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STEAL This Trading Champion’s Exact Strategy - Math Based Models for Prop Firms — Transcript

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0:00a model that I actually built for
0:01proper.
0:02>> This is how to master proper.
0:03>> This is how to bring prop trading to a
0:06next level using math. This is so
0:08controversial because this method
0:11response to put advantage on losing
0:14traders and cap less on profitable
0:16traders. So what we can use we will use.
0:19This guy is a futures trading champion
0:21at just 20 years old with over 200% in
0:24total performance in just 9 months.
0:27Introducing Gian Luca Rooney. I was a
0:30discretionary trader. I lost money. I
0:32was [music] a mechanical trader that
0:34made me profitable. When I turn to
0:36statistical trading, that is what put me
0:38on a podium multiple times. I'm getting
0:40a 60% win rate with one to four week
0:43reward. First is my favorite one and
0:45it's the only metrics that can tell you
0:48if your strategy will make money or not.
0:50The model that I used in the
0:52championship that is called this is
0:55someone who traded ICT, traded
0:57discretionary setups and instead
0:59developed [music] a statistical trading
1:01model. He has created automation around
1:03his entire trading and for the first
1:05time he breaks down step by step the
1:08exact statistics and process to building
1:10your own automated trading model.
1:12>> Statistical trading doesn't make a
1:15strategy profitable. He take a strategy
1:17that [music] already works and put it on
1:19steroids. People will think that a
1:21strategy with a 75% loss rate is really
1:24bad. I think that this is a blessing.
1:26Why? Because not only that, he also
1:28shares specific models that he uses on
1:31profit firms and in this episode he
1:33shares them all with you.
1:34>> Let's go to the most advanced risk model
1:37that I built on my strategy. This is the
1:39part that breaks people brain. It go
1:41deeper on why I do some things. So, what
1:45you have to do,
1:47>> not only do we have a verified trader,
1:49but we have a world champion. Someone
1:51who is ranked three times [music] in the
1:54Robins World Cup of Trading in the Forex
1:57Division and actually won twice and in a
2:019-month period has achieved over 200%
2:03return. And not only that, that's
2:05obviously an incredible accolade, but on
2:07top of which, he's also done payouts on
2:10prop firms, multiple six figures at that
2:12using this exact, and I say strategy,
2:14but that might not be the right word.
2:16I'll tell you why. Because everything
2:17we're going to cover today is extremely
2:19unique. This is someone who has really
2:22dived deep into the automation and more
2:24importantly mechanical trading systems.
2:27He actually was an SMC trader, but most
2:30of all, he found a way to make it all
2:33objective and make it all statistical.
2:36And we're going to find out how he did
2:38that. This is a master class. Make sure
2:40you're ready. And I think I you know who
2:42it is. And if you don't, you're about to
2:44know. It's the one and only Gian Luca
2:46Brun.
2:48>> Thank you so much for the introduction.
2:49It's really an honor for me to be here.
2:52And today we will deep dive into the
2:54model that took me from a losing trader
2:57to a world champion trader at 22. So it
3:00will be a little bit different from
3:01everything that you bring here because
3:03my approach I think that it's really
3:05unique. But I think that it will be very
3:07helpful for all the uh audience looking
3:10here. We will see basically three main
3:13things. How to take your prop trading
3:15level to a next level. So although you
3:18can gain although you can gain payout
3:21even if your strategy isn't doing well.
3:24The second model is the most advanced
3:26risk model that I ever built on my
3:28trading. And the third one will be a
3:31surprise but trust me you will know
3:34trust me trust me you'll want to stay
3:37for it because it's a really amazing
3:39method that I use. So let's start with
3:43the beginning. So I was I started as a
3:46losing trader as I told you as I told to
3:48you. I started as a discretionary trader
3:51and uh you know I started trading six
3:54years ago. [snorts] So when I was 16 or
3:5717 years old and uh it was so difficult
4:00at that time to find informations
4:02because you know now the educational uh
4:05word in trading is also thankful to you
4:09h is really a better place but when I
4:12started trading there were some guys
4:14telling me all different kind of things
4:17uh and it was so difficult to recognize
4:20what's true and what is not true what's
4:23right and what is not Right? In trading
4:25because you don't have a traditional
4:27path you don't have like to be a doctor
4:30you need a degree that's it in trader
4:33you can be profitable even with your
4:35feelings okay because you see the market
4:38you feel and I know some trader that
4:41does that like um Niku I don't know if
4:44you know it or Fabio is an incredible
4:46discretionary trader or even Andrea H
4:50but I always thought that it was um that
4:54it was not the good approach for me. So
4:56what was the problem with discretionary
4:58trading? That every educator, every
5:01YouTube channel was saying something
5:03different.
5:04>> One swore that the truth of trading was
5:07by harmonic scanner. I don't know if you
5:09remember that, but it's it was really a
5:12>> it was big thing. Yeah,
5:14>> big things.
5:15>> Uh another one said, "Forget harmonic
5:17scanner. It's all about Fibonacci and
5:20Eliot. So you just have to wait for the
5:2361.8 level. For sure you remember it. I
5:27know it
5:27>> as you [laughter] see. Okay. Okay. And
5:31uh another one say forget all forget all
5:34of that. Just use ICT.
5:37So I trusted all of them and I lost all
5:41the money that I have when I was a
5:43teenager and it was so bad because I was
5:46doing something and everyone was
5:49watching me losing money and um they
5:52thought that I was like a gambler or
5:54something like that and maybe they
5:56weren't wrong.
5:58>> So I understood one thing that every
6:01educator out there were selling you
6:03concept.
6:04>> Yeah. But I understood with my pain uh
6:09that concept are a scam. Why concept are
6:12a scam? Because a concept tell you
6:15nothing about how to be profitable in
6:17trading. It tells you really nothing
6:20because remember that a concept knowing
6:23a concept make you feel smart.
6:26>> A strategy instead makes you money. And
6:29that's the really difference. What's the
6:31point of knowing what is the fair value
6:34gap?
6:36>> No point. Okay, you understand that a
6:39concept can be useful once it's united
6:43to a strategy. So multiple concept into
6:46a strategy that can be tested across
6:50thousand of trades and this can be
6:52useful because you know a concept is
6:55something that we talk on a meeting on a
6:57trading meeting. Yeah, I use this
6:58concept. Yeah, it's good. you should try
7:00a strategy is something that we can help
7:03to another person, we can teach to
7:04another person and he can actually make
7:06money with that.
7:07>> Mhm.
7:07>> So that's the big difference.
7:09>> We say the difference between concept
7:11and strategy is that concept is
7:12subjective. You know there's an idea
7:14there but and you know it's open to
7:17interpretation.
7:18>> Yeah, it's open with strategy as you say
7:20you you have you build it it's based on
7:22statistic and data even if someone else
7:24has it it should be the exact same like
7:26for light.
7:27>> That's it. And I think also that a
7:29strategy h tells you so many thing like
7:33when you have to enter on a trade when
7:35you have to get out on a trade when you
7:37have to wait is a multiple concept
7:40united. Okay that's the big difference.
7:43So let's talk about discretionary
7:46trading and mechanical trading because
7:48we all saw this debate between uh
7:51discretionary mechanical and one say
7:53that discretionary is the future of
7:55trading. you should spend hours and hour
7:58on the chart until you fail it.
8:01>> That's for me is not working. But uh the
8:04other part is mechanical trader. But for
8:07me there is a third part statistical
8:10trader. Today I would define myself as a
8:13statistical trader. I was a
8:15discretionary trader. I lost money. I
8:18was a mechanical trader. I and that made
8:21me profitable. And when I turned to
8:23statistical trading, that is what put me
8:26on a podium multiple times. So after
8:29losing money for two for more than two
8:31year, I finally clicked.
8:34>> I started I started to understand what I
8:38need to make to make money actually in
8:40trading because you know I was always
8:42guessing on the chart. I was okay these
8:46setups look good. I saw so many times.
8:48Maybe it's time to go long. What does it
8:50mean? nothing. Okay. So, I needed
8:54objectivity.
8:55So, I had to turn all of my concept into
8:59an objective way that I can trade in the
9:02same way every time.
9:04>> And I thought that would be easy, but it
9:07wasn't for sure because take something
9:09that is discretionary and turn it like
9:11in a scheme of rules is not that easy.
9:15>> But I did it. And today I will show you
9:18how I did it in all the model that I
9:21actually use.
9:21>> Yes.
9:22>> Because once you objectify certain
9:24things, you can move on with the cooler
9:26things. And let's talk about the
9:28difference between mechanical and
9:30statistical because mechanical is
9:33objectify all the concept as I said you
9:35before
9:36>> and the mechanical made me profitable as
9:39I said you before. But I know but I knew
9:42that when I was trading mechanical I was
9:45just looking for the tip of the iceberg.
9:47>> Okay.
9:48>> What is the difference between
9:49statistical trading? Statistical trading
9:53doesn't make a strategy profitable. It
9:55take a strategy that already works and
9:59put it on steroids. M
10:01>> that's the big difference because
10:03mechanical asked response to the
10:06question you look like this and you
10:09follow always like this statistical
10:12response to the question oh you can
10:14squeeze your strategy to the limit
10:17>> okay
10:18>> that's the huge different that is
10:20between mechanical and statistical
10:22trading so why mechanical is also I
10:25think the best way to start trading or
10:29even to get profit able in trading
10:31because it also remove interpretation
10:33and emotion
10:35>> because once you are allowed to
10:37interpret something you can actually
10:40modifying it and you can mask it as
10:44interpretation
10:45>> in mechanical trading if a certain
10:48condition happen that we call A I just
10:51do B if I'm doing C I'm getting wrong
10:55okay that's the big the that's the huge
10:58difference. So mechanical is also good
11:01for your emotion. But later on we will
11:03talk about trading psychology and why is
11:05the most is the most controversial
11:08um not thing or I can say the most
11:11controversial topic in the trading
11:13industry. Let's take a break for a
11:14minute there guys cuz a quick word from
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12:02job. So go check it out and let's get
12:04back to the episode. But let's talk
12:06about um all you objectifier strategy
12:10because you have to start from the
12:12beginning. How do you read market
12:14structure? Because it all started like
12:17that.
12:17>> Mh. And we will see on the whiteboard
12:20and uh we have to remember that market
12:23structure is an art. It's not like I
12:25like this setup. It's not like this. I
12:28think that is an IRI. We need a certain
12:31rule that objectify it. And we will
12:35start with this first one. I show you
12:38how I do it.
12:39>> Mhm.
12:40>> I need to understand that I need to get
12:42a context of the bias. So I will read
12:46the market structure in two layers.
12:48>> Okay.
12:49>> First one I can just do that. Okay.
12:55>> And would you say that even for yourself
12:57even as a statistical trader market
12:59structure is still the foundation still
13:02the foundation of everything because if
13:04you have market structure and if you
13:06know how to objectify it you can move
13:08on. If you interpret market structure,
13:12everything else will be I wouldn't say
13:14but
13:16>> I think so. I think so.
13:18>> Yeah. Okay. You understand? So first one
13:20we should know what is B and A.
13:23>> Okay.
13:23>> Um I think that maybe in the SMC concept
13:27is like the same because we look at the
13:30peripheral structure and actual
13:31structure. So we need to set up some
13:34rules. So when we see a market that is
13:36doing that,
13:40we need to follow the last shoe
13:42breakout. So we always follow
13:49I will call it BO.
13:50>> Mhm.
13:51>> So we don't see this. Okay. Because it's
13:55too far away from our dealing range.
13:59>> Okay.
13:59>> And we will see it just this point and
14:02this point. the last the latest true
14:05breakout.
14:07This is our context.
14:09>> Okay.
14:10>> Okay. We will start to trade here
14:13and we need to understand the latest
14:15breakout that is actual structure in
14:17this case it will be this and the
14:19peripherical the and the peripheral
14:21structure that it will be this. This
14:23sounds like easy right? I think that
14:26most of trader that is watching this
14:27they are doing like the same. We need we
14:30need to set up condition. Okay. So when
14:33to follow peripheral structure and when
14:35to follow actual structure
14:37>> because when they are the same it will
14:40be easy we just go along
14:42>> okay
14:42>> in this case we don't we never go
14:46against that
14:48>> but it get complicated when we have an
14:51actual structure that is not the same of
14:53the peripheral structure [snorts]
14:54>> so I will try to make another uh level
14:59so let's analyze for example
15:07this and another uh important structure
15:11is the internal that I forgot to
15:14mention.
15:19So what we can see here first we have to
15:21get the context. So this we don't look
15:24at it because we just look at the second
15:27of
15:27>> the last two
15:28>> the last two breakouts. In this case we
15:30have for the peripheral structure this
15:33and this.
15:34>> Yes.
15:34>> Okay. Because they broke that level and
15:36they broke that level.
15:37>> Mhm.
15:38>> But what we can see that this level has
15:42been actually broken.
15:43>> Yes.
15:44>> From here.
15:45>> Yes.
15:46>> Okay. So we know the concept. We know
15:49the context. And the context it will be
15:51like this. Mhm.
15:53>> It's important to not confuse time frame
15:56because this in a time frame can be this
15:58in another time frame can be another.
16:00Okay.
16:01>> Yeah.
16:01>> So what we can use we will use a monot
16:04time strategy that's what I do.
16:06>> Okay.
16:06>> Okay. If you need to objectify something
16:09you see the breakout at
16:11>> 15 minutes and you don't see it maybe in
16:13another time frame. So what which one do
16:15you follow? You need ones.
16:17>> You need one. Okay. That's it.
16:20>> You just stick to one. I'm stick to one
16:22totally and this is the 15 minute time
16:24frame.
16:24>> 15.
16:25>> Mhm.
16:25>> So what we actually do like this we
16:29follow actual or we follow peripheral.
16:32It depends on one concept that is
16:36directional potential.
16:38>> Okay. What does it mean? I write it.
16:44What does it mean? That we can follow
16:46the actual structure but we have a limit
16:49of it. So the rule is we follow the
16:52actual structure but we couldn't go
16:56against the peripheral structure.
16:58>> So in this case what we can do we have
17:00two main choices. First use the discount
17:04and premium zone.
17:05>> Yes
17:06>> that is really common with SMC or ICT
17:09spaces.
17:09>> Yes
17:10>> in this case is the easiest one because
17:12we just track a Fibonacci here and here
17:14and we s and we check where is the 75
17:18level.
17:18>> Okay. in this case can be this for
17:21example. So we perfectly know that we
17:24can follow in this case the this
17:27structure till this level.
17:29>> Okay.
17:29>> So we can take some kind of trait here.
17:32>> Okay.
17:32>> Okay.
17:33Once this level has been reached
17:36>> Mhm.
17:36>> what we can do our directional potential
17:40finished.
17:41>> Yes. So we need in this case to follow
17:44the peripheral structure and even if the
17:48actual structure is actually against us
17:51we can just take a trade from here
17:55>> for searching for a long
17:57>> okay
17:57>> that's the easiest one and I would say
18:00that is not the most precious one.
18:02>> Okay because the other tools that you
18:06can use is volume profile.
18:09>> Okay.
18:09>> Okay. So that's a prime example there
18:12where if the price is even though you're
18:16using one time frame but shorter term is
18:18doing a pullback potentially.
18:20>> Yeah.
18:20>> Because the overall peripheral bigger
18:23picture structure is still bullish in
18:24that example.
18:25>> Yeah.
18:26>> You're able to create that A and B
18:28scenario
18:29>> just in that simple format. So
18:31>> the most current the actual structure
18:34has gone bearish but until we reach said
18:37discount level so 75.
18:39>> Okay. Yeah. So you associate that 75. So
18:41you have your A and B options there. So
18:43it hasn't reached 75. So we're able to
18:45short or potentially have a trade down.
18:48But once we hit that 75, now the rules
18:50dictate we can't short now. We have to
18:52then focus on the uh peripheral
18:54structure, the larger picture. That's
18:56it.
18:56>> And so therefore potentially the long
18:58position can then come in
19:00>> because we can follow the actual
19:01structure but we have to deal with this.
19:04Yes.
19:04>> Directional potential. So we need to
19:06know that once this is finished, we have
19:08to go with the peripheral structure. So
19:11the most accurate model is using a
19:15volume profile. I'll show you how it
19:17works.
19:19>> Let's say for example this.
19:23>> So would you with the volume profile is
19:25this something in combination with what
19:27we just talked about? Oh,
19:28>> yeah. Is the you can either use the
19:30Fibonacci for see the discount and
19:33premium zone or you can
19:34>> if you want to be like more precise you
19:36can use the volume profile.
19:38>> Okay.
19:39>> So let's track a volume profile maybe we
19:42will see the value area here
19:44>> something like that. So in this case we
19:48know that we can follow the actual
19:51structure because what we can see that
19:54the value area low in this case is
19:58not taken yet. Yes,
20:00>> you see that this has arrived.
20:02>> So in this case we don't use Fibonacci
20:05but we use the value area high and the
20:07value area low as a target for this
20:10directional potential.
20:11>> Yes.
20:11>> Okay. So in this case for example we can
20:14go long and this in most case doesn't
20:16agree if we track the 75 maybe is this
20:19>> okay so it's a little bit a different
20:22concept that you can use and I tested
20:24all of it and the the result are not so
20:28>> different but this has get has got more
20:31result
20:32>> okay
20:33>> so we can still search for a trade okay
20:36for example short
20:38>> till here but once we get here we just
20:41follow the
20:42>> peripheral
20:43>> peripheral function. So is this a good
20:45example of the difference between
20:46mechanical being a mechanical trader and
20:48then the statistical bit putting it on
20:50steroids in a sense that mechanically
20:52you could say 75 but statistically the
20:55edges improved even if ever so slightly
20:58from the value area low
20:59>> statistically is more than that really
21:01more than that because all we built a
21:04statistical strategy we'll see later on
21:06on that video okay this is just
21:09>> I prefer this or I prefer this the
21:12result are similar But this should be
21:14better.
21:15>> Gotcha. Okay.
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23:07Trade at Apex today. Let's get back to
23:10the episode. Do you know in terms of the
23:12volume profile, one question that comes
23:14to mind and I'm sure will probably be
23:16easier to to show on the charts, but you
23:19know, with it being CFDs or forex uh in
23:21terms of volume, like what are you
23:23using? Is there a particular chart you
23:24will decide to use because there's no
23:26centralized data, right?
