The Normal Distribution Formula
In probability theory a normal distribution is a kind of probability distribution with a set value of random variables.
The normal distribution formula is:
Normal distributions are valuable in statistical analysis and is used a lot in trading to set values on random variables of future distributions that are not known.
Normal distribution states that under market conditions over many average samples of data of random variables with set boundaries of movement the distribution of price data is thought to converge back into a normal distribution of the historical mean as the quantity of the sample size grows.
A normal distribution of prices is a very common type of expected future distribution value that is expected in technical analysis for traders looking for reversion to the mean trades in overbought and oversold markets. A standard normal distribution has two main parameters for measurement of price action: the mean and the standard deviation from a historical average.
Inside a normal distribution of prices this is the probabilities of ranges of price action occurring inside and outside standard deviation parameters from an average.
- 68% of the observations are within +/- one standard deviation of the mean
- 95% are within +/- two standard deviations
- 99.7% are within +- three standard deviations
In trading, normal distribution theory is used to create the range parameters of Bollinger Bands and Keltner Channels. These technical indicators are used to trade reversion to the mean strategies in the markets as they set the odds that a market extended far from a key average of prices will return to the mean.
I am an aspiring binary options trader but what has eluded me is a trading system that prevents me over trading and yet provides accurate signals. So having landed on this system i have decided to share it. It requires patience when trading on 5 min t-f but signals are some what regular on 1min t-f which requires filtering. So enjoy but follow the instructions in the folder.
The 3EMAS swing trading system is a very simple trading strategy that is based on 3 exponential moving averages(ema). These are 10ema, 25ema and the 50ema. A trade is initiated on the FAILURE of the retracement that happens after the 10ema crosses the 50ema. Now, you may wonder, why not initiate a trade when the 10ema crosses the 25ema on the very first instance? Well, the simple answer I can think of is this: the 50ema line acts as a support if price is above it and acts a resistence when price is below it, therefore, to make sure that price does not bounce off from this 5oema line, the 10ema must cross the 50ema before a trade can be taken. Timeframe: 1hr and above Indicators: 10ema, 25ema and 50ema Currency Pairs: Any Trade Entry Rules: Place a buy stop order 2-5 pips above the the high of the candlestick which has a lower high than the previous candlestick after the 10ema crosses the 50ema to the upside. Place a sell stop order 2-5 pips belwo the low of the candlestick which has a higher low than the previous candlestick after the 10ema crosses the 50eam to the downside. If the buy stop/sell stop order is not executed then continue to move the buy stop /sell stop order above/below each new lower high/higher low that forms until the retracement fails and the high/low of the candlestick is broken and trade is executed. Take Profit You can use previous swing low levels as your profit target for a sell trade or previous swing high level for a buy trade. Or another option is not to have a profit target but use a trailing stop to place behind each lower swing high(for a sell trade) as your trade moves in favour so that your can ride out that trend for as long as you can extracting maximum pips out of the price swing until you get sopped out. Do the exact opposite for a buy trade. Stop Loss Placement For a buy order, place your stop loss 2-5 pips below the low of the candlestick that has its high broken which then activated your buy stop order. For a sell order, place your stop loss 2-5 pips above the high of the candlestick that has it low broken which then activated your sell stop order. Trade Management One of the best way of trade management is to trail stop behind lower swing highs (for a sell trade) or trail stop below higher swing lows, This enables you to lock in profits as trade moves in favor until your profit target is hit or if you don’t have a profit target, you can ride our the trend as far as it can go until you get stopped out. See the attached chart for more clarity regarding this. Advantages of the 3EMAS Swing Trading System A very simple forex trading system, easy to understand and use. In strong trending markets, there is potential to make large profits very quickly. Disadvantages of the 3EMAS Swing Trading System Ema’s are lagging indicators therefore any trade taken based on these indicators means that you are getting into a trade after price has moved, sometimes to a great deal already so you may not be entering a trade at right time If price moves a great deal, when you enter a trade, it may be due for a reversal and this would also get you stopped out. This trading systemwill perform poorly in ranging markets.
Hi fellow swing traders, here is a swing trading system which you can use to trade the GBPUSD currency pair. This swing trading strategy has the potential to average more than 100 pips a month. You just have to manage your risks and it can be a real killer forex swing trading system for you. Ok, enough of trash talk, lets get started with a bit more detail into the GBPUSD forex swing trading strategy. OVERVIEW OF THE 4HR GBPUSD FOREX TRADING STRATEGY (1)With this forex swing trading system, you need to use the 4hr chart as well as the daily chart to make a trading decision. Your trade entries are made in the 4hrs but you need to check the daily timeframe for what the main trend is before you enter a trade on the 4hr timeframe. (2) You also need to have these forex indicators,: slow stochastic with the settings(13,5,5) applied to both charts, EMA 4, EMA14, and EMA 50 on the 4hr chart. TRADING RULES (1) On the 4hr chart, open a trade at market order or with a pending stop order on the new opening candlestick when 4ema first crosses 50Ema followed by 14Ema (2)Your stop loss should be 50 pips. (3)Exit the trade when 4EMA reverses and crossed 14EMA on the next open candle. (5)Last but not the least, you need a good filter to filter out potential bad trade setups with this swing trading system. Here’s what you need:the stochastic indicator on the daily chart: For Valid Long Entry: Slow %K above Slow %D on the Daily Chart For Valid Short Entry: Slow %D above Slow %K on the Daily Chart Note: the %K&%D on the stochastics are the two line on the stochastic indicator chat that cross each other based on where price is going. The reason why you need to use the stochastic on the daily chart is pretty simple:follow the trend. The daily chart has more importance than the 4hr chart. (6) Take profit: there is not take profit option here(dummy!) because you need to refer to rule (3)! Now if you are still confused, these two charts below will make things a bit more easier for you to understand. Click on the charts if you need to see it more clearly. Now as trade filter, swith to daily chart to see if the two stochastics lines have crossed to the downside to confirm the overall direction of the trend(in this case, its a downtrend): ADVANTAGES OF THE 4HR GBPUSD FOREX TRADING STRATEGY allows you to actually get into a trade just after the moving average crossovers happens, which means you are potentially entering a trade just after the trend has started…which is better than entering a trade at the halfway point of a trendy market move. which means if its going to be a nice trending market, you stand to make a lot of profitable pips and the fact that you are only supposed to close the trade when 4ema crosses the 14 and if that’s in a nice trending market on a 4hr chart, that could mean hundreds of pips of profit you can make. the use of daily timeframe withe the stochastic line crossover allows you to enter trade based only in the current prevailing trend direction thus increasing your odds of success. DISADVANTAGES OF THE 4HR GBPUSD FOREX TRADING STRATEGY The biggest problem I see with this trading system is the entry because moving averages are lagging indicators therefore the ideal entry point would have been anywhere from 2-7 candles back. this also means that at the entry where you got into a trade, price may be due for a temporary pullback and if your stop loss is not wide enough, you will get stopped out. This forex strategy is definitely not good for ranging market, expect your stop losses to get hit frequently. CAN YOU USE THIS FOREX TRADING STRATEGY WITH OTHER CURRENCY PAIRS? The short answer is yes. Better for you to stay with currency pairs that have good trending characteristics.