A Lesson in Expectancy.
3 Reasons the Expectancy Will Improve Your Trading
Right now, you may be pondering, “Just what exactly is Expectancy and why should I care about it? How will it help me?” Great questions both. Before we dive into detail on Expectancy, let’s look at the underlying theory behind it.
Twenty-five years ago, Ed Downs published The Personality of Markets Theory (which you can read here) which stated that “charts have personalities” and that “technical methods that have worked on a given chart are likely to continue to work in the future on the same chart.”
Ed’s theory was put to the test when of our most innovative customers; Mark Holstius diligently worked to prove this theory.
It works!
The idea was that by using prior signals generated by a given strategy, we could create a probability of success of the next signal. For example, if 2 out of the last 3 signals were profitable, the probability of the next signal being a winner was increased.
Throughout Mark’s tests he found that this technique produced considerably more WINNERS than the any Strategy alone.
“The Accuracy and Profitability of the Next Trade can be predicted by the trades that occurred ahead of it.” – M. Holstius
Understanding the process and now having data to support the theory, we developed a way to automate this process. The discovery of Expectancy came late in the OT 2017 development cycle but was such an important improvement that we decided to add it as a core feature in OT 2017 and make it available for all.
Now that you know the general theory behind Expectancy, we can discuss how it will help improve all of your trading results.
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Only take trades from the hottest strategy / symbol pair
Through my own use, one of the most useful aspects of the new Expectancy Feature has been the ability to show only trades from the hottest strategy/symbol pairs. This allows signals to be displayed on stock/strategy combinations that are currently favorable. The reason this is so powerful is that the personality of the stocks WILL CHANGE and what was working yesterday, last week or last month might not be the case today. Knowing the correct combination to use will be imperative to your success.
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Get the trades that have the highest potential for big profits
Depending on strategies that you’re currently using, you are likely finding yourself caught in the middle of not enough signals or too many signals. It’s hard to choose which one to trade. The expectancy feature helps resolve both issues by allowing you to add the block to any strategy.
Expectancy allows each strategy to show only signals that are currently favorable for each stock. This allows you to have more strategies working on multiple market personalities. Expectancy shows you fewer and more favorable signals that make it to the vote line making your life easier by knowing exactly what to trade.
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Improves the results of most strategies (especially RTM)
The primary reason why Expectancy will help improve your trading is the fact that it improves the results of almost any strategy. As with most people, almost every strategy is looking for different but prime setups. Finding trades that way makes perfect sense but traders are left out of the market until that one specific setup shows itself.
This is where Expectancy can step in to help fill the rest of the void. You can apply Expectancy to a wide range of strategies looking for multitudes of different types of setups without being overwhelmed with too many signals. Expectancy only allows signals that have passed the filter of proof of prior success on any given symbol.
The New Expectancy Feature is a free addition to OmniTrader 2017, if you haven’t upgraded yet you can do so here or you can get the OT2017 Special Package here.