23:28>> Not centralized, but you can still get
23:30some good result with also volume
23:32profile of trading view. Of course, if
23:34you are trading index, for example, the
23:36Dow Jones, you can use the centralized
23:37volume profile and it will be better.
23:40>> And for my strategy, it doesn't run only
23:43on one pair.
23:44>> It's an edge. It's not an edge on that
23:46pair.
23:46>> I my strategy works on 33 asset.
23:50>> Wow.
23:50>> So when I trade, I trade multiple asset
23:53and it works on forex, it works on
23:56index. I I didn't got any good result in
24:01um metal.
24:02>> Okay. But beside that uh it work on
24:05mostly of the forex pair.
24:06>> Amazing.
24:07>> So this is what we look but we have to
24:10get some rule. Okay. Because we
24:11objectify peripherical peripher per
24:14peripheral and actual structure
24:16>> but there are some condition and uh when
24:19we follow like actual against peripheral
24:21or something like that and we need to
24:24know what is the internal structure. So
24:26let's take another example. First one
24:30the in this case it's easy to recognize
24:32peripheral and actual as I told you
24:34before this is peripheral this is actual
24:36but remember that actual is the latest
24:39breakout what does it mean that this has
24:43been broken by this
24:45>> if we have this okay the actual shift
24:49from here to here so this will not be a
24:54point that we consider okay
24:56>> and we have to know when the structure
24:58are aligned. Okay. So in this case what
25:02we can do let's put for example that the
25:04actual structure is this. Okay.
25:07>> And we have a breakout of this level.
25:10>> Yep.
25:10>> Okay. When I say breakout of course I
25:13mention with the body not with a week.
25:16>> That's really important.
25:16>> So you need the the body to close.
25:18>> Yeah. And uh also a certain level. So
25:22>> okay
25:23>> we need to get a number here but we will
25:25talk about numbers later. Okay? Because
25:28we need to make sure that we are trading
25:31with a breakout or without a breakout
25:34because we don't trade without a
25:35breakout.
25:36>> So in this case, let's put for example
25:39that the value area low is here. Okay.
25:43>> Mhm.
25:44>> And the actual structure is here and the
25:47peripheral structure is here. Okay. So
25:50they are aligned but we still have some
25:54kind of magnet here. Mhm.
25:56>> Okay. But it doesn't interest us because
26:00we have the peripheral and actual
26:02structure aligned. So if we can take
26:05like we have like asen session area I
26:07use mostly asan session for my uh
26:10trades. I have I codify different
26:12schematic in the post asan session. So
26:15London and New York and I trade that.
26:17Okay. We will see later on the target
26:19the trigger.
26:20>> Yeah.
26:21>> And we can see that maybe we can take a
26:23trade here. Okay. We will do that. And
26:27the next question is where do I put my
26:30target?
26:32And the response to this is statistical.
26:35We will see later on with a concept that
26:37I created. I don't know if I created
26:39someone already told you but it's called
26:42the optimal target.
26:43>> Okay.
26:44>> And so what we can do we just follow the
26:47structure. So in this case maybe we will
26:50have another breakout. And remember the
26:54main rule that I told you before lace
26:57two breakout.
26:58>> So in this case which is the latest
27:01latest two breakouts this
27:03>> y
27:04>> and this.
27:04>> Yeah.
27:05>> This is not the second breakout anymore.
27:08>> So we will stop consider this zone.
27:11>> Okay. And we will start to look at here.
27:14>> Yep.
27:14>> Okay.
27:16That's another example where peripheral
27:18ex actual structure they are always in
27:22one zone
27:23>> not true.
27:24>> So let's make for example another
27:27example of peripheral plus actual
27:30structure in only one zone. Uh we can do
27:33like this.
27:39Okay let's take this for example. What
27:42we can see that the latest two breakout
27:44were in this case this and this
27:47>> after what we had this has been broken
27:50by this and again this has been broken
27:52by this and this has been broken by
27:54this. Yeah.
27:55>> So let's contextualize it. The
27:58peripherical structure was that
28:01>> okay
28:02we need to also know where is the value
28:05area low or the 75 level in this case
28:08for example it was there.
28:10>> Okay.
28:11>> So they took it.
28:12>> Yep.
28:13>> That's that's the main difference.
28:15>> Mhm.
28:16>> And what we saw that the market came in
28:19this zone in the very in the peripheral
28:22structure.
28:23>> Yep. and changed structure.
28:25>> Yes.
28:26>> So in this case we can say that this
28:29zone has made it work because when the
28:32price came here we had a reaction.
28:36>> Mhm.
28:37>> In this case this level is more
28:40important than this. This is not
28:42important anymore because as I already
28:44did is work. In this case we will say
28:48that this zone is B plus A. Okay. So why
28:56this is important? Because once this
28:58level is broken the market shifts.
29:02>> So before we were in a long setup now we
29:07will be in a short setups. Also if this
29:10has not been broken. Mhm.
29:12>> Okay, that's the main difference because
29:13we have to follow the market always and
29:17it's not like less to breakout. This is
29:19a general okay condition. In this case,
29:22we have to recognize the most important
29:24breakout.
29:25>> Mhm.
29:26>> And this was the main important
29:27breakout. So, we just went from long to
29:31short and we can continue to look at
29:34this. So when the mindset of it being
29:38short that comes in once we break below
29:40this level because now at this point
29:42based on our conditions we shouldn't be
29:45breaking this level right this should
29:46sustain and if it does break now we've
29:48obviously got a bearish
29:50>> because we cannot count anymore on this
29:52because it has already been a result
29:55from this
29:55>> and do you find like if we're talking
29:57you know SMC or just discretionary
29:59traders they'll see this they they may
30:01have gotten in here or they may have
30:03missed it right
30:04>> yeah So let's say either one. When they
30:06get to here, people are either getting
30:08taken out break even or those who missed
30:09it are starting to try and get in.
30:11>> Yeah.
30:11>> It breaks, no problem. If it breaks
30:13because, you know, generally it's an
30:15okay area to look for longs.
30:17>> Once it breaks, however, because let's
30:19say if that hasn't been taken,
30:20>> they'll start loading up more because
30:22they're like, "Oh, it was a liquidity
30:23sweep."
30:24>> Yeah, we don't do that like that. If we
30:26have a breakout, we cannot guess if it's
30:28a breakout or if it's a liquidity sweep.
30:31But based on my test, if we look at this
30:35as a breakout, we will get best result
30:38than seeing this as a liquidity sweep
30:40and go still go long. Yes.
30:41>> Okay. So, every question that you can
30:44make has been verified across thousand
30:47and thousand of trades. That's the main
30:49difference. I don't guess. I execute my
30:52data. That's the difference. So, let's
30:54analyze this and let's follow for
30:56example the market. Maybe the market is
30:59doing like that.
31:01Okay, in this case for you the uh I
31:05would say the value area I in
31:08[clears throat] this in this case is
31:10here. Okay, so it has not been reached
31:13by the price
31:16what we will have we will have two zone
31:19or actually one zone. We will have two
31:22zone because here we have the last
31:25breakout
31:26>> and here we will have the peripheral
31:28breakout. So we can say that the
31:31peripheral didn't help this for gain a
31:34breakout because it will help only if
31:37it's reached that level.
31:39>> Okay.
31:39>> Okay. So we will still go with this.
31:43Let's make for example another one.
31:46In this case we have another breakout.
31:48The the value area high was here.
31:51>> Mhm.
31:52>> And what we can do we just shift the
31:55zone. This
31:57came here. Okay.
31:59>> Because because this will be the third
32:01breakout and we don't follow the third
32:04breakout, we follow the last two.
32:05>> So in this case we will have actual and
32:08peripheral structure.
32:09>> So it shifts down.
32:10>> Yeah.
32:10>> Mhm.
32:11>> That's correct. And if we have this,
32:16so the price re the price
32:19Andrea retraa retrace retrace just
32:22>> okay the price retraces and it gets our
32:27premium or discount or our value I was
32:31here.
32:32>> Yeah.
32:32>> In this case this zone helped this
32:35breakout.
32:36>> Yes,
32:36>> we can say that.
32:37>> Mhm.
32:38>> Okay. And in this case this will be plus
32:43B plus A.
32:44>> Now it's aligned.
32:46>> Yeah.
32:46>> It's aligned. Okay. Now we have to look
32:49for another kind of structure.
32:51>> Mhm.
32:51>> That is internal.
32:53>> Yeah.
32:53>> Okay. And it's a little bit more
32:56complicated but we will try to make it
32:58simple because our work is to take
33:00difficult concept and make it
33:02understandable for everything.
33:03>> Of course.
33:04>> Okay.
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35:21below. Now, let's get back to the
35:22episode. Do you w to maybe keep this and
35:24we draw over this then we can like maybe
35:26translate it
35:27>> of course
35:28>> into internal
35:29>> course what we can see here
35:34>> okay this is a this is a week
35:37>> okay because the 75 the value area can
35:40be taken also by a week it's not
35:42important that it's a body yes
35:44>> okay
35:45>> so for a breakout you want a body
35:46>> for a breakout I want a body with a
35:48certain level we will later talk level
35:51we'll get to yeah In this case what we
35:54have we have the in this case a because
35:59this is was the breakout maybe when was
36:01like this.
36:02>> Okay. So it touched the 75 or the value
36:07area low in this case. So this is a plus
36:10b.
36:11>> Okay.
36:12>> Okay.
36:13But
36:15if we have an a plus b and we don't have
36:18any breakout here.
36:20>> Mhm. This is not actual structure. Look
36:23at the difference. This here we have
36:26another breakout
36:27>> and then retracement.
36:28>> Yeah.
36:29>> Here we don't have any breakout. We have
36:32just a retracement.
36:33>> Mhm.
36:33>> And it's a different concept. This is
36:36called internal structure. What we do
36:39with that? Easy. Let's take it simple.
36:43We just follow with the same rule. So we
36:46look at here the our value area low in
36:50this case
36:51>> and we see if price reach it.
36:54>> Okay.
36:54>> In this case for example the price does
36:57reach it and make a change of structure.
36:59>> Okay.
36:59>> Okay.
37:00>> And do you just uh for the audience is
37:03it still one time frame? So even when
37:05you're
37:05>> still one time frame we don't shift time
37:07frame because if we shift if we shift
37:09time frame this will not be a breakout.
37:12It will be something different etc etc.
37:14M
37:14>> so you have to marry one time frame
37:16>> and do you your for you it's 15 minute
37:18right? for me is 15 minutes but you can
37:20use also um
37:22>> we say 15
37:23>> 5 minutes 30 minutes um I tested all on
37:2815 minutes if I want to shift on 30
37:32minutes I need to get my test again it
37:34will be really long
37:35>> okay so you stick so I stick to this 15
37:39>> so let's analyze this what we have we
37:42have a breakout in the directional of
37:44the A plus B
37:46>> yes
37:46>> okay because we have a breakout of
37:48internal structure.
37:50>> Mhm.
37:50>> So this became the actual structure.
37:54>> Okay.
37:55>> Because it's the latest breakout.
37:56>> Yep.
37:57>> So even if we don't have a breakout on
37:59that level, we will have on the internal
38:01structure.
38:02>> Mhm.
38:02>> So this became the P
38:09and this became the A.
38:12>> Okay.
38:13>> Okay.
38:14What we have right now if we have like
38:18another breakout.
38:20>> Mhm.
38:20>> Okay. That follow the directional of
38:25long in this case that are aligned. We
38:28just follow the market. So we forgot
38:30about this zone.
38:32>> Okay.
38:32>> Because it will be the third breakout
38:34and this will be a and
38:37>> and this will be the P.
38:39>> Okay.
38:39>> Yeah. In Trading View it's easier
38:41because you can just delete it. I know
38:44>> here we have to cancel everything.
38:46>> Mhm.
38:46>> So this is B.
38:48>> Yeah.
38:48>> Okay. Let's assume that we have a
38:51breakout of this level. We do the same
38:54thing. So the actual structure will be
38:58short. So it will change the A will be
39:02here because the latest breakout will be
39:03here. The value area
39:07low in this case maybe can be here.
39:10>> Okay.
39:10>> Okay. So in this case for you what we
39:12follow if the price is here. Okay. It
39:16didn't break out the peripheral
39:18structure and the actual structure is
39:21short.
39:22>> Mhm.
39:22>> What we can do for you for maybe your
39:25trading you go long or short in this
39:27case?
39:28>> I think I know the answer for for yours
39:30but for mine um I you know probably be
39:32looking at long.
39:33>> Okay. same
39:34>> because my potential direction finish it
39:37once I reached the value area low
39:40>> in this case I won't um draw any time
39:43the
39:45>> volume profile because it will take so
39:46much time but let's assume that the
39:48value area was here okay
39:51>> so in this case we just go and search
39:53for a long trigger
39:55>> got you
39:55>> okay
39:56>> but I can imagine though a lot of people
39:58see this breakdown here they see equals
40:01they say this has been rejected the
40:02sellers are in Now they probably still
40:04especially if this high hasn't been
40:06taken probably go okay we'll buy down
40:07here after this low's taken.
40:09>> Yeah but we have to follow the price. If
40:11the price got two breakout without
40:13touching this level
40:14>> it means that it doesn't need to
40:17>> touch that level. It has a strong for
40:19gain two more breakouts and we follow
40:21the strong of the market always.
40:24>> So this looks easy because we are
40:27drawing lines on a whiteboard.
40:30>> You perfectly know that in trading is
40:32not like that. Of course,
40:32>> we have to deal with candles. We have to
40:34deal with um weak and it's not that
40:37easy.
40:39>> It will be good if it was that
40:42>> it will be good. And so we need to go
40:45one layer deeper.
40:47>> Mhm.
40:47>> Okay. Because once you have the market
40:50concept, the market context that is
40:53always like that. We don't guess, we
40:55don't do anything like that. We just see
40:56a market and we draw this.
40:59>> Mhm. Because our goal is to mark all the
41:03condition. So we cannot see a chart and
41:05say what I should do. I don't know it's
41:08choppy is not trading is not trending.
41:11And even with a choppy market you can
41:13recognize the P and A.
41:15>> Yep.
41:16>> Always.
41:16>> Mhm.
41:17>> Okay. When I went to Trading View
41:19>> Yeah.
41:19>> and it was so difficult for me to
41:21recognize demand and supply. Okay.
41:25>> And I show you why. I was looking for a
41:27setup. I was looking in a chart and I
41:29saw something like this.
41:34>> Okay.
41:35>> Mhm.
41:36>> That's strange because I was like, okay,
41:38this is the breakout, but this doesn't
41:40look like a breakout because it's small.
41:43This maybe can be the breakout. You see
41:46all these kind of zone and you doubt.
41:48>> Why? Because you say I'll take this.
41:50That is the beginning. I'll take this,
41:52this, this, this, this. What I should
41:55do? Okay. And if you want to become a
41:58mechanical or statistical trader, you
42:01can't have doubt.
42:02>> Yeah,
42:02>> that's really important. So you need to
42:05understand
42:07>> how to objectify every concept. And for
42:10do it, I needed to create my own
42:12concept.
42:14>> So I created this cool concept that is
42:16called
42:23triple print.
42:26This is a way to objectify at the 100%
42:30the way you take a demand of supply.
42:32>> Okay.
42:33>> Okay. So how we do this? It will be
42:36easier on the trading view because I'm
42:39not very good in drawing but uh we will
42:41try to do also here. First we have to
42:44understand one context.
42:46>> Mhm.
42:47>> A valid candle and a not valid candle.
42:50>> Okay.
42:50>> What does what what what I mean with
42:53that? We will say that a candle is valid
43:04if the length of his body
43:08let's assume that this is 10.
43:10>> Okay. Is higher than the longer week.
43:16>> Okay.
43:16>> Okay. So if let's do this because they
43:18look the same. Maybe the longer week
43:21between this and this it's this and this
43:24is nine.
43:26>> Okay.
43:26>> So in this case the body has been
43:31measured than the week.
43:33>> Yep.
43:34>> So this will be a valid candle.
43:37>> Okay.
43:37>> But what what I what does it mean with
43:40the mean 10 and 9? We need to understand
43:43how you can measure the market because
43:46you can easily do with two tools magnet
43:50and ruler.
43:51>> Okay. So you will have like how do you
43:54measure pips? Okay. That's it. It's the
43:56same. So you measure with a ruler this
43:58>> y
43:59>> this zone and this zone. Okay. That's
44:02really important to me because I need
44:04numbers and I need this for classify a
44:08valid candle. Instead if the candle
44:12looks like this.
44:16So we don't see this because this is are
44:19longer. This is longer than that.
44:21>> And then maybe the body is four. Okay.
44:23And this is seven.
44:25>> Yep.
44:25>> This would not be considered a valid
44:28candle.
44:29>> Okay.
44:29>> Okay. So the cons the idea between this
44:34is that I need a good pose for take
44:37zone.
44:38>> That's it. So let's analyze for example
44:42let's try to go deeper on a demand.
44:52Okay let's zoom on this.
44:55>> Okay.
44:55>> Okay.
44:56>> This can be true demand zone. Okay.
45:01>> But we need to see which one we have to
45:03take.
45:03>> Okay.
45:04>> Because this cannot be valid. This
45:06cannot be valid. And maybe the only
45:08valid is here and the breakout start
45:09from here.
45:10>> Mhm.
45:10>> So let's zoom this and we see that
45:15when we are looking for a uptrend we
45:17need to see the sell candle.
45:20>> Okay.
45:20>> So the sell candle we will do
45:24red. We see that in this pose. So this
45:28retracement
45:29>> y
45:30>> we have something like that
45:33one candle
45:35that is like this. We don't need to
45:36measure it. This is not valid. These are
45:39is bigger than that.
45:40>> Yep.
45:40>> So maybe we have another candle here
45:47and this time it's valid because this is
45:50bigger than that.
45:51>> Y
45:52>> and another candle that is like this
45:58and also this is valid.
46:00>> Later we have that part. Okay. So the
46:04impulse
46:07Mhm.
46:07>> Okay. So, this is the zoom in of this
46:12>> of course. Yeah. Mhm.
46:14>> Uh it's important that the this is
46:17bigger than this. Okay.
46:18>> Okay. Then the whole
46:19>> than the whole retracement of course.
46:21>> Okay.
