level of 1: 8-1: 10. The deal was concluded at the very bottom, when the calculations showed the probability of a reversal above 95%.
A similar picture for the S&P 500 index, buying at the very bottom
We managed to sell at the high with a stop of 80 points, which is normal for high volatility. As a result, the profit exceeded the stop loss by 8 times. The probability of a reversal here exceeded 95%.
Almost all downward movement taken
And this is how the report looks like for the last couple of months.
Real account report
Profit for 2 months was 54%. The drawdown did not exceed 3.87% at the moment, the sharp downward movement of the curve is the result of withdrawing funds from the account.
Quantitative analysis helps to enter the market with pinpoint accuracy and brings the take-to-stop ratio to the maximum. Even closing 1-2 trades out of 10 with a profit, you will earn consistently.