46:21>> H
46:22>> in one it has to be one candle.
46:24>> No no no doesn't mean it doesn't need
46:26to. Okay. It can be multiple candles.
46:30>> But the rule is called triple print. So
46:33what does it mean that we need three
46:36valid candle okay to classify a zone in
46:40this case this is not valid this is
46:41valid this is valid so two out of three
46:47so this will not be our demand zone
46:50>> okay
46:51>> this will be nothing okay
46:53>> this will be just a little retracement
46:55and when we take a demand zone we need a
46:57bigger retracement okay so we zoom in in
47:00another part Okay,
47:03this let's zoom in and we see that maybe
47:06we found this, we found this
47:11and we found
47:15this. We will maybe have lots of more
47:17candles. Okay, but we can just measure
47:20three.
47:20>> These three are all valid. Okay, for the
47:24same concept. So this will be our zone.
47:27>> Okay, but let's say if that three
47:29>> Yeah. was in the middle of this
47:32>> middle. Yeah, it's okay. It can be it
47:34can be from here to here. Anywhere
47:36within
47:37>> anywhere. We just need three candles. If
47:38they are more, we don't need to count of
47:41them.
47:41>> Okay.
47:41>> Okay. It's really important to
47:43understand that.
47:44>> And is the zone the candles itself or
47:46just that whole pool?
47:47>> I'll show you. I'll show you.
47:48>> No, I'm rushing. I'm trying.
47:49>> No worries. No worries.
47:51>> Getting excited. That's what it is.
47:52>> Yeah, it's I know it's a little bit
47:54different. So,
47:54>> no, I like it. Don't listen.
47:57>> So, it's important. you're seeing the
47:59difference as you say is like getting
48:01specific you know and actual reasoning
48:03the numbers behind it and we're even I'm
48:05sure very early into this still
48:07>> um so yeah let's continue
48:08>> so
48:10all we have to take the zone is the next
48:13question okay we have to take the latest
48:17three candle closer to the impulse
48:20>> okay
48:20>> so in this case the zone will be from
48:22here to here
48:25>> okay
48:25>> okay
48:26>> this will be the zone So in reality we
48:29have to check from hold the candle and
48:31we will start from here here and we go
48:33upwards.
48:34>> Mhm.
48:34>> Okay. And we will take maybe here's the
48:37first here the second here the third we
48:39will take just this soon.
48:40>> Okay.
48:41>> So we won't take this. Okay. And the
48:45interesting point is this the level that
48:48once it has been breaked the market
48:51shifts. This is not really important
48:53where it starts.
48:54>> Okay.
48:54>> Okay. So in case just to go back to what
48:56I was saying in terms of free candles in
48:58here.
48:58>> Yeah.
48:59>> Uh that does the triple print.
49:00>> Yeah.
49:01>> But the zone will be the last free
49:03candles before the impulse.
49:04>> That's right.
49:05>> So it doesn't have to be the free the
49:06triple print candles, but it has to be
49:08the free candles before the impulse.
49:10>> Yeah. The latest free candle before the
49:12impulse.
49:13>> And those candles don't necessarily have
49:14to triple print.
49:16>> What do you mean?
49:16>> As in as uh
49:18>> the three valid candle. It's important
49:20to understand this. So if um we have a
49:24candle here that is not valid, we won't
49:26take it. We will take the three candle.
49:29Even if in the middle we have uh not
49:32valid candle, it's still okay because we
49:34are looking for a retracement. There are
49:36three candles and that's the important
49:38thing
49:39>> and it's the tricky because if you want
49:42to test it you have if you want to test
49:45as a mechanical or statistical trader
49:47you cannot have doubt as I said you
49:49before
49:50>> and if in this all impulse and I mean
49:54this will be always on the 50inut time
49:56frame this is really important
49:58>> we couldn't find any triple print we
50:01just go down
50:02>> the next one yeah
50:03>> we we saw if we have maybe here.
50:07>> Yes.
50:08>> Okay.
50:08>> Mhm.
50:09>> In this case, we don't we go down again,
50:11but it's really rare us.
50:12>> So, in this case, we take this example.
50:14Yeah. Right.
50:15>> We're up here. We're trying to work out
50:16where is our area u for us to get our
50:20pullback and where we can look for a
50:21valid setup. If we've seen there's no
50:23triple print here, that's already
50:25>> that's not a breakout. Yes. Okay.
50:27Because it's important because maybe see
50:28this and they say, "Oh, actual structure
50:31short." No, that's not correct. This is
50:33the actual structure and we have to see
50:36if here we have a triple print for gain
50:39a peripheral peripheral.
50:41>> Yeah. So then if we do that then we then
50:43have our PNA back.
50:44>> Yeah that's cool.
50:46>> So once we objectify it
50:49>> we we can test it. I don't know if
50:52there's some other question but the rule
50:54is always the same. It doesn't change.
50:56>> Okay let's analyze one more concept.
51:00So the next question maybe can be how do
51:04you create a concept? How do you
51:07objectify the demand and the supply?
51:09Because this I did it by myself.
51:12>> Yes.
51:12>> All that I did all that I will explain
51:15to you
51:16>> mostly of that I did all by myself.
51:18Okay. I also in the later on we will see
51:21an amazing risk model. It's not mine.
51:24Okay. because I didn't invent any of it
51:27and uh but I adapt it to my own
51:29strategy.
51:30>> Nothing.
51:30>> So
51:32all we create concept first we start
51:35with observation.
51:44So we look at the chart and see h this
51:48could be interesting.
51:49>> Mhm.
51:50>> Okay. This maybe can work. Okay.
51:55And that's what I did with the triple
51:58three with the triple print because I
52:00needed a way to objectify supply and
52:03demand.
52:04>> Second, we have the
52:08recognition.
52:15Okay. So let's move on and not just
52:20observate but recognize the pattern that
52:24you want to validate.
52:26>> Okay.
52:26>> Okay. Third one
52:31the scheme
52:35we have to make some rule for this
52:38pattern that we actually recognized
52:41>> like this. Okay. Okay. four
52:49test.
52:51So we just don't take a concept and we
52:55test the concept. We need the context.
52:57So we implement we try to implement that
53:00context in our strategy.
53:02>> Mhm.
53:03>> Once we do that we can test it. Okay.
53:07Five
53:09validation.
53:15We have to test it long enough that
53:18variance can't lie to us. Okay? Because
53:21you know that if you take a sample and
53:23you validate for like 50 trades, 100
53:27trades, variance can lie to you. Okay?
53:29That's an important things. So you need
53:32500,000
53:34sample for validation for validate it.
53:36>> What's your minimum? Would you say 500?
53:38>> I would say 1,000.
53:39>> 1,000.
53:39>> 1,000 is the minimum.
53:41>> Okay. Because below variance can still
53:44lie to you.
53:45>> That can still be a coincidence. It's
53:48rare. Okay, if you have 900 trades and
53:51it's rare that it can be a coincidence,
53:53but it can be.
53:54>> Six
53:57celebration.
53:59>> The the moment everyone skips to. Yeah.
54:01>> Yeah.
54:03If you found something that actually
54:06compound your strategy and get your
54:08strategy better, I will celebrate and
54:10say, "Okay, let's add this context, this
54:12concept to my strategy."
54:14>> This is all this is all the things that
54:17I do when I create a concept.
54:18>> In terms of testing, what does that look
54:20like?
54:21>> Boring. I would say totally boring
54:24because our work maybe people think as
54:28me as a trader
54:30of a guy that stare in front of the
54:33screen for hours
54:34>> and the reality is I did it. I stayed
54:37for like month locked in in my apartment
54:40building my strategy.
54:42>> Now my work is really different. I just
54:45read data and I just adapt my strategy
54:49when the market shift. That's what I do.
54:51Okay. And do you have to manually test
54:53this and collect the data or you have
54:54programs that you use
54:56>> for Yeah, for uh go to mechanical trader
55:01to forgo in a mechanical how we can say
55:04that uh for be a mechanical trader or a
55:06statistical trader you either have to be
55:09good in math or you either going to be
55:12good on Excel.
55:13>> Okay,
55:13>> I'm good in Excel.
55:15>> Okay, perfect.
55:16>> So I don't run the calculation. I know
55:18all of the formula that I use and we
55:21will later see home
55:23>> but um
55:24>> I don't run it for I don't run it
55:27manually. Okay. But my back test Yeah. I
55:30input the data manually.
55:31>> Okay.
55:32>> Okay. That's important because even if I
55:34am a mechanical trader, a statistical
55:36trader, there still a little layer of
55:39human interpretation on top of on top of
55:42the data. It's really important to
55:43understand that this because otherwise
55:46we can all we can always go statistic we
55:49can always go algorithm with algorithm.
55:52Oh
55:52>> cool.
55:53>> Okay.
55:53>> And uh be behind my strategy there's a
55:56brain that adapt it that take decision
56:00like that can there's a brain that
56:03changes something meanwhile. Okay. And
56:07the one algorithm just fire the same
56:10setup. It doesn't look at anything.
56:12>> Me I have lots of experience.
56:15>> Yes.
56:16>> So not I'm not a discretionary trader
56:19but I looked at the chart like every day
56:22till six year. So I think that I have
56:24that level of experience that can
56:26actually gave me I built a certain
56:29subjective edge on my statistical
56:32trading.
56:33>> Uh but this is not the main part of the
56:35strategy. It's a little layer. Okay. So
56:38would you say that there's to always be
56:42optimized and to try and always perform
56:44at your best, you will still even as a
56:47statistical trader look to leverage that
56:50experience if you notice I say patterns
56:53but more so maybe market cycles or
56:55volatility or slight changes within the
56:57market itself. Yeah.
56:58>> Uh where you know okay if this is
57:00starting to take place you still the
57:02actual execution and all your decisions
57:04is still going to be statistical based
57:05but you know that there's a slight
57:06shift. Yeah, that's correct. I know when
57:09I have to shift from a concept to
57:10another. I know when I have to move from
57:13a risk model to another.
57:15>> I know all of that. Okay.
57:17>> And those models are all based all on
57:18statistics.
57:19>> All on statistical. And trust me, it
57:21will be one of the coolest model that
57:23you ever bring here in the in chart
57:25fanatics.
57:27>> Uh let's talk about one more doubt that
57:30I had once I started trading my
57:32strategy. So that was the triple print.
57:35That was the way to objectify supply and
57:38demand.
57:38>> Let's start with another one. This
57:40model, this concept is not a model that
57:43I created is called wick gap.
57:46>> Wick gap.
57:47>> Mhm.
57:51So the problem was that while everyone
57:56else debate on what's liquidity on the
57:59charts
58:00>> because maybe someone see a double top
58:02and say ah it should whip or maybe
58:04someone looks and this and say this is a
58:07whip I need to objectify it okay so
58:11let's assume that I have all my context
58:14aligned okay and I want to take a trade
58:18this This is long candle.
58:20>> Mhm.
58:21>> This is longer candle.
58:25And this is the short candle.
58:32Okay. Let's try to understand
58:36that this can be maybe my setup. So
58:38where do I enter also where I enter is
58:41statistical but let's say the
58:43inefficiency here. Okay. So I would like
58:45to put a short here. Okay. So a a short
58:48position
58:50we would drag the target here.
58:53>> Mhm.
58:54>> And the stop loss here.
58:58Okay. Of course, all of my condition
59:01were aligned on that trade. What I saw
59:03left me speechless because it's
59:06something really interesting. I saw that
59:09when the closer week to my stop loss
59:13were close. So in this case, this is the
59:17higher wick. Okay.
59:18>> Yep.
59:19>> These two that are closer to my stop
59:21loss when the distance between them were
59:25close. Okay.
59:26>> Okay. Yeah.
59:27>> My setups tends to stop loss.
59:30>> Okay.
59:30>> Okay. So I will do it a little bit
59:33better because it's so small.
59:37So let's assume I'm um
59:41taking this
59:48when this two week were close enough
59:52even if my setups were valid.
59:55>> Mhm.
59:55>> So I have like my position here.
59:58>> Yeah. And stop lossable. Yeah.
1:00:00>> Yeah. When the distance between A and B
1:00:05were close. So in this case maybe they
1:00:07can be close my setups tend to stop
1:00:09loss. Do you have a specific amount that
1:00:12would be classed as close?
1:00:14>> Of course,
1:00:14>> because you know what does close and far
1:00:18mean?
1:00:19>> Nothing.
1:00:20>> Okay. You you cannot say this is close,
1:00:23this is far because it's based on
1:00:25intuition.
1:00:25>> Yeah.
1:00:26>> As a mechanical trader don't like
1:00:28intuition.
1:00:29>> So what I did instead is measuring it.
1:00:32>> Okay.
1:00:33>> So I would like to measure the distance
1:00:36between here and here.
1:00:38>> Mhm. We will do like with the ruler and
1:00:40the magnet same tools and we see
1:00:43different levels. For example, we see
1:00:44that the difference is 0.2 pips.
1:00:48>> Okay.
1:00:49>> Okay. What I saw that I tested all my
1:00:52strategy and I took all the setup that
1:00:55were 0.2 pips or above.
1:00:57>> Yep.
1:00:58>> So when they were closer, so like 0.2 or
1:01:03less, I wouldn't take the setup.
1:01:05>> Okay. because it tends to stop loss when
1:01:08they are higher. So minimum 0.3 I take
1:01:11the setup.
1:01:12>> Okay.
1:01:13>> This that's really important.
1:01:15>> That's how close you're talking.
1:01:16>> Yeah. That's how I objectify are close
1:01:20and far by numbers.
1:01:22>> Mhm.
1:01:22>> What I saw that the result of my
1:01:24strategy using this kind of range
1:01:28were not profitable.
1:01:30>> Okay.
1:01:37Okay. So, what I did is that I started
1:01:40to higher this range.
1:01:43>> And would you class the wick gap as more
1:01:45starting to identify your entry based on
1:01:48what we've covered so far?
1:01:49>> Yeah. Okay.
1:01:50>> That's what I'm doing.
1:01:51>> Would the entry go along with everything
1:01:53the triple print and the structure that
1:01:55we've covered?
1:01:55>> Of course, we have to every have
1:01:57everything aligned. the next step that's
1:01:59the like the trigger okay we are not
1:02:01looking at the trigger itself but we are
1:02:03looking on oh I classify a valid versus
1:02:05a not valid trigger
1:02:07>> so it's really bad this work because you
1:02:10have to test it from one range you see
1:02:13that is not profitable uh you feel bad
1:02:16you move on okay so let's assume that we
1:02:19do now 0.3 so what does it mean that if
1:02:22the difference between them is 0.3 or
1:02:25less we don't take the trade if they're
1:02:27higher than 0.3 we take the trade.
1:02:29>> When you say 0.3, do you mean 0.3 pips
1:02:32or you mean between 0 and three?
1:02:34>> I mean between 0 and no 0.3 pips. 0.3
1:02:38>> because 0.3 we have 0.2 0.1.4.
1:02:42>> Okay. That's pips.
1:02:43>> I that's what uh I mean uh so if uh the
1:02:47distance between this is 0.1 I don't
1:02:51take the trade.
1:02:52>> Or if it's 0.3 I don't take the trade.
1:02:54And the result were uh I would say
1:02:59break even.
1:03:00>> Okay.
1:03:02>> So we still left to go. We do higher. We
1:03:07don't do 0.3. We did 0.4.
1:03:09>> Oh, still at 0.3. Okay. When you say
1:03:110.3, it's 0.3 pips.
1:03:14>> That's right.
1:03:14>> Right.
1:03:14>> Yeah.
1:03:15>> So like a decimal.
1:03:16>> Yeah. We will see later on the chart
1:03:18because
1:03:19>> it's a little bit difficult to
1:03:20understand this, but it's pips.
1:03:22>> Yeah. We will see that same result same
1:03:25test when there is 0.5 or less we don't
1:03:28take the trade above we take the trade
1:03:30and the result for the first time when
1:03:32profitable
1:03:33>> okay at 0 above 0.4 four.
1:03:35>> Yeah.
1:03:36>> Okay.
1:03:39>> This is B. Okay. But I need to know how
1:03:43much I can squeeze it because maybe with
1:03:460.5 I have better result.
1:03:48>> Mhm.
1:03:48>> Okay. So I I won't stop here and say
1:03:53okay I'm profitable. Let's do it. I want
1:03:56to know which is my threshold of profit.
1:03:59Okay, my maximum profit that I can reach
1:04:02because once we go up, we will see worse
1:04:05result than maybe this. And that's where
1:04:08our limit is.
1:04:09>> Okay.
1:04:09>> So, we
1:04:10>> Okay. So, you then keep going until you
1:04:13where it starts to fail again.
1:04:15>> That's right.
1:04:15>> And then you find your threshold.
1:04:17>> That's right.
1:04:18>> So, we do 0.5 and we see better result
1:04:21than this.
1:04:22>> Okay.
1:04:22>> Okay. So, we can still move on because
1:04:24we have better
1:04:26>> Mhm.
1:04:28So we we move on. We just say 0.6
1:04:35at which 0.6 the result were worse than
1:04:38this.
1:04:39>> Okay.
1:04:40>> So I know where I reach my limit.
1:04:42>> Mhm.
1:04:43>> So
1:04:44when the of course this works for long
1:04:47and short I'm actually drawing a long
1:04:50setup but it works the same as in the
1:04:53opposite. So I need to understand that
1:04:56if two weeks and can be also this okay
1:04:59it can be also this week but the closer
1:05:02week. So if the distance between this
1:05:04and this are higher than this and this
1:05:07we will just consider this.
1:05:09>> Okay.
1:05:10>> Okay. So we need to get the two closest
1:05:13week to my stop loss.
1:05:16>> Okay.
1:05:16>> Okay. It doesn't need to be one uh buy
1:05:19candle and another by candle. It can be
1:05:21any candle.
1:05:22>> Mhm.
1:05:22>> Okay. But it has to be minimum true. So
1:05:26what I did I understood my limit of the
1:05:31strategy in liquidity. We can call it
1:05:34liquidity. I don't care how do you call
1:05:36a concept. You can call it liquidity.
1:05:38You can call and in any way that's not
1:05:42the purpose of this.
1:05:43>> Yeah.
1:05:44>> Okay. We are not we don't name things.
1:05:47We just execute things.
1:05:49>> That's how I objectified my own
1:05:51liquidity. Mhm.
1:05:52>> So now what we have we know the context
1:05:56we know how to read peripheral actual
1:05:58internal structure we know how to create
1:06:01a concept because it all started with
1:06:03observation. I saw that when the week
1:06:06were closer I take stop loss my my
1:06:10setups tend to stop loss. So I recognize
1:06:13it and I recognize that it's only two
1:06:16weeks the closest two weeks to my stop
1:06:18loss. So I build a scheme the 0.1, 0.2,
1:06:220.3, etc., etc.
1:06:24>> I test it for every number and it's
1:06:28really a long test because imagine
1:06:31taking 1,000 trade for 0.2.
1:06:34>> The result sucks with you take 0.3 and
1:06:38you move on.
1:06:38>> And when you do the test,
1:06:40>> yeah,
1:06:40>> you're obviously testing the criteria we
1:06:42just talked about, but is that on top of
1:06:44the other criteras we've set out so far?
1:06:47>> Okay, does that make sense? So like
1:06:48you've already gotten the data for um
1:06:51the structural site
1:06:52>> of course
1:06:53>> and then the data for the uh triple
1:06:55print.
1:06:55>> Yeah. Why?
1:06:56>> So you're adding it all and then this is
1:06:57now added data.
1:06:58>> Added data. Why I say triple print? I
1:07:00tested I tested two double print. It
1:07:03wasn't working. Okay. I tested triple
1:07:06print. We got good result. I test four
1:07:08print. It wasn't
1:07:10>> same same thesis.
1:07:12>> Yeah. But the result were not like from
1:07:15unprofitable to profitable. Okay, for
1:07:17the triple print it was
1:07:19>> from good result to bad result. That's
1:07:22what I meant for here when the uh
1:07:26distance were so close like 02 we have
1:07:29not profitable result.
1:07:30>> That's the the main difference.
1:07:32>> Yeah.
1:07:32>> And that's how we classify a concept. We
1:07:36test it, we validate it. So we know
1:07:39where we are profitable. We know where
1:07:42is our limit and then we celebrate
1:07:44because we we now found a concept a
1:07:48>> a mechanical concept and we can add it
1:07:50to our strategy.
1:07:52>> Okay, let's talk about now what back
1:07:56test is,
1:07:57>> what back test really is and how to make
1:08:00your back test correct. Okay, because a
1:08:02lots of people dismiss back test. Okay.
1:08:05And if you want to be a mechanical
1:08:07trader or a statistical trader, you have
1:08:09to get data.
1:08:11>> It's the only thing that tells you if
1:08:13something work or if not works. That's
1:08:18what you need to understand. I can bet
1:08:20that you saw some guys that shows you is
1:08:25back test.
1:08:26>> Mhm.
1:08:26>> And their equity line looks like this.
1:08:30Okay.
1:08:31>> Mhm. And you see and maybe when I did
1:08:35education with Andre and Fabio, I had
1:08:37lots of students that shows me this this
1:08:40course. I said, "Bro, I'm getting a 60%
1:08:44we rate with one to four riskreward and
1:08:47say yes and I'm the two fairy."
1:08:49[laughter]
1:08:50>> Okay, because what is the problem? They
1:08:54do the back test.
1:08:58They get amazing result. But once they
1:09:02go live they b the account. Yes.
1:09:04>> And they say why why me? What is the
1:09:06problem? And they quit trading and they
1:09:08say trading does come.
1:09:10>> Okay. That's one of the main pattern of
1:09:12um losing trader. What is the problem?
1:09:15When you back test and you validate an
1:09:17edge you have a hidden enemy.
1:09:21>> Mhm.
1:09:21>> That is called overfitting.
1:09:30What is overfeitting is when you it's
1:09:34one of the trickiest concept in back
1:09:37testing because
1:09:39>> you see uh you optimize your strategy so
1:09:43good for the past that you don't let
1:09:46your strategy breathe.
1:09:47>> Mhm.
1:09:47>> Okay. So you build a perfect model based
1:09:50on the past but when you go live all
1:09:53changes.
1:09:54>> Yeah. because you don't know how to back
1:09:57test properly. Yep.
1:09:58>> Mhm.
1:09:59>> So we will today look at some model that
1:10:03avoid this.
1:10:05>> How to avoid overfitting and how do you
1:10:07know if you're overfeitting a strategy?
1:10:09>> Yeah.
1:10:10>> With back test.
1:10:11>> What is uh if you were to define back
1:10:13test for you? So I'm sure we'll look at
1:10:15you know on the chart and actually on
1:10:17the screen. But for a lot of traders
1:10:20back test to them is just bar replay
1:10:22right? They just go back and they press
1:10:24play and then they try and uh you know
1:10:25see their strategy and then they collect
1:10:27the data as best they can from that. But
1:10:29from your standpoint what is back test?
1:10:31>> Back test is everything is the
1:10:33validation of your edge is the response
1:10:36of what you were doing makes money or
1:10:38not. Okay. So you have to be really
1:10:41serious about that because back test is
1:10:43like your trust. You can trust your back
1:10:46test. You cannot trust a failing.
1:10:48>> Okay. So if you do back test for ex get
1:10:52experience in the market that's not what
1:10:54I do okay I just search for the
1:10:58condition as I told you before receive
1:11:00for market structure you objectify in
1:11:02order that in every back test it's the
1:11:04same
1:11:05>> so would you say your back test is more
1:11:06automated in the sense that you set the
1:11:09criteria and then let it present the
1:11:11result.
1:11:11>> Yeah it's not automated because I told
1:11:13to you
1:11:14>> you still have to manually
1:11:15>> manually input and you have also to
1:11:17judge it. Mhm.
1:11:18>> Okay. But mostly of the strategy is the
1:11:20same.
1:11:21>> But you're not having to go bar replay
1:11:22and then try and look for those
1:11:23conditions. Does that make sense?
1:11:24>> I do bar replay.
1:11:25>> Oh, you do it.
1:11:26>> You do bar replay because of course if
1:11:28you see the other part, you can have a
1:11:31look ahead bias.
1:11:32>> So you can get conditioned because maybe
1:11:35you are trying to back test the NASDAQ
1:11:38but you are also trading it. So you know
1:11:40that for the following three months it
1:11:42will go long. Yeah.
1:11:42>> So you are unconscious
1:11:46conditioned
1:11:47>> to go long.
1:11:48>> That's what I mean.
1:11:50>> H So you have to be fair when you do
1:11:52back test. Okay. But it's the main
1:11:55validation of the strategy. Okay.
1:11:58>> All we recognize that our edge is an
1:12:02actual edge and not a coincidence. So
1:12:05edge
1:12:07actual edge
1:12:12and not coincidence.
1:12:20How you can say if you got a profitable
1:12:24strategy or you got a good fantasy for
1:12:28you? I don't know how do you do it but
1:12:30for me it's a really strict process.
1:12:32>> Mhm.
1:12:33>> Okay. And uh I called chunk
1:12:37optimization.
1:12:39I don't know if this is a concept that I
1:12:41created or not because I don't really
1:12:43see so many
1:12:45training content. Okay, but it's it look
1:12:48like this. So chunk.
1:12:55So let's take our trades. Let's take the
1:12:59basic result. So we rate
1:13:04PF that is profit factor. Yep. and a
1:13:09error.
1:13:10>> Mhm.
1:13:11>> Maybe we have a thousand trades on it.
1:13:14Okay.
1:13:17And we see that the we have a certain we
1:13:19a certain profit factor and average
1:13:22riskreward. Later on we will also do a
1:13:25little bit of basic statistical analysis
1:13:27or on what profit factor is on what you
1:13:31should consider because if you look just
1:13:33like this on your back test
1:13:35>> you are not doing the things well. Okay
1:13:38because there's a lot of there's a lot
1:13:40more because with only this you can say
1:13:44that if you're profitable or not.
1:13:46>> But let's take for example just this to
1:13:48be to simplify and we know that we have
1:13:5110,000 trades. Okay, in one year
1:13:57let's take that the let's assume that
1:14:00the we rate let's take that the rate is
1:14:0360%.
1:14:04>> Okay,
1:14:05>> the profit factor is 1.5.
1:14:07>> Mhm.
1:14:07>> And the average reward is one to one.
1:14:11This on paper looks profitable
1:14:14>> because 101 I win 60% of the time. If we
1:14:17do this for,000 trades, we should get a
1:14:19good result. Okay, we not don't
1:14:21calculate yet. Profit factor.
1:14:25I will um explain you in a few words.
1:14:29Over one, you're profitable. If it's
1:14:31less than one, you're losing. You are
1:14:32donating money. You don't beat the the
1:14:34benchmark. You should invest it. Invest
1:14:36not trade.
1:14:38>> We just do that our 1,00 trade we split
1:14:43into 10 chunks.
1:14:49So we will have 10 different result.
1:14:52Okay. So for the first chunk we will do
1:14:55of course 100 trade per chunk. Okay.
1:14:58This is
1:15:00>> trades.
1:15:03So what we need to see if our edge is
1:15:06actually an edge and not a coincidence.
1:15:09Okay. That in each chunk
1:15:12in each chunk one two 3 4 5 6 7 8 9 10
1:15:19the result doesn't really move a lot.
1:15:23>> Okay.
1:15:23>> Okay. If in one chunk we are not
1:15:26profitable not profitable because you
1:15:28see if the W rate is below 50% of course
1:15:31we are not profitable.
1:15:32>> Mhm. And um not profitable, not
1:15:34profitable, not profitable. Maybe
1:15:36profitable.
1:15:37>> Yeah,
1:15:37>> profitable. Profitable because of course
1:15:40this is profitable in a bigger way
1:15:43because it compounds the where we are
1:15:46not profitable. Okay.
1:15:49So we see that here maybe we have 20%
1:15:52101.
1:15:53>> Mhm.
1:15:54>> 30% 101, 40% 101, 80% 101, 20% 101, 90%
1:16:00101. That's a beautiful coincidence.
1:16:04>> Okay.
1:16:04>> Okay. Okay.
1:16:05>> That's not an edge because in certain
1:16:08market condition our setup work but
1:16:11mostly in the all condition this does
1:16:15not work.
1:16:16>> Yes.
1:16:17>> So how do you know if you overfeited a
1:16:19strategy using this? Okay. If your
1:16:23result stays stable across the chunk it
1:16:26doesn't mean that you need to have 60%
1:16:28we rate oneonone every single time.
1:16:30Okay. or the profit factor that in this
1:16:32case we are just imagine this is not the
1:16:35right profit factor probably okay we are
1:16:37just uh putting some value okay if you
1:16:40see that maybe you go 50% we're even 160
1:16:4370 50 40 etc etc so the result shift but
1:16:47not so much
1:16:48>> then you have an actual edge
1:16:51>> okay
1:16:51>> okay
1:16:51>> how do you find that balance of like the
1:16:54overlap
1:16:55>> you know what I mean in terms of where
1:16:57it becomes coincidence and too far away
1:17:00>> so let's say if Like that same example
1:17:01it was 50 it was 70 it was or sorry 50
1:17:05it was 40 uh 45 50 again 70 and but then
1:17:09there's one month that is 20
1:17:11>> yeah you know how I do this of course
1:17:15I'm a methodical person so I look at the
1:17:18number if the rate
1:17:21shift more than 20%
1:17:25in 50 in the half of this
1:17:28>> first half okay yeah
1:17:29>> first
1:17:30If it shift more, we have the
1:17:32coincidence.
1:17:33>> Okay.
1:17:34>> If we if it stay in this range, so 40
1:17:38till 80.
1:17:39>> Yeah.
1:17:40>> It's okay.
1:17:41>> Okay.
1:17:41>> Okay. But it has to be on the majority.
1:17:44Okay. If you have only on shoe, it it's
1:17:46another thing.
1:17:47>> Yeah.
1:17:47>> Okay. That's the first thing to avoid
1:17:50overfeitting. So if you that you're
1:17:52watching this right now have an edge
1:17:54that looks like this but when you go
1:17:57live this actually falls apart
1:17:59>> what you should do you should do the
1:18:01chunk optimization and see if you had an
1:18:04edge or or if you have had a beautiful
1:18:07confidence on a period
1:18:09>> that's what I mean with chunk
1:18:11optimization
1:18:12okay
1:18:16second thing forget your result
1:18:20more likely to the live one.
1:18:22>> Yeah.
1:18:22>> Okay. First you are trading in CFD in
1:18:28futures. It's not this the problem. The
1:18:32problem is that when you trade you have
1:18:35cost.
1:18:36>> Mhm.
1:18:36>> This cost can be spread
1:18:42commission.
1:18:43>> Mhm.
1:18:47slipage
1:18:52and swap.
1:18:55Okay, these are the four common ones. I
1:18:59know that you that you're watching this
1:19:00right now, you don't put this on your
1:19:02back test. I perfectly know because you
1:19:06think that you are trading with the
1:19:08exact price without any cost and you
1:19:10think that commission are really low and
1:19:13they don't get your results so
1:19:16different.
1:19:16>> But you are probably wrong because if
1:19:18you
1:19:20compare all these and you united all of
1:19:23this, you will see that your profit will
1:19:26be cut. And even if you are on futures,
1:19:29you still have commissions, lipage, and
1:19:32you have like the order book. So you
1:19:35will fill maybe in another level. Yeah.
1:19:37Okay. So you don't have swap, but you
1:19:40have all of this. If you trade CFD and
1:19:42you take your position overnight, you
1:19:45have also swap. That can be a cost or a
1:19:48profit in the past.
1:19:48>> Can be a lot.
1:19:49>> Can be also a profit, but can be really
1:19:52can be bleed your account slowly.
1:19:54>> Yeah. So what you have to do with that
1:19:58first you are trading a prop firm or
1:20:00you're trading a broker that's the
1:20:01question
1:20:10because if we are trading this or this
1:20:12the condition change.
1:20:14>> Mhm.
1:20:14>> Let's assume that I'm taking I'm trading
1:20:17a broker. You perfectly know that a
1:20:20broker you have two types of account row
1:20:23and standard. Mhm.
1:20:28>> Okay. What is the difference? A row you
1:20:31have less spread and higher commission.
1:20:33In standard you have uh higher spread
1:20:36and no commission usually. It's not
1:20:37always like that. It depends on broker
1:20:39on broker.
1:20:40>> And uh there's one thing that we cannot
1:20:42calculate even in the profage.
1:20:45>> Yeah.
1:20:45>> We can't really know we can because we
1:20:48cannot predict the futures. Maybe if our
1:20:50trade it stop loss during a news this
1:20:52leage can be higher. Of course.
1:20:54>> Okay. The swap is a value. We can't
1:20:57calculate it.
1:20:58>> And you have to understand that
1:21:01some people maybe talk and say, "Oh,
1:21:04this time I got uh $10 of swap and one
1:21:09day I got triple." And they probably
1:21:11don't know that on
1:21:12>> there is triple swap.
1:21:13>> Uh Mercury the Wednesday that that on
1:21:16Wednesday there's the triple swap. Yeah.
1:21:18So you have to calculate if your trades
1:21:20if you take trades for multiple days
1:21:22that you can have also triple swap
1:21:24chair.
1:21:25>> Do you hold multiple days or
1:21:26>> Yeah. Yeah. I do. Uh my trades runs from
1:21:30few hours to maybe one to two days. So
1:21:33I'm not as wing trader on Friday I close
1:21:37all but it can be old.
1:21:39>> Yeah. And do you do you ever have to
1:21:40make a decision based on okay this trade
1:21:42might be a two-day hold?
1:21:44>> No.
1:21:44>> Is going to be over Wednesday. I
1:21:47>> over the triple swaps. Do you then have
1:21:48to just take into account?
1:21:49>> Yeah. Yeah, I know that I can handle
1:21:51triple swap.
1:21:52>> Okay.
1:21:52>> Okay. I know it. But I don't know if the
1:21:54glaze if the trades will close in 1 hour
1:21:57or two days. I don't know that.
1:21:59>> So, what you have to do in your back
1:22:01test first calculate your average
1:22:05spread.
1:22:09Let's assume you're trading a broker
1:22:11prof. You still have a spread on CFD1.
1:22:15Um so how I calculate my average spread
1:22:18it's so easy really you can take a clock
1:22:21you can take one minute in normal
1:22:23condition and you can see that maybe in
1:22:25that minute the spread went from six 0.6
1:22:29spread to one okay this is the range
1:22:32this is the minimum this is the maximum
1:22:34so you just do this plus this and you
1:22:37divide okay so you know that your
1:22:39average spread will be 0.8 eight. So
1:22:43every time you take a trade on that
1:22:45asset, you should know that you have to
1:22:48move your entry or your stop by this.
1:22:52>> Yes.
1:22:52>> Okay, that's really important.
1:22:54Commission we have a fixed value. So we
1:22:58perfectly know that per lot we need
1:23:04we have maybe $6. Okay, that's the
1:23:09>> That's okay. Okay,
1:23:12you have maybe $6. It depends if you are
1:23:16trading on a standard on a raw account.
1:23:18Uh because a standard you usually don't
1:23:20have a commission. But you should
1:23:22understand that if you open three, four,
1:23:25five lot, you will have commission if it
1:23:29goes to stop loss or to target. It
1:23:31doesn't care. Slipage is the only um
1:23:36>> thing that we cannot measure and we will
1:23:39measure in a percentage. So how we can
1:23:42objectify the
1:23:45>> how how the slippage will bleed our will
1:23:48bleed our account. I did this
1:23:50calculation based on experience. So
1:23:52usually if my data are um 60% with rate
1:23:58101
1:23:59>> Mhm. I just nerf it by 5%.
1:24:03>> Okay.
1:24:03>> All
1:24:04>> in terms of slippage.
1:24:05>> In terms of slippage. So I know that I
1:24:07can lose 5% of my gain. If I gain 100
1:24:11air in one year, I just know that I gain
1:24:1395 reality.
1:24:14>> Okay.
1:24:15>> Okay. That's how I classify sleep page.
1:24:18The swap is a cost and you have to
1:24:21understand it if you trade multiple
1:24:24nights. So also the spread
1:24:27>> you have to know. But the only problem
1:24:29is that you know don't know if the trade
1:24:31will take or gain spread or don't take
1:24:35spread at all. Maybe it will be an
1:24:37intraday trade.
1:24:38>> Mhm.
1:24:38>> Okay. So if your set if your equity line
1:24:43look like this and you didn't mention
1:24:46the average spread, the commission, the
1:24:48slip and the swap, this is not a
1:24:50strategy. This is a fantasy that forgot
1:24:53to pay his bills.
1:24:55>> Okay. So we have to understand this and
1:24:59the latest not the latest but you have
1:25:03to know the sample size. Okay.
1:25:07>> Yeah.
1:25:07>> Mhm.
1:25:07>> Because as I told you to you viance is a
1:25:11a really bad enemy for our for us.
1:25:14>> Mhm.
1:25:14>> And uh we have to
1:25:18>> even outside of statistical data you
1:25:20know would you say a thousand trades is
1:25:22a the sample size you want to go for? I
1:25:24higher is always better. You have to
1:25:27understand this that sample size
1:25:36and variance
1:25:41they are opposite correlated. So
1:25:46>> more sample I will have the less viance
1:25:49I will have.
1:25:50>> Yes.
1:25:51>> Okay. Mhm.
1:25:51>> So if you take a trade, if you back test
1:25:54a strategy, you show to your mentor the
1:25:58equity line and you have 100 trade, you
1:26:02don't have a strategy.
1:26:03>> Mhm.
1:26:03>> You have because the variance is so
1:26:05high.
1:26:06>> Mhm.
1:26:06>> And you won't put any money on something
1:26:09that can be variance.
1:26:11>> Yeah.
1:26:11>> Okay. That's one of the most important
1:26:14thing that you should understand. I know
1:26:16that it's boring. I know that it's not
1:26:19very good doing back test because being
1:26:21a discretionary trader is fire. Okay,
1:26:24when I trade is really boring. It's the
1:26:26same thing day after day. So you should
1:26:30understand that the difference between
1:26:32trader and gambler is that when I click
1:26:35buy, I feel bored. When maybe you click
1:26:38buy, you get excited.
1:26:40And this really important to understand.
1:26:48You should know all your trades can be
1:26:52the sequence of the trades. Okay.
1:26:54Because
1:26:54>> Yeah. Oh, cuz so like you know you might
1:26:56get one sequence with a certain win rate
1:26:58or certain Yeah. Uh you know winning
1:27:00trades like this.
1:27:00>> Let's assume I have one to one 60% win
1:27:04rate and we have,000 trades and we
1:27:07have,000 lines. Okay. What we will have?
1:27:11We will have 100 different condition of
1:27:13our trade shuffled together.
1:27:15>> When you say a thou, do you say a
1:27:16thousand lines?
1:27:18>> Uh, no. Thousand trades, 100 lines.
1:27:20>> 100. What do you mean by lines?
1:27:21>> Lines is the expectation like
1:27:24>> every different lines is a scenario.
1:27:27>> Okay.
1:27:28>> Okay.
1:27:28>> So, we will get like 1,000 scenario of
1:27:31our trade shuffled.
1:27:33>> Okay.
1:27:33>> Oh, so the 100 is the shuffled.
1:27:35>> Yeah. Okay.
1:27:36>> Yeah. So, what we will have? what we
1:27:39have no sorry the 100 is the not the
1:27:42shuffle the combination so the 100 is
1:27:45each one is a combination of result
1:27:48>> so it's a shuffle we can say that but we
1:27:50can press multiple time the Monte Carlo
1:27:53for get infinite shuffle maybe not
1:27:55infinite but the more we have
1:27:57>> because our worst case scenario that is
1:28:00the most important thing that you should
1:28:02get by Monte Carlo changes every shuffle
1:28:05>> okay
1:28:05>> but because they change the order of the
1:28:08trades.
1:28:09>> Okay.
1:28:09>> So, you know that you will get a lots of
1:28:11lines and you will have the average
1:28:14line.
1:28:15>> Mhm.
1:28:16>> That will be the most common result.
1:28:19Okay.
1:28:20>> And usually it will be the one in the
1:28:23center. Okay.
1:28:24>> And after we will have the best line,
1:28:28the best line.
1:28:29>> Yep.
1:28:30>> With the best result and the worst case
1:28:33scenario.
1:28:34>> Mhm. And when it's doing those those
1:28:36shuffles and getting those trades in
1:28:38order, is that all taken from the actual
1:28:41trade data?
1:28:42>> Yeah, the actual trade data. So, this is
1:28:43the final part. Okay.
1:28:45>> Mhm.
1:28:46>> Why I don't like it? Okay. Let's assume
1:28:49this
1:28:50>> because if your strategy has a 60% win
1:28:53rate and the oneonone riskreward.
1:28:56>> Yeah.
1:28:57>> This works only on the trades that you
1:28:59put. Okay.
1:29:01>> Yeah. But if you go you can see period
1:29:04when your strategy can be worse or
1:29:07better than that.
1:29:09>> Okay. So you cannot define a worst
1:29:13result because it's just this on the
1:29:15data. If you trade, you can use for
1:29:17example ev that is another method that
1:29:20calculate your worst case scenario based
1:29:23on not on your trades but on your
1:29:25possibility is another maybe most
1:29:28advanced one but the Monte Carlo usually
1:29:30work for the majority of traders and
1:29:33it's really important that you know this
1:29:36the worst case scenario if your strategy
1:29:39can survive this you can have a
1:29:42profitable strategy. Of course this will
1:29:45change based on risk that we put. Okay.
1:29:49>> If you put 1% these numbers will be
1:29:52>> of course yeah
1:29:52>> will be some kind of numbers. If we put
1:29:55less we will be another another case etc
1:29:58etc. So we can say that the Monte Carlo
1:30:02we can use it for choosing our risk.
1:30:06>> So like if you're say on 1% your worst
1:30:08case scenario is survivable and
1:30:10acceptable that's fine. But if you put
1:30:11two Yeah. And then that worst case
1:30:13scenario has dropped significantly to a
1:30:15point where it's no longer acceptable,
1:30:17you know, to adjust the risk of
1:30:18>> you can know also the longest streak,
1:30:20the longest winning streak and the
1:30:22longest
1:30:24losing streak. And that's so interesting
1:30:25because my strategy can lose up to 13
1:30:29losing trade in a row in the worst case.
1:30:32Okay.
1:30:33>> And uh I will use Monte Carlo just for
1:30:37that or the average losing streak, not
1:30:40for choosing the risk. for choosing the
1:30:41risk we have better model better and
1:30:44more advanced model that we will later
1:30:45on see
1:30:48>> once we started to understand oh we can
1:30:51get a bet a good back test
1:30:53>> and not an overfeed back test we should
1:30:56understand oh you can read your metrics
1:30:59okay so we will so we will study a
1:31:02little bit of the basic of statistical
1:31:05analysis because as I said you before if
1:31:08you look at your strategy and you check
1:31:10where eight
1:31:12PF
1:31:13and riskreward.
1:31:17That's a that's the really surface
1:31:21level. You can tell if you're profitable
1:31:24by only that.
1:31:26>> So we need to add more condition, more
1:31:29metrics. Yeah. Okay.
1:31:31>> Not too complicated. The complicated
1:31:33metrics we will later on see.
1:31:36>> And first is my favorite one. And it's
1:31:40the only metrics that can tell you if
1:31:43your strategy will make money or not.
1:31:46>> It's called expectancy.
1:31:55And this what does it look like? This
1:31:59represent the return of money per dollar
1:32:03risk.
1:32:03>> Yes. So for example, if we have an
1:32:07expectancy of
1:32:11010
1:32:13cents. Okay. It's cents, not
1:32:15dollar.0.10.
1:32:18>> Mhm.
1:32:19>> What does it mean? That per every dollar
1:32:22that we risk, we will get one plus 10.
1:32:27Okay. This will be our return
1:32:29>> on this. Okay.
1:32:30>> Yeah. Mhm. And uh this is so bad because
1:32:34usually the cost that I told you before
1:32:36eat this
1:32:38>> cost
1:32:41it.
1:32:41>> Mhm.
1:32:42>> So you won't be a unprofitable trader
1:32:45but you will be a break even trader if
1:32:47your expectancy look like this.
1:32:49>> Of course we can move on like uh the LT
1:32:53range is 0.10
1:32:56between 030.
1:32:58This is a healthy range in reality is
1:33:01not 10 is 20. Uh because you can be
1:33:04profitable with that. That means that
1:33:07>> would you say that's healthy or would
1:33:08you say that's on the lower end?
1:33:10>> It's you can be not too much profitable.
1:33:14You you can make you don't lose money.
1:33:15>> Yeah.
1:33:16>> Okay. And that's one of a good thing.
1:33:18Okay.
1:33:19>> You can later move on with another range
1:33:21that is 0.40 I think.
1:33:24>> Mhm.
1:33:2640 050 and this is a very strong
1:33:29expectancy. This is what you should aim
1:33:32for it.
1:33:33>> Okay.
1:33:33>> Okay. And
1:33:38if you have an expectancy that is above
1:33:41050, it's amazing. Okay. So, you have to
1:33:45understand that rate is just vanity.
1:33:50It's look it it looks cool when a guy
1:33:52comes to you and say I have a 70% win
1:33:55rate.
1:33:55>> Yeah.
1:33:56>> That's that's mean nothing.
1:33:57>> It's good for my titles and trailers.
1:33:59>> Say again down there. I'm different.
1:34:01[laughter]
1:34:02>> Yeah. Because for example, my strategy
1:34:04runs at 36% rate.
1:34:06>> Okay.
1:34:06>> Okay.
1:34:07>> Mhm.
1:34:07>> And I don't have a ner rate. And maybe
1:34:10the people judge the trader by rate.
1:34:13>> They do. Yeah,
1:34:14>> they do. Because that's the easiest
1:34:16thing to do. They should judge it about
1:34:18its expectancy because we rate is
1:34:20vanity. Expectancy is a truth.
1:34:22>> Yes.
1:34:23>> Of trading.
1:34:24>> Mhm.
1:34:25>> Once we understood this, we can move on
1:34:26with the next metrics that is profit
1:34:29factor.
1:34:29>> Yep.
1:34:30>> And I'll explain you why I don't really
1:34:33like it. Profit factor is so simple.
1:34:35It's basically your total profit
1:34:44divided by total loss.
1:34:47Okay.
1:34:50>> It can be in a range between one to
1:34:53three, etc., etc.
1:34:54>> I'm not sure. But if Okay. Yeah.
1:34:57>> If your profit factor is below one, you
1:35:00are losing a trader.
1:35:01>> Yeah.
1:35:02>> Okay.
1:35:02>> If it's above one, you make money. If
1:35:05it's above two, you are an excellent
1:35:07trader, etc., etc. You can move on. So,
1:35:11let's assume that in one year of trades,
1:35:13because you calculate it on dollar.
1:35:15>> Mhm. In one year of trading, you made
1:35:20$10,000,
1:35:22okay, profit. And your total loss were
1:35:285,000.
1:35:31>> Okay,
1:35:33you understand that?
1:35:34>> Okay, it's you will have you have the
1:35:36double of it.
1:35:38>> So your profit factor will be two.
1:35:40>> Yeah.
1:35:41>> And two looks amazing on paper.
1:35:43>> Yes. But which is the limit of profit
1:35:45factor that consider that does not
1:35:48consider if in this $10,000 you had a
1:35:52lucky trade. For example, let's assume
1:35:55that in the in this $10,000 you made
1:35:58$17,000
1:36:00by only one trade, one trade that didn't
1:36:02follow your strategy.
1:36:04>> Mhm.
1:36:05>> That we can call it luck or you deviated
1:36:08from your edge.
1:36:09>> Okay.
1:36:10So if we try to remove the trade, we
1:36:13will have $3,000
1:36:16divided by 5,000.
1:36:19That is so if you remove your lucky
1:36:22trades, you have 0.6 of profit factor.
1:36:26And this means that you are not a
1:36:28profitable traitable
1:36:30trader because your profit factor is
1:36:32less than one.
1:36:33>> Yes.
1:36:34>> And with that lucky trade, you look
1:36:35amazing. Okay.
1:36:37>> Mhm. So this is a very tricky tricky
1:36:40matrix and for be sure that this is true
1:36:44you have to take out your best trait.
1:36:47You have to
1:36:48>> you have to you and if you survive so I
1:36:51mean okay if you have a profit factor
1:36:53that is higher than one
1:36:55>> without your best losing trade
1:36:58>> you have a solid winning yes best
1:37:00winning trade you have a solid edge
1:37:02>> and even let's say you reviewed that
1:37:04best winning trade
1:37:05>> and you you saw that it's not not lucky
1:37:08in the sense that it was with the plan
1:37:10you still take it out anyway to make
1:37:11sure
1:37:12>> you still make also if this is stick to
1:37:14the plan you still remove it
1:37:16>> okay
1:37:16>> because You need to understand because
1:37:18maybe you had a trade that were
1:37:20>> just one trade.
1:37:21>> Yeah, just one trade.
1:37:22>> One best trade. Okay.
1:37:23>> Because maybe you had the one trade that
1:37:25you take one times per year and you made
1:37:27a one to 20 but it's not common.
1:37:29>> Of course. Yes.
1:37:30>> You need to understand if
1:37:32>> conditions volatility like something
1:37:33everything would just work that day and
1:37:35it was a big trade even if it was
1:37:36unplanned but you remove it to try and
1:37:38see a more average look.
1:37:39>> Yeah. So if you use profit factor pay
1:37:42attention to this. Mhm.
1:37:44>> Now let's see another condition.
1:37:49It doesn't judge you on the result. So
1:37:52maybe we can assume that we made 30% on
1:37:55a year. Okay, we have two trader that
1:37:58made the same result. We will call them
1:38:01and Andrea and Fabio. Okay.
1:38:03>> Andrea made 30% in a year and Fabio made
1:38:06the same result.
1:38:07>> Okay.
1:38:08>> Mhm.
1:38:09>> What does share pressure measure? It
1:38:12mean sure the how clean the path was to
1:38:17get there because maybe Fabio was smooth
1:38:21controlled. Okay. He made 30% in a very
1:38:25linear way.
1:38:26>> Yeah.
1:38:27>> Okay.
1:38:29You see this X line looks good.
1:38:31>> Mhm. Maybe Andrea got the same result
1:38:34but meanwhile he had three earth attack
1:38:37because his equity line look
1:38:40>> very uh
1:38:41>> okay
1:38:41>> volatile.
1:38:42>> The result is the same but the share
1:38:44ratio is totally different.
1:38:46>> So we can say that the share ratio
1:38:49measure the consistence of your returns
1:38:53>> because you can judge a traed by result.
1:38:56You have to judge it but by Oakan the
1:38:59ride was to get there. Yeah.
1:39:01>> Okay.
1:39:02>> So, usually the share pressure will be
1:39:04higher with Fabio and will be um
1:39:09lower with Andrea. This doesn't mean
1:39:11that Andrea is a bad trader. This mean
1:39:15that Andrea had a different path in a in
1:39:18a type of period.
1:39:20>> Yeah.
1:39:20>> Okay. And usually we uh we have a range
1:39:23for profit factor
1:39:25that is below one is shaky. So it's not
1:39:30very smooth
1:39:31>> above one
1:39:32>> for for sharp ratio
1:39:34>> for sharp pressure. Ah I forgot to say
1:39:36the formula of sharp ratio because even
1:39:39if you calculate with Excel
1:39:43>> Mhm.
1:39:43>> for me you should know what you're using
1:39:45for. So how you measure share ratio is
1:39:48so simple we can call it SP is just your
1:39:53return.
1:39:56Oh yes.
1:39:57>> How much does it ring?
1:39:59>> Mhm.
1:40:07>> So it's really important to understand
1:40:09if your profit factor is higher or lower
1:40:12than one.
1:40:13>> Yes. Once we have this, we have the
1:40:16basic matrix of statistical analysis and
1:40:19we can move on with the career part
1:40:21because if you combine all of this, you
1:40:24can have a good result. Okay. You can
1:40:26have a good picture. If you have just
1:40:28this,
1:40:29>> you won't have it.
1:40:30>> Yes. So then you add these layers on the
1:40:32sharp ratio, profit factor. Yeah.
1:40:34>> Um what was the first one we we went
1:40:36over?
1:40:38>> Expectancy, profit factor and share
1:40:40ratio.
1:40:40>> Yes. Now let's talk about target.
1:40:44>> Okay. How do you actually know how much
1:40:47you have to put as a target? Okay.
1:40:49>> Mhm.
1:40:50>> Because uh as a statistical trader there
1:40:53is a number for always.
1:40:55>> Okay.
1:40:57>> So let's assume that you're trading with
1:41:00a fixed risk reward.
1:41:03>> Okay. And I do it I trade with a fixed
1:41:06not I don't vary it.
1:41:08>> Okay. And uh I called it optimal target
1:41:12>> that is very different from optimal f
1:41:14that is totally another thing and um oh
1:41:19we calculate this let's assume that I'm
1:41:22taking five straits okay
1:41:32we analyze five trades. Of course you
1:41:34have to analyze lots of trades but we
1:41:36are here just for the example and they
1:41:39are hold long and you get to the target
1:41:41in all in all the trade. This is the
1:41:44target. This is the stop loss.
1:41:51You feel happy because you won five
1:41:53trades in a row. Okay. And uh maybe you
1:41:56go and you celebrate for it. Okay. But
1:41:59you don't know how much money did you
1:42:02left on the table? Because you should
1:42:04know your RR max.
1:42:08>> Yes.
1:42:09>> What does it mean that you need to
1:42:12understand how much the trades go
1:42:14upwards on your target?
1:42:16>> Mhm.
1:42:17>> Maybe all of the five trades
1:42:22reach one to two.
1:42:23>> Mhm.
1:42:24>> Okay. So you gain five.
1:42:27Okay. But you closed it too early
1:42:30because all the trades went to 1.2. So
1:42:34if your target was 1 to2, you would have
1:42:36make made 10 error. Okay? And you will
1:42:40find a limit of it because maybe you see
1:42:43that three of these trades went to three
1:42:48R.
1:42:48>> Of course we are talking about three.
1:42:50You have to talk about 100 and 100
1:42:51trades
1:42:52>> of course. And if you do the calculation
1:42:54this will when will go to break even
1:42:57because once we are in one to one we
1:42:59usually go to break even. H let's assume
1:43:01that they were in on break even. So we
1:43:04made three R
1:43:07three
1:43:09zero zero because they went up
1:43:13and they instead went to break even.
1:43:16>> Okay.
1:43:17>> Okay. Yeah. Yeah. So which is our best
1:43:19result with one two three when you with
1:43:22one two we made 10R
1:43:25>> with one two three
1:43:27>> we made ner.
1:43:28>> Mhm.
1:43:30>> So you know as I told you before with
1:43:32the uh wig gap that this is our limit
1:43:37>> and the optimal target is one to two not
1:43:40one to one not one to three. Okay
1:43:42>> that that example is so interesting
1:43:44because you look at it you would go yeah
1:43:45the one to three must be better. Yeah,
1:43:47because of the just the higher number it
1:43:48sounds better.
1:43:49>> It sounds better. But it's a combination
1:43:51of win rate also.
1:43:53>> So you maybe if you have different
1:43:56result you can see that maybe one to
1:43:58three can be better. Not in this case
1:44:00>> and you will go upwards and you see okay
1:44:03which is my limit. Let's do let's assume
1:44:05one to four 1 to 5 1 to six and you find
1:44:08you will find your optimal target. So in
1:44:11every asset that I trade I calculated
1:44:13this and in some asset I trade one to
1:44:16one because it's the best target for me.
1:44:19I don't really go one to one one to two
1:44:21one to three. I go 1 to one 1 to 5 2 to
1:44:255 3 etc. So 1 to2 one to 2.5 1 to three
1:44:311 to 3.5. Okay.
1:44:34>> And in some assets in mostly asset I
1:44:36trade like this. Okay. In a different
1:44:39asset I want go one to three but never
1:44:41more than one to three.
1:44:42>> There's all data back
1:44:43>> all data back tested because I can go
1:44:46also one to four but the data were
1:44:49shifts so they are against me. So why do
1:44:52something that
1:44:53>> is not supported by data.
1:44:55>> Yeah.
1:44:55>> Okay. That's how I choose my optimal
1:44:59target.
1:44:59>> Okay.
1:45:00>> Okay.
1:45:02>> Based on all the data you've collected
1:45:03you what are your thoughts on uh
1:45:06risktoreward? Have you seen because a
1:45:08lot of people I've seen especially
1:45:09within the prop firm industry uh will
1:45:11trade a negative riskreward.
1:45:13>> Yeah, they can trade negative
1:45:14riskreward. Of course, you will have a
1:45:16higher win rate. It's the same. Okay.
1:45:18You can do with these kind of method
1:45:21also with a negative risk reward. Okay.
1:45:24Uh for me it's not the optimal target. I
1:45:27tested the negative riskreward
1:45:29>> and uh it's not the optimal target for
1:45:31me. I know that I can go one to two
1:45:32usually.
1:45:33>> Mhm.
1:45:33>> Okay. But if your calculation works
1:45:36better on a negative riskreward, you can
1:45:39do one to 0.5 etc and etc. and see how
1:45:43many hair you gain on a 100 on a
1:45:46thousand trades.
1:45:47>> Understood? Yeah.
1:45:48>> So this is what I do but you can do also
1:45:50with a negative word.
1:45:52>> Okay. So now let's go to the coolest
1:45:57part of the video. one of the coolest
1:45:58part of the video that is the most
1:46:03advanced risk model that I built on my
1:46:05strategy. But first I have to convince
1:46:08you why it work.
1:46:10>> Okay? Because uh I traded without this
1:46:13concept for years later I discovered
1:46:16that and I was it was my first aa
1:46:19moment. Okay. I was like wow
1:46:22>> let's put this on my strategy for
1:46:24explain you this concept. I need a coin.
1:46:27Mhm.
1:46:28>> Okay. This is the head. This is the
1:46:30tail. Choose head or tail?
1:46:32>> Heads.
1:46:33>> Okay.
1:46:35I have to put here or
1:46:37>> Yeah. Yeah. Yeah.
1:46:38>> Okay.
1:46:40It went head.
1:46:41>> Mhm.
1:46:42>> Okay. Now that it went head, what are
1:46:45the alts or the next flip of of the next
1:46:48flip?
1:46:48>> Uh 50/50.
1:46:50>> Still 50/50, right? So it doesn't mean
1:46:53anything if you took had on the previous
1:46:57trade.
1:46:57>> Yeah.
1:46:58>> How do you use this concept on the
1:47:01market for you? I'll ask you this for
1:47:04you. If I have a one to one
1:47:0816%
1:47:10uh we rate and I took a losing trader, a
1:47:14losing trade, the next trade will have
1:47:19the same W rate or it will change for
1:47:24you. How do you think about that?
1:47:28>> Uh for me it's all variance, right? So
1:47:30it's all random. So
1:47:31>> okay. So you think that it's like the
1:47:33same every trade if even if you take a
1:47:36losing trade, you still have the same
1:47:38odds on the next trade, the same data.
1:47:42>> Yeah, I would say so.
1:47:44>> Okay. The difference is this. When we
1:47:47flip a coin,
1:47:48>> Mhm.
1:47:48>> if we take a coin,
1:47:50>> as we can see,
1:47:51>> the table where we can flip the coin is
1:47:55flat.
1:47:56>> It doesn't tense through head or through
1:47:59tails.
1:48:00>> Okay.
1:48:00>> Okay. But when we take a trade,
1:48:05we don't bet on the trade itself. We bet
1:48:08on the market condition itself.
1:48:11>> And we perfectly know that market
1:48:14condition they don't switch in every
1:48:18time.
1:48:18>> Yeah,
1:48:19>> I'll explain you better. If for example,
1:48:22we we know that market follow regimes.
1:48:25>> Yeah.
1:48:25>> Okay. This is a uh I think a well-known
1:48:29con concept and when we took a trades
1:48:33and when we took another trades that
1:48:35regimes stays it doesn't shift we
1:48:38perfectly know that cal
1:48:41>> follow calm usually and I'm talking
1:48:44about also volatile
1:48:46>> mhm
1:48:47>> volatile
1:48:48>> volatility
1:48:49>> volat I'm talking about volatility so
1:48:52what does it mean for our risk model.
1:48:56>> Mhm.
1:48:56>> That that the condition stick and if for
1:49:01example we trade a strategy uh that
1:49:04works really better in uh trending in a
1:49:08trending market. Okay,
1:49:10>> we are in a trending market. So we know
1:49:13that the condition is not flat is
1:49:16trending and we have a trending
1:49:18strategy. So if we take a trades here
1:49:21and we took target Okay.
1:49:23>> Mhm.
1:49:24And the next trade we take a trade and
1:49:26we took target. It's not because it's
1:49:30because the strategy likes the condition
1:49:34>> of the market.
1:49:35>> Okay.
1:49:35>> Okay. So a win in this case will make a
1:49:40win more likely.
1:49:42>> Yes.
1:49:43>> So it tells you something about the next
1:49:45trade. If for example we we we shift
1:49:49from a trending market that is the best
1:49:53um condition for our uh entry for our
1:49:56strategy and we switch into a choppy
1:49:58market
1:49:59>> Mhm.
1:49:59>> we will lose and we will tend to lose.
1:50:03So what does it mean is that when we
1:50:06when we flip a coin we don't have
1:50:08regimes.
1:50:09>> Okay. When we trade in we have regimes.
1:50:13So if we lose and we lose again, we will
1:50:17be more likely to lose again because the
1:50:19strategy doesn't like the ro gems.
1:50:22>> Mhm.
1:50:23>> Okay, that's what I mean. And when a win
1:50:27when when I win and the next trade is a
1:50:31win and it will be more likely that it
1:50:34will be a win, it has a name and it's
1:50:36called positive
1:50:41autocorrelation.
1:50:46What does it mean that our strategy that
1:50:50our sequence come in cluster?
1:50:53>> So when this kind of regimes happens we
1:50:57tends to win win win.
1:51:00When this kind of regimes happens we
1:51:02tend to lose lose lose lose. You see the
1:51:05sequence. This is called positive
1:51:07autocorrelation. And in my strategy I
1:51:09have a positive autocorrelation. This is
1:51:11a really an amazing concept that was
1:51:13discovered by law em.
1:51:19>> Okay. And the paper is called stock
1:51:21market prices do not follow a random
1:51:24work because we have this kind of debate
1:51:26that market is a is random that there is
1:51:30a random work and of course for me
1:51:33there.
1:51:34>> So would you say that's wrong? Would you
1:51:35say that the statement markets are
1:51:37random and each trade is a random
1:51:39outcome?
1:51:39>> I don't think so. I totally don't think
1:51:41so because
1:51:44this would mean that you cannot be
1:51:46profitable
1:51:48for a long time. You can be it can be
1:51:51luck. If I'm profitable, I'm lucky.
1:51:53>> I'm lucky. And luck doesn't resist time.
1:51:57Okay. So for me it's not like this. And
1:52:00they demonstrate in a scientific way
1:52:03that the return are autocorrelated.
1:52:07>> Okay. And that's really interesting
1:52:09because I know that when my strategy is
1:52:13in a certain regimes, I will have a
1:52:15sequence. If I win, I win. If I the
1:52:18strategy turns in another regimes that
1:52:20my strategy doesn't like, I will lose
1:52:22lose lose. I will tends to lose. So
1:52:25imagine that if we um threw a um a coin,
1:52:30this will be like this. Okay. Yes. And
1:52:33it tends to heads and this will tend to
1:52:37tails and if I drop it there
1:52:39>> it will be more higher chance to make
1:52:42head.
1:52:43>> Mhm.
1:52:43>> And the same in the opposite. Okay.
1:52:45>> In that scenario so that this scenario
1:52:48>> you know say you have a system that is
1:52:51working in trending markets. So you have
1:52:52a more likely chance of the wins.
1:52:54>> Yeah. when let's say it comes to a
1:52:58condition which isn't suited for that
1:53:00and would it be a case where you switch
1:53:02that off where you obviously don't look
1:53:03to apply that but would you then have a
1:53:05system that might be suited for
1:53:07>> we will see later on okay because yeah
1:53:10we will have a reply for thising but we
1:53:13have to understand that the returns our
1:53:15returns are autocorrelated it can be
1:53:18positive it can be negative and it can
1:53:20be zero autocorrelation each one it has
1:53:23a really important meaning.
1:53:25>> So if you that you are watching this
1:53:27right now, you don't know your
1:53:29autocorrelation and you are varying your
1:53:32risk size on every trade, you can be a
1:53:35gambler and didn't know that
1:53:37>> because autocorrelation
1:53:39responds to one thing. How much should I
1:53:42risk per trade? If I have to use not not
1:53:45much but if I have to use fixed risk
1:53:49sizing or varying my risk sizing each
1:53:52trade.
1:53:52>> So this is really what dictates. So when
1:53:54people talk about A+ setup,
1:53:57>> Yeah.
1:53:57>> should that really relate to positive
1:54:00autocorrelation?
1:54:01>> Yeah.
1:54:01>> Not towards like a setup, you know, like
1:54:04I don't know if you hear people talk
1:54:05about, oh, I'll risk more on an A+
1:54:07setup.
1:54:07>> Yeah.
1:54:08>> Like normally when they say that, they
1:54:09say that's something that has a higher
1:54:12positive expectancy. But I've never
1:54:14really heard anyone positive. Because
1:54:16when you say this is a a plus setup, you
1:54:20mean that you like the setup so much
1:54:22that you saw that setup so much and you
1:54:25risk more. But this can be also
1:54:30your uh how I can say that
1:54:33>> downfall
1:54:34>> your beginning of the downfall because
1:54:36if you like the setup, what does I like
1:54:38the setup means? We are still talking
1:54:40about discretionary trading here. You
1:54:43can be experienced enough to find a
1:54:47subjective way of of advantage as Fabio
1:54:50do. Okay, Fabio did this. But if you
1:54:53look at this setup and you say and you
1:54:55say this is a plus setups and you don't
1:54:58know your your autocorrelation and maybe
1:55:00you calculate it and you see that your
1:55:02autocorrelation is zero, you are
1:55:05gambling because fixed size is the only
1:55:08thing that you can do.
1:55:10>> The math say use fixed size. Don't vary
1:55:12your risk size. You can be an amazing
1:55:14trader and you can still be a gambler on
1:55:17how much do you risk.
1:55:19>> And now we will do the scale. We will
1:55:21calculate autocorrelation because it's a
1:55:23little bit more complicated. You have to
1:55:24understand two concept and we will see
1:55:28what autocorrelation look like and what
1:55:31we can do about it. Okay. So
1:55:34once I convinced you I convinced you
1:55:36that returns are autocorrelated. Yes.
1:55:39Okay. because uh it's really important
1:55:41to understand this and why this concept
1:55:44work.
1:55:45We need to calculate this and we need
1:55:47the only the win and lose. We don't need
1:55:50riskreward but of course with a less
1:55:52riskreward it will be better. Okay. And
1:55:56we should take a sequence of uh 10
1:55:58trades for example.
1:56:06Okay. This is my win and loss sequence
1:56:09on 10 trades. Of course, autocorrelation
1:56:11is a coincidence of 10 trades. You have
1:56:13to do with 100 or thousand. But this we
1:56:17we will just explain this how it works.
1:56:20First you have to know two metrics.
1:56:23First unconditional win rate. Okay. And
1:56:27conditional we rate. This is the easiest
1:56:31one. This is the normal we rate. Out of
1:56:34all your trades, how many were winners?
1:56:36We can just calculate it. This is 10
1:56:38trades. One, two, three, four. So four
1:56:42out of 10. This mean that my W rate is
1:56:4540%.
1:56:46>> Yeah.
1:56:46>> Okay. This is the easiest one. The co
1:56:49the conditional we rate I think that
1:56:51nobody use this.
1:56:53>> Okay. And this is a little bit more
1:56:55complicated because you have to ask
1:56:57yourself one question. After every
1:57:00losing trader, after every losing
1:57:03trades, what is the outcome? It is a
1:57:06winner or is it or it is a loser? So I
1:57:09will do it the sample for you. This is a
1:57:11losing trades.
1:57:13>> After this the trades is a losing or a
1:57:16winner is a losing. So
1:57:19>> we will just say one. Okay. For
1:57:21calculate how many trades this is a
1:57:23losing trades. After this we have a
1:57:25losing or a winner.
1:57:28>> Losing. Mhm.
1:57:30>> True. This is
1:57:32this came after a losing trades. This is
1:57:36a winner or a loser. Winner. So it's
1:57:38been the third and it win and it will be
1:57:41a winner.
1:57:42>> Okay.
1:57:43>> This doesn't came after a loser. So we
1:57:46don't calculate this. This doesn't came
1:57:49after a loser. This calculate this came
1:57:52after a winner. So we don't loses.
1:57:54>> Okay.
1:57:54>> This
1:57:56did
1:57:57>> did. Okay. So we calculate this the
1:57:59result is a loser
1:58:01>> we say four this same came after a loser
1:58:05but it's not a winner. So we will say
1:58:08this and uh this came actually after a
1:58:13loser and is a winner. Okay. And we have
1:58:17a six and we have two. So the result is
1:58:23two winner out of six trades.
1:58:26>> Mhm.
1:58:26>> Okay.
1:58:28And this should be 23%.
1:58:32>> Yeah. Yeah. Yeah.
1:58:33>> Okay.
1:58:38Okay. Uh let's see.
1:58:40>> I'm I'm staying in there. I'm staying in
1:58:42there.
1:58:42>> Okay. So, two out of six. Now, we have
1:58:46to understand one rule. Okay. We
1:58:49calculate our will rate and we calculate
1:58:51our we calculate our unconditional and
1:58:55conditional will rate.
1:58:57So now what we have to do we have to
1:58:59compare this matrix for see if we have a
1:59:02positive or negative autocorrelation.
1:59:05>> We talk about positive autocorrelation
1:59:08that is the easiest one and the most
1:59:09common ones.
1:59:11>> What does negative autocorrelation mean
1:59:13wins? It means
1:59:21negative means that my strategy
1:59:24alternates. So when I win I will tend to
1:59:28have a losing trade after after win
1:59:32after losing after win. So this is not
1:59:36coming in sequence. Okay this come
1:59:38sequence and this is the positive one.
1:59:40Yeah,
1:59:42>> when I have a strong negative
1:59:44autocorrelation, my strategy will tend
1:59:46to reverse.
1:59:47>> And this is so common in the mid reverse
1:59:49strategy.
1:59:51Mid in the mid reverse strategies like
1:59:52if I trade here not with a trending
1:59:55following strategy, it's more likely
1:59:57that I will have a negative
1:59:58autocorrelation instead of of a positive
2:00:00one. So the rule is if your UC rate is
2:00:06higher than a CO we rate you will have a
2:00:13positive autocorrelation.
2:00:15>> Okay.
2:00:16>> Okay. If this is higher than this, okay,
2:00:20and this the most common, if the UC we
2:00:23rate
2:00:25will be lower than your co-working rate,
2:00:29you will conditional rate, you will have
2:00:32negative.
2:00:37If these are basically the same,
2:00:40>> yeah,
2:00:40>> it will have zero correlation. And
2:00:43knowing that you have zero relation is
2:00:45really important also. So we compare
2:00:48this and we can see or I can also cancel
2:00:52that.
2:00:53We can see that the UC rate is higher
2:00:56and the difference between them is
2:00:58seven. Okay. So we are in a positive
2:01:01autocorrelation zone and we have to
2:01:04scale it. Okay. So we have to know what
2:01:06we have to get with what we have to do
2:01:08with the seven. Seven is a good or bad
2:01:10result. Let's see the range is this 0.2
2:01:14Sure. No auto. I will say just no auto.
2:01:20H.
2:01:26So what this scale mean that if our
2:01:28result is between 0 to two, we don't
2:01:30have an auto relation. If it's 3 to four
2:01:33is weak, 5 to six is solid, 7 to 8 is
2:01:37stronger, and 9 to 10 is extreme. We
2:01:39have to pay attention if our
2:01:41autocorrelation lands on this
2:01:44>> because either you found a gold mine or
2:01:48either either you made a error with the
2:01:52data.
2:01:53>> Yeah.
2:01:53>> Okay. And if you have a autocorrelation
2:01:56like this and you didn't commit any
2:01:59error, contact me because I want to give
2:02:01you money. [laughter]
2:02:03>> Okay. It's really uncommon. I tried in
2:02:05so many strategy. uh my autocorrelation
2:02:08is always in this level. Okay.
2:02:10>> Yeah.
2:02:10>> So what does it mean? The higher is the
2:02:14strongest senior. So for example, if I
2:02:16have an autocorrelation of 10. Okay. And
2:02:20my strategy comes in straight as I told
2:02:22you. So after I win, I have like not
2:02:25100% but 90% of possibility that the
2:02:28next trade will be also winner.
2:02:29>> So that's where you bring your variable
2:02:30risk in.
2:02:31>> Yeah. Mhm.
2:02:32>> And if I take a losing trade and I have
2:02:35a relation of 10 and it's correct, I
2:02:39shouldn't take the other trade because
2:02:4190% will be a loser again.
2:02:42>> So it's the same both sides.
2:02:44>> Both sides. So I don't take the if I
2:02:47have a loser, I don't take the next
2:02:48trade because it will be a loser. Loser
2:02:51loser after it shifts. When it will be a
2:02:53winner, I will higher my risk
2:02:56>> because I know that it's it will be more
2:02:59probable.
2:03:00>> Mhm. that it will be a winner again.
2:03:02Okay, this is for positive and in this
2:03:04case we are in the positive zone even
2:03:06with seven is a really strong signal. So
2:03:09it will look like this. Okay, and we
2:03:11know that we can shift our risk.
2:03:14>> Mhm.
2:03:14>> And we can higher or lower or don't take
2:03:18the trades if we have this. Okay. So
2:03:23this is how autocorrelation works. If we
2:03:25had for example a seven but with a
2:03:29negative what we have we know that after
2:03:32a win we shouldn't take the trade
2:03:34because in with negative as I told you
2:03:37before it's alternates yeah
2:03:39>> so we don't take the trade or we risk
2:03:41really less after a lose we higher our
2:03:45risk because we expect a winner okay etc
2:03:49etc etc what is the problem with
2:03:50riskreward this does not count the
2:03:53riskreward you can have the
2:03:54autocorrelation with the even one to
2:03:56four riskreward average but it will be
2:03:59less correlated because if you have a
2:04:02higher riskreward the probability that
2:04:05this number will be higher it's it will
2:04:08be really uh small so if I am trading
2:04:11with one to four riskreward it will
2:04:13probably lands here
2:04:15>> okay
2:04:15>> okay it's not totally sure it totally
2:04:18always like this but it's more probable
2:04:20and that's what we trade
2:04:22>> okay now let's assume assume that my
2:04:25result were this one. That does not mean
2:04:29that I'm not a profitable trader. I can
2:04:32still be a really amazing trader with
2:04:35one autocorrelation,
2:04:37>> one autocorrelation. What does it mean
2:04:40that your result does not tell anything
2:04:43about the next one?
2:04:44>> Mhm.
2:04:45>> Okay. So you should be fixed in your
2:04:47risk
2:04:48>> because if you now that you're watching
2:04:50this video you calculate your own
2:04:52autocorrelation and you see that this
2:04:54number lends to one the math is says is
2:04:59saying something clearly don't varying
2:05:02your race size that's it okay that's
2:05:05what we need to understand about it this
2:05:08and if you're doing this you are
2:05:09basically gambling as I told you before
2:05:11>> yes
2:05:12>> and that's how autocorrelation works
2:05:15Okay.
2:05:16>> Mhm.
2:05:16>> Do you have any question about that?
2:05:18>> No. Perfect sense. Yeah, it's great. And
2:05:20like I said, you know, a big talk over
2:05:21the last, you know, year, two years is
2:05:23about A+ setups and learning how to size
2:05:25in and that's how you're going to make a
2:05:27lot more money.
2:05:28>> Um, but in reality, now that we've gone
2:05:30over this and really dived into the data
2:05:32side of things and uh most trading
2:05:35decisions, if not I guess for you, all
2:05:37trading decisions should be guided by
2:05:39data.
2:05:39>> Yeah. Um, this is how you truly figure
2:05:42out if your edge is providing you a
2:05:44setup that you can then look to variable
2:05:47uh use variable risk or increase risk
2:05:49versus something that you you know
2:05:52believe to have a higher win rate.
2:05:54>> Yeah. Because if you see some guy that
2:05:56is teaching you and he say this is a a
2:05:59plus setups there are either two
2:06:01possible way. The first one he built
2:06:04through experience a subjective
2:06:08um
2:06:09advantage
2:06:10>> like Fabio or Andrea. The second one it
2:06:14does not really know what
2:06:15autocorrelation is and is gambling.
2:06:17>> Mhm.
2:06:18>> Okay. So when a guy say you that just
2:06:21two possibility okay
2:06:23>> that's what I use and that's what I used
2:06:25in the championship. But now we have to
2:06:28response to another question. I said
2:06:31that you can higher or you can lower
2:06:34your risk size by
2:06:38uh this number. Yes.
2:06:39>> Okay. If you have an higher number, you
2:06:41can risk more and if you don't have a
2:06:44like if you have a weak signal, you can
2:06:46risk less.
2:06:47>> Mhm.
2:06:47>> But the question is how much? Because we
2:06:51always need a number in every
2:06:52conversation. So what we do is we know
2:06:56we use another formula.
2:06:59We use another formula that does not
2:07:01tell you
2:07:04you should risk more or you should risk
2:07:06less. It tells you you should risk this
2:07:08or this.
2:07:09>> Yeah.
2:07:10>> Okay.
2:07:11And this formula is called Cali.
2:07:15>> I'm sure that you heard about it.
2:07:17>> I have. Yeah. I had a
2:07:20semi mechanical trader. So I got to hear
2:07:22about Monte Carlo and Kelly.
2:07:24>> They're the only two I heard of.
2:07:25>> Only two.
2:07:26>> The only two. Yeah.
2:07:28I never which is shocking really. Right.
2:07:29Yeah.
2:07:30>> Okay. No worries.
2:07:30>> I should have by now. [laughter]
2:07:31>> Okay. No worries.
2:07:32>> Well, we're glad that's why that's why
2:07:33you're here. You know, you're
2:07:35>> Yeah. I know that.
2:07:35>> Teaching so much more.
2:07:37>> It's a little different approach, but
2:07:39that's what I do.
2:07:39>> Mhm.
2:07:40>> And that's how I became not profitable
2:07:42but to a next level I would say because
2:07:45mechanical trading.
2:07:46>> Have you seen people I don't know if you
2:07:48teach or anything but like have people
2:07:50implemented this that you know that then
2:07:52seen that same change?
2:07:54>> I don't teach anymore. So I did
2:07:55education with the Andrea Fabio like two
2:07:58years ago. Since two years I stopped
2:07:59teaching because I like trading. I will
2:08:02probably start again because I now want
2:08:04I know would like would love to but uh I
2:08:09just uh say this to two of my friends
2:08:13and they got amazing result and the cool
2:08:15things is that you don't change anything
2:08:18in your strategy because people think
2:08:20that for getting a better strate better
2:08:24result with your strategy you should you
2:08:26just should change the how do you enter
2:08:29in a trade maybe the condition of your
2:08:33entry.
2:08:34>> The reality for me is that the risk
2:08:37model that you use is more important
2:08:41than the strategy itself. And this for
2:08:43me is the truth. And um I totally sure
2:08:47that if you have an autocorrelation for
2:08:49example or a model that we will see
2:08:52later h and you have a losing strategies
2:08:55like one to one 40 45% we rate. So buy a
2:08:59math that's lose money. With the right
2:09:02risk model, you can turn it into
2:09:04profitable.
2:09:05>> And that's so interesting because people
2:09:07are so focused on changing things. When
2:09:11the only thing they should change is how
2:09:13much they risk per trade.
2:09:14>> Yeah.
2:09:16>> So for response to the question, we have
2:09:19a signal, but how much should they risk?
2:09:21We use the Kelly criterion is a formula
2:09:24that was initially invented by some guys
2:09:27for beat blackjack in the casino in Las
2:09:30Vegas. I think blackjack I'm not sure
2:09:32about the which game
2:09:33>> and the which and later is has been
2:09:36implemented in the trading space
2:09:39>> and it tells you one thing how much
2:09:42should I risk per trade before blowing
2:09:43up my account.
2:09:44>> Yeah.
2:09:45>> Okay. The formula is pretty simple we
2:09:47will see now. And it's uh your win
2:09:52percentage. So we rate minus loss rate
2:09:58percentage
2:10:00uh
2:10:01divided by average
2:10:05error. That's basically the formula of
2:10:07the cali. But there are lots of
2:10:09calculate of calculator online. So you
2:10:12can basically put this and you will find
2:10:14the Kelly
2:10:16>> which is the problem of Kelly. Kelly is
2:10:18really too aggressive. Okay. Because it
2:10:22it's right that it's survivable on math.
2:10:25It pretend that your strategy cannot
2:10:28shift
2:10:28>> and we perfectly know that market
2:10:30shifts.
2:10:31>> Yeah.
2:10:32>> So we use a fraction of it. Which kind
2:10:36of fraction? It depends of the signal.
2:10:38>> Yeah. So I will tell you now some
2:10:41example because how much should I risk
2:10:43it's really it vary on if you're trading
2:10:46proper if you're trading a championship
2:10:48account if you're trading broker if you
2:10:49have any limit per risk for example in a
2:10:52prop firm
2:10:53>> and um it depends okay so what I use is
2:10:57this
2:10:58with the here you cannot use Kelly we
2:11:02use fixed risk
2:11:06when I have a weak signal Now I will use
2:11:11maybe one
2:11:14um
2:11:16one point Kelly
2:11:18here 14.
2:11:22>> Mhm.
2:11:23>> One three and uh here I don't calculate
2:11:26it because uh it's too rare. Yeah.
2:11:29>> Okay. So what does it mean that you
2:11:31divided your Kelly five times, four
2:11:33times, three times?
2:11:35>> Okay. That's how much you should risk
2:11:37per trade. But that's not a theory
2:11:40theory that's depends on your style.
2:11:42>> You can use different. That's what I use
2:11:44for trading the championship.
2:11:46>> Okay.
2:11:47>> And that's what I did and that's
2:11:50response to the question how much should
2:11:52I risk?
2:11:53>> Yeah.
2:11:54>> Okay. On a model that I actually built
2:11:57for proper not for
2:11:59>> So this is how to master problem.
2:12:01>> Yeah. This is to how to bring your prop
2:12:04trading to a next level using math.
2:12:07>> Mhm.
2:12:07>> And this is so controversial because
2:12:10this method that I'm about to teach you
2:12:13responds to put advantage on losing
2:12:16traders and cut legs on profitable
2:12:20traders. So the question that you can
2:12:23ask it now is if you that you are a
2:12:27profitable trader that you live up with
2:12:29with trading why do you use this model?
2:12:32And the response as I say the response
2:12:34is easy. If you want to live up your
2:12:37with if you want to live up with trading
2:12:41you would like to get a paycheck every
2:12:44month.
2:12:44>> Mhm. But you perfectly know that we
2:12:47trading is impossible unless you apply
2:12:50this. But you have to apply only if
2:12:53certain condition are verified that we
2:12:55will see later. And um so I would prefer
2:13:00to
2:13:03cut a little bit of my profit but get
2:13:06consistently pay out even with my even
2:13:09when my strategy isn't performing well.
2:13:12And why? because it can be helpful if
2:13:16you that you are watching right now have
2:13:18maybe some kind of psychological problem
2:13:20like a mindset maybe you uh deviate from
2:13:24your strategy after a losing streak
2:13:26because you can't resist in a losing
2:13:28month
2:13:29>> okay and for apply this edge you have to
2:13:32actually study one thing your equity
2:13:35line
2:13:37>> so I looked at mine because it's the
2:13:40same I I created this model so it's the
2:13:43same observation etc etc. So I looked
2:13:48out of my equity line in the past three
2:13:50years and it looked like that.
2:14:02Okay, that's what a real equity line
2:14:05should look like. Mhm.
2:14:07>> Okay. What I found left me speechless
2:14:10and
2:14:11uh gave me the idea of two things.
2:14:15>> Mhm.
2:14:16>> First, I started analyzing
2:14:20all of this.
2:14:24Hold. Of course, it's not exactly like
2:14:26this. I'm just droning this. But I
2:14:28started analyzing
2:14:30>> all of my draw down over the last three
2:14:33years, almost three years of trading.
2:14:36Yeah.
2:14:36>> And what I found let me speechless
2:14:38because I found that my draw down
2:14:41does not come in sequence. Okay. So for
2:14:44example uh if I close a month in uh 4%
2:14:49draw down. Okay.
2:14:53What I found is really interesting
2:14:55because if I have to classify my draw
2:14:57down in week
2:15:00so for example week one, week two, week
2:15:03three, week four. Okay. Uh it's not like
2:15:07this means one means one minus one. My
2:15:11draw down does not never look like this.
2:15:14I still have one or two profitable week
2:15:18in a losing month. So my draw down looks
2:15:21like this. Minus 7 uh plus three
2:15:27minus 4 and uh what's the
2:15:32four and four? It looks right. The total
2:15:36is M4.
2:15:37>> Mhm. [snorts]
2:15:39>> Um, no.
2:15:41>> Yeah, that's right.
2:15:42>> Yeah.
2:15:43>> Yeah. So, the result is still the same.
2:15:46I closed the month at minus 4, but I had
2:15:51two winning week in the month.
2:15:54>> Yeah.
2:15:54>> Okay. what I can use what I can do with
2:15:57that it's so interesting because first
2:16:01I saw I built this model that is called
2:16:04draw down shield
2:16:11so let's compare
2:16:15of course I see this in all my throwdown
2:16:19yeah not only once
2:16:22>> so let's assume that
2:16:25We compare two traders.
2:16:28>> Uh the first one is trading normally. So
2:16:31for example with a 200k account
2:16:36okay me instead I'm applying the draw
2:16:39down shield. Okay. So instead of having
2:16:43one 200 account I have 450k.
2:16:50What I do if for example here I risk 1%
2:16:55okay
2:16:56>> mhm
2:16:57>> uh
2:16:59forget the same result I will still lose
2:17:02I will still risk 1% yeah okay
2:17:04>> in every account but the difference is
2:17:07this I will trade one account per week
2:17:12>> okay
2:17:12>> let's assume that I closed a month at
2:17:16minus 4 okay because my strategy went
2:17:19into draw down that month.
2:17:20>> Mhm.
2:17:21>> What I add I add - 7% on the first week
2:17:26on that account plus 3% on that account
2:17:31minus4 and plus 4 here instead I just
2:17:37gain a minus 4. So what my equity line
2:17:40should look like here%
2:17:43is 3,500 right?
2:17:45>> Yeah.
2:17:46>> So it will be 46.5. Mhm.
2:17:50>> After one month here, I gained a payout
2:17:53because I made profit.
2:17:55>> Yeah.
2:17:55>> So, uh I got still 50K because I got
2:18:00$1,500
2:18:03and 80% of that is uh
2:18:05>> 1.2 1.3
2:18:07>> 1.2. So, I gain 1.2K in a losing month.
2:18:11>> Mhm.
2:18:11>> Uh this went to 48K.
2:18:17This went to 2,000 profit that 80%
2:18:21usually because it's from 70 to 80 is
2:18:241.6.
2:18:25>> Yeah.
2:18:33>> So in a losing month I made
2:18:38to $2.8k 8k
2:18:43and I still have two account that they
2:18:46are safe.
2:18:47>> Mhm.
2:18:48>> Instead here I
2:18:52I will be at 192k.
2:18:56>> How much did I earn that month? Zero.
2:18:58How much I earned? 2.8K. Of course, this
2:19:02will reward me just if the strategy
2:19:05lose. If the strategy wins here, I will
2:19:08get more money.
2:19:09>> Mhm. Okay. But what is the interesting
2:19:11thing about this method? Let's assume
2:19:14that this trader is called B and this
2:19:17traders that's me is called A. What is
2:19:20the power of B of making money the next
2:19:23month?
2:19:25>> Slower.
2:19:25>> Slower because it needs to recover draw
2:19:27down first.
2:19:29>> So is buying power we can say that.
2:19:33>> Yeah.
2:19:37>> Is low. Mhm.
2:19:39>> The trader A still have two account in
2:19:43Bilan. So he has more chance more chance
2:19:47to make money the other month. Even if
2:19:50we take another month of minus 5%.
2:19:54This will go almost u down. We will
2:19:58almost lose the account because it will
2:20:00go minus 9%. So it will have like 182k
2:20:05left.
2:20:06>> Mhm. If we split this down and for
2:20:08example we have
2:20:11minus 4% here. Let's assume
2:20:16uh plus 4% here
2:20:20uh minus 2.5
2:20:24and minus 2.5%
2:20:28>> what we will have this will
2:20:33be lost.
2:20:34>> Yeah.
2:20:34>> Okay.
2:20:36This will gain 2k. So another 1.6k to
2:20:40add.
2:20:40>> Mhm.
2:20:41>> And it will be a break even.
2:20:46Of course, it's not exactly this because
2:20:48we will uh lose this account and some of
2:20:52the down will be transferred here
2:20:54because you need at least I think for
2:20:58losing this account one
2:21:015%. That's right. because after you will
2:21:03lose. So we'll start trading the next
2:21:06account and you will get a little bit
2:21:07less than that.
2:21:08>> But it's the concept that you need to
2:21:10understand
2:21:11>> and the
2:21:11>> so if you lose an account in this
2:21:13>> using this method keep trading on the
2:21:16next one.
2:21:16>> So in the reality you will have uh you
2:21:20will lose this account as minus 1.5%.
2:21:24>> And you will gain four minus uh the
2:21:27rest. Yeah. Okay. But
2:21:29>> let's calculate this and let's ignore
2:21:30this. Here you will have
2:21:35uh 2.5% is uh
2:21:37>> 1250
2:21:39>> what
2:21:40>> 1,250. Yeah.
2:21:41>> Yeah. So we will have like 46 something
2:21:44like that.
2:21:44>> Yeah.
2:21:45>> 46 point something
2:21:46>> 750.
2:21:47>> And here same you will get in draw down
2:21:49but still if you lost money you got
2:21:521.6k. Okay. So in total in two months of
2:21:57losing 9% you made more than $3,000.
2:22:02>> Mhm.
2:22:03>> Okay. And here you almost account and
2:22:06got zero.
2:22:07>> That's the draw down shield. That's what
2:22:10I use for trade prof. And that's for me
2:22:13what you that you're looking this right
2:22:15now you should use. And also we have an
2:22:18interesting really interesting part of
2:22:21this because you will keep your payout
2:22:24lower. Yeah,
2:22:25>> because you will gain here 2k and you
2:22:29perfectly know that if you gain 2k in a
2:22:3150k account or you gain uh 4% on a 200k
2:22:36account, the size of the payout it's
2:22:39higher. And if you maybe broke a little
2:22:42rule here, they will probably still gave
2:22:45you a payout. If you break a little rule
2:22:48on a 20k payout, 16k out, they will
2:22:51probably be attached to that and refuse
2:22:54that payout.
2:22:54>> Mhm.
2:22:55>> We need to understand that you are the
2:22:57revenue of the profer. I'm not here to
2:22:59say you that. You know that. And uh so
2:23:03keep your payout uh smaller it always a
2:23:07good uh good things and you will keep
2:23:09your payout consistent.
2:23:10>> Yeah. Plus on this side your lot size
2:23:12will be smaller because of the account
2:23:14size. So less slippage, less
2:23:16>> you know all around it's the execution
2:23:18and chances of getting to that pay and
2:23:20having that pay and having smoother
2:23:21conditions are going to be higher than
2:23:23potentially over here.
2:23:24>> Yeah, of course if we try to run it on a
2:23:29winning month. So if we for example
2:23:31change this here we will make we will
2:23:34make less money than that.
2:23:36>> Mhm. But if for which case in which in
2:23:40some case we made an error and we made a
2:23:43nice payout here and they refuse that
2:23:46it's still better this okay because here
2:23:49for example if you close a month of 4%
2:23:51you will get you will gain 8k
2:23:54>> m
2:23:54>> and the 80% is 6.4
2:23:56>> and here you will get maybe little bit
2:24:00more than half.
2:24:01>> Okay. So you have to consider which
2:24:05model you have to use and if you have
2:24:07some psychological problem you
2:24:10>> uh find difficult to stick to the plan
2:24:12when you're losing because you can't
2:24:14handle a losing month maybe the drone is
2:24:17the model that I created that can work
2:24:19for you.
2:24:20>> Yeah looks
2:24:21>> that would be interesting is very
2:24:23>> it's very interesting and uh that's the
2:24:26first thing that I noticed. The other
2:24:28thing is a little bit a layer a deeper
2:24:31layer of autocorrelation.
2:24:34>> And um I will show you now when I saw
2:24:39that my streak of losing month were not
2:24:45like this but more like this. I started
2:24:48to go deeper on the autocorrelation and
2:24:51I built a model that I called variance
2:24:54accelerator model
2:24:56>> that is uh the model that I used in the
2:24:59championship and it uh takes one concept
2:25:03that is a modern version of um the
2:25:07theory of the autocorrelation.
2:25:09>> It was made by Hamilton James Hamilton
2:25:13and it was called mark of switching
2:25:16autoag aggression. Mhm.
2:25:17>> This is the name just for little bit of
2:25:21paper paper works.
2:25:23>> This assume that if you analyze your
2:25:26draw down and yours data in different
2:25:30state you know you can get multiple
2:25:32autocorrelation in different in the same
2:25:35strategy. What does it mean that if I'm
2:25:38analyzing my whole equity line, I know
2:25:42that in all my data I have the positive
2:25:45autoation and that's it. If I analyze
2:25:49some kind of data, this trick for
2:25:51example,
2:25:54I can get a totally different number of
2:25:57autocorrelation. Mhm.
2:25:58>> And they saw that if I analyze this, my
2:26:02autocorrelation shift from
2:26:06um positive to negative.
2:26:08>> Mhm.
2:26:09>> So I started to test
2:26:12when the tricks will most likely comes
2:26:16to an end by using the negative
2:26:18autocorrelation. For example, uh I
2:26:20analyzed that after a losing threat of
2:26:23seven to eight trades. Okay. My
2:26:26autocorrelation
2:26:28became strongly.
2:26:33What does it mean that the shift of the
2:26:38sequence will be more likely? So if the
2:26:42seven and eight are losses,
2:26:44>> yeah,
2:26:45>> my autocorrelation shift. So I will
2:26:47probably get a winner. Okay. And this I
2:26:51used combined with Kelly for understand
2:26:54how much my strip my strip go deeper in
2:26:58my data.
2:26:58>> Mhm.
2:26:59>> So you can also have two kind of
2:27:01autocorrelation. You should get enough
2:27:03sample for this. You cannot analyze on
2:27:06100 trades
2:27:07>> but you can also understand when your
2:27:10strategy reverse
2:27:12>> and when your stricks gets more. you can
2:27:15actually get a better indication of
2:27:17>> when they can take place or how long
2:27:19they'll last and when you're getting
2:27:20towards the peak
2:27:21>> potentially.
2:27:22>> Yeah.
2:27:23>> And that's what I noticed and that's
2:27:25what I applying these two model the VAM
2:27:28I would call it because it's a
2:27:30combination of this concept and Kelly
2:27:32>> for understand how much should they risk
2:27:33and for example if I my auto relation is
2:27:36really high I can go from 0.5% risk that
2:27:40I'm using
2:27:42>> to 3%.
2:27:43>> Mhm.
2:27:43>> Okay. because the math says so
2:27:47and that's what I use. Okay.
2:27:50>> Mhm. And um in the beginning of of the
2:27:53video I say to you that I had a surprise
2:27:56a really interesting model that you can
2:27:58also use u you that you are watching
2:28:00this right now and um let's see this
2:28:04final model and after this we're done
2:28:07okay because I understand that this new
2:28:09things and it's really complicated
2:28:11>> h but I'm trying to explaining as simple
2:28:14as possible
2:28:15>> I don't know if I'm going doing good
2:28:16>> no you did a great job amazing job yeah
2:28:18there's a lot of things that really open
2:28:21your eyes into how much you can dive
2:28:23into data and why data is so important.
2:28:25I know a lot of people talk about data
2:28:26and usually that just refers to you know
2:28:29collecting the data on your trades and
2:28:31journaling that this is a whole new
2:28:33world.
2:28:33>> Yeah. Um which to be fair if we see the
2:28:37industry and in one side you see
2:28:40obviously the sort of unprofessional
2:28:41side but we don't really talk about that
2:28:43but on this side of things we are seeing
2:28:45such a rise in yes more professional
2:28:47tools from like order flow or even
2:28:49options flow now but even mechanical
2:28:52trading automated trading statistical
2:28:54trading. So this is needed necessary you
2:28:58know this the only way that we can start
2:28:59to see a more of a shift is more
2:29:01awareness more education like you're
2:29:03presenting right here. So but it has
2:29:06been you've done a great job of of going
2:29:08through start to finish so far and it's
2:29:10really eye opening as well. Thank you so
2:29:12much because people maybe ask me some
2:29:14sometimes why you don't your you don't
2:29:16use orderflow and the reason is that I
2:29:19don't need to okay I use math I don't
2:29:23use footprint for example because I
2:29:26don't need to understand a context of an
2:29:30indicator I don't basically use any
2:29:32indicator beside aan session that is not
2:29:34an indicator it's just a range
2:29:36>> and uh for me the people who trust more
2:29:40indicator
2:29:41then the strategy or the risk model
2:29:44itself is not so good. You understand
2:29:47that?
2:29:48>> So we will see this final model and this
2:29:52is where and I think that this is the
2:29:53part part where uh that breaks people
2:29:56brain really because uh h it go deeper
2:30:00on why I do some things. So every trader
2:30:04is trying to predict price if the price
2:30:06will go up or down.
2:30:09>> Mhm. Okay, I don't need to predict
2:30:13price. I don't care about price. I care
2:30:16about the weather of the price. As I
2:30:19told you to market moves in regimes,
2:30:22okay? And uh this is a verified concept
2:30:26and most of edge found use this concept
2:30:30and there is this tool called gar.
2:30:36What does G what does Gash tells you
2:30:40exactly?
2:30:42The concept behind is the volat
2:30:45volatility
2:30:50cluster.
2:30:54So I know that if the one session were
2:31:00so violent, the next session can be the
2:31:03same. Okay, this is probability and GASH
2:31:07is the tool that tells me exactly what
2:31:09to expect about the weather of the next
2:31:12session. Not if the price go up or down,
2:31:15but how violent or calm it will be.
2:31:18That's how you use Gash. We won't see
2:31:20the formula of Gash because it's so
2:31:22complicated and compared to uh
2:31:25autocorrelation for example is simple
2:31:27compared to Gash. But you just need to
2:31:30know the g is the tool that tells me
2:31:32what to expect for the next session.
2:31:36>> So what I did is basically simple
2:31:40because I codified for gems.
2:31:46I did it. So you won't find this in any
2:31:49paper or something like that. And uh we
2:31:53can set it in range.
2:31:59The first we will call cal.
2:32:02Okay. The second one is
2:32:10middle.
2:32:19This is Ike
2:32:23>> and this
2:32:25is extreme.
2:32:26>> Mhm.
2:32:30>> Why I bucket this? because I need to
2:32:33know all my strategy perform in each
2:32:35regimes and the concept between uh
2:32:39behind regimes is the concept that is
2:32:41between also autocorrelations because we
2:32:44know that a strategy can the the
2:32:46sequence of a of our trades is different
2:32:50here and here this is basically
2:32:52autocorrelation.
2:32:53>> Yeah.
2:32:53>> Yeah. But here what really stunn me
2:32:57because ears is where 75% of my trade
2:33:00happens. Okay.
2:33:02>> Okay.
2:33:05And let's assume that we are talking
2:33:07with a strategy that is one to one
2:33:10riskreward because it's easier to
2:33:12understand for you that you are watching
2:33:14this right now. So we are using a
2:33:16onetoone strategy riskreward and we have
2:33:19a uh win rate of 65%.
2:33:22>> Mhm.
2:33:23>> Okay.
2:33:24Here I usually have a break even result.
2:33:28I'm not very profitable here and I
2:33:31usually have a break even result. Okay.
2:33:33>> And when you have a break even result,
2:33:34you cannot do much about this. Okay. So,
2:33:38we have break even. What left me
2:33:41speechless is that when I follow my
2:33:44strategy in a calm regimes, my win rate
2:33:48shifts. I gain 75%
2:33:54loss rate.
2:33:57>> Wow. And it's so interesting because I
2:33:59lose so much money here. Okay. And I
2:34:02perfectly know with gar when this will
2:34:06happen. Okay. So people will think that
2:34:10a strategy with a 75% loss rate is
2:34:14really bad. I think that this is a
2:34:16blessing. Why? Because if you are
2:34:20trading with a 75 loss rate and your
2:34:23strategy tells you, okay, in this
2:34:25condition you need to go long,
2:34:28you can just flip it. So when the
2:34:32strategy said go long
2:34:35and you know that if you follow your
2:34:38strategy, you have a 75% loss rate, you
2:34:41will just go short.
2:34:45>> That's what I do. And people can ask me
2:34:49why this happened and the reply is I
2:34:52don't know. I don't care why my strategy
2:34:55is so bad here. My work is not to
2:34:59understand the market is to be on the
2:35:01right side of it.
2:35:02>> Mhm.
2:35:03>> Okay. So I'm I don't care why price is
2:35:06doing this thing. I only care about
2:35:09building edges and I don't care if the
2:35:12market structure is long and I'm doing
2:35:14the opposite. I'm doing what data tells
2:35:17me. If I have 75 loss rate with one to
2:35:20one, I will have a 75% win rate going in
2:35:24the opposite side.
2:35:25>> Mhm.
2:35:25>> And that's what I do. Mostly of my
2:35:28trades doesn't follow actual or not
2:35:30mostly because here like the like 50 or
2:35:3420% of my trades up in years. But I
2:35:37later before I told you how to read
2:35:40market structure, how to use this
2:35:42concept and you will use it and when you
2:35:45find the signal or of long here you just
2:35:48go short. Okay.
2:35:50>> Mhm.
2:35:50>> And that's I think the most
2:35:54controversial part because what I do is
2:35:56not following the market is following
2:35:58the data.
2:35:59>> Okay. And uh asking why does this
2:36:04happen? I think that's not useful
2:36:08because once you know why this happen,
2:36:12how do you how do you deal with it? It
2:36:14just happen. Okay, you cannot predict
2:36:16it. So don't ask you why something work.
2:36:21Let's see if it work and do what the
2:36:23data says.
2:36:24>> And that's I think the latest model that
2:36:28I will put here. I have to tell you that
2:36:31there is so so much more when you run a
2:36:35statistical strategy. You have a another
2:36:37part that is called um optimization.
2:36:41>> Mhm.
2:36:41>> Because as you perfectly know the market
2:36:43shifts, you have to monitor the data.
2:36:46You have to adapt it. You have to judge
2:36:48it and and say in a discretionary way
2:36:52how to stop it or how to change it
2:36:54because data
2:36:56>> is a bigger part. But remember that
2:36:58there's a brain behind it and that's
2:37:01what I do basically. Okay, that's all of
2:37:04my that's that's not all of my arsenal.
2:37:07But this is one
2:37:10they are lots of I can say this and the
2:37:14other model that I show you are one of
2:37:16the best model that I ever found on my
2:37:20own career I think.
2:37:21>> And um yeah that's it. How much would
2:37:25time would you say is spent on the data
2:37:28and optimizing and sort of refining and
2:37:30understanding versus execution?
2:37:33>> So I would say response by my own
2:37:36experience I would say uh few years okay
2:37:40because I I took maybe six or seven
2:37:44months to switch from discretionary to
2:37:46mechanical. So objectifying all the rule
2:37:49when you have to go deeper and you want
2:37:52to be a statistical trader you have to
2:37:54search first for the risk model that you
2:37:57want to use that can be it's not only
2:38:00GACH okay Garch is a you see this do
2:38:03this the risk model can be
2:38:04autocorrelation and you have to find for
2:38:07a good one because I explain you this
2:38:10okay and this works but uh I really like
2:38:14to read so I wrote a lots of books
2:38:17basically of statistical analysis. They
2:38:19tried so many of this and maybe seven
2:38:23didn't work out well and I tried it and
2:38:26I lost so many times doing it. So you
2:38:28need to understand the what work and
2:38:30what doesn't work and you have to gain
2:38:33data for it. So I would say that is a
2:38:35really long process. you don't actually
2:38:37need to do it because you I became
2:38:40profitable just with a mechanical way,
2:38:43just with a mechanical strategy and um
2:38:46yes, that's it. I think that we live now
2:38:50in um a trading content while everyone
2:38:53is searching for the better strategy,
2:38:56the coolest indicator, the coolest way
2:38:59to analyze a chart. And uh I instead
2:39:03think
2:39:05uh that the whole secret of trading is
2:39:08that admit you have there is no secret.
2:39:12Okay. People always try to find the
2:39:14shortcut to uh profitability.
2:39:17>> Mhm.
2:39:17>> But the only real shortcut is stop
2:39:22searching for a shortcut.
2:39:23>> Literally. Yeah.
2:39:24>> Yeah. This trust me this is really uh
2:39:27true.
2:39:27>> Mhm. If I have to give an advice uh for
2:39:31a trader that is not profitable yet, I
2:39:35would say find something that proves you
2:39:38that it work by data because most people
2:39:42trust other people worth and they put
2:39:44their money on trust.
2:39:47>> But is it really a good idea? Even if
2:39:50I'm saying you if it I say to you
2:39:53tomorrow trade this because it works,
2:39:55you shouldn't trust me. you should test
2:39:57it and if it work across large enough
2:40:00sample that variance can lie to you, you
2:40:02can put your money in it. So I think uh
2:40:04that's the best advice. Don't search for
2:40:07trust, don't just listen to words and
2:40:10verify all that uh you find online in
2:40:15the trading space.
2:40:16>> Definitely man. Well, you know, as you
2:40:18said, I love the the closing statement
2:40:20there in terms of it will take time.
2:40:21There is no shortcut. That is the
2:40:22reality. A lot of people don't like to
2:40:24hear it, but I feel like I always lean
2:40:26on you can get into trading for the
2:40:29money. That's fine. That's natural.
2:40:32We're human.
2:40:34But you have to stay in trading for the
2:40:36markets, for the intellectual side, the
2:40:39puzzle, if you will, needs to p you need
2:40:41to have that passion for the puzzle
2:40:42pieces of the markets. And then also,
2:40:45>> your goal might be money, but your goal
2:40:47is also long-term, right? And as you
2:40:49mentioned at the very beginning, is to
2:40:50live off trading.
2:40:51>> Yeah. And to do that it takes immense
2:40:53work. It takes immense understanding. So
2:40:56whether you transition to be a
2:40:57statistical uh trader or mechanical
2:41:00trader, this is the foundation that
2:41:01you've laid out for everyone here. So I
2:41:03thank you for that. Well, there you have
2:41:04it guys. Here we are in London. We
2:41:06finished the studio. You might have seen
2:41:07a segment in Dubai. You might have seen
2:41:09a segment in another studio. Um but that
2:41:12is just the depth that we've gone into
2:41:13today. And I thank you uh Jeian Luka for
2:41:16bro breaking this down in such a
2:41:18step-by-step process with the statistics
2:41:20to go along with it. And you know I'm
2:41:22very interested for people to then
2:41:24follow up and see the feedback as well.
2:41:26So drop a comment with your biggest
2:41:27takeaway from this episode. We said it
2:41:29from the beginning. Very very different.
2:41:31But the levels that we're seeing in
2:41:33terms of the guests coming on to the
2:41:34podcast, we're talking world trading
2:41:36champions, verified traders. It's
2:41:38different. It's not the same as what you
2:41:40see on social media usually. And that's
2:41:41what we're trying to do here. and we're
2:41:43trying to bridge a gap and it's thanks
2:41:46to our guests that allow that to happen.
2:41:47So, I thank you again. The links for
2:41:49Gian Luca will be in the description
2:41:50below. So, make sure you check them out
2:41:52right now. Hit like, comment your
2:41:54biggest takeaway. Let us know what you
2:41:56want to hear. If there were any
2:41:57questions you had that I didn't ask,
2:41:59drop them in the comments below so we
2:42:00can look to maybe cover them in a future
2:42:02video as well. But other episodes are on
2:42:05screen right now. This has been Char
2:42:06Fanatics. Take a

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