Evolize Guide

As you might notice after reviewing how Evolize works, there are a few things that you need to decide yourself. These are:

  1. What is a valid prediction
  2. When to open an order
  3. When to close an order

This article should help you answer these questions, so let’s review these steps one by one and then we’ll see how they combine together.

What is valid prediction

All of the predictions have 2 distributions. One is for Highest today’s point and one is for Lowest. All of the distributions are sampled into bins to count an actual probability of reaching certain point. The bin, that has most predictions is called Mode. We have two of them, one for Highest point and one for lowest.

Modes have highest probability to be reached so we need to take them seriously and answer these questions:

  1. Is it possible, that today’s price will reach high mode, low mode or both?
  2. How tall are the Modes?
  3. What is the amount of variation in a histogram?

Is it possible?

Let’s say you see that both high and low modes are 600 pips below current price. Is it possible to reach them? I don’t think so. At least on the normal day. But they are both below current price so you can still sell, just don’t place your Take profit at the Mode.

Now let’s say you see that one mode is above current price and one is below. It tells that it’s very risky to trade on either direction because it might fluctuate in between modes.

Another example – one mode is 40 pips above current price, the other one is 120 pips above. What should you do? I would probably Buy and place Take profit on current price +30 pips. Why? Because one of the modes seems quite real, the other one is barely possible. So I take conservative approach and place Take profit a bit below the mode which is closer to current price.

Exercise 1

Let’s practice. Here you will see three predictions. Try to answer these questions for each prediction:
What direction does it indicate? Buy/Sell
Is it possible that the price will reach both modes or just one? Both/Yellow/Blue
Would you open an order?

Take your time and don’t look at the answers until you decide.

 

How tall are the modes?

To say it simply – the more our distribution looks like Normal distribution the better. The less it looks like normal – the bigger probability that it states false.

For example, some times algorithm produces very sharp distributions. Looks like the algorithm is so certain that it’s almost 100% sure, that the price will reach for example 1.04. When algorithm is too sure I mostly act very carefully and either skip that currency or choose Take profits/Stop losses wisely.

Exercise 2

Let’s look at the distributions below and say if they look Informative and trustworthy or Not:

What is the amount of variation?

As stated earlier – the more histogram looks like the normal distribution, the better. And sometimes we see more flat distributions than they needed to be. It mostly mean that the algorithm is very uncertain on the outcome. If we see a flat distribution only high, but the low prediction is good we can still take into account low distribution without looking at High.

Exercise 3

Let’s look at the distributions below and say if:

  1. High is informative but Low is not trustworthy
  2. High is not trustworthy but Low is informative
  3. They both look good
  4. They both look bad

 

 

That’s it for ‘Is it valid’ part. Next time when you see a prediction try answering these three basic questions:

  1. Is it possible, that today’s price will reach high mode, low mode or both?
  2. How tall are the Modes?
  3. What is the amount of variation in a histogram?

When to open an order?

The short answer would be – when you are sure you’ll profit from it.

And here is how to be sure:

  1. Log in on data renewal time
  2. Calculate possible gains
  3. Calculate certainty
  4. Create portfolio

Log in on data renewal time

London daily predictions comes at around 5AM UTC.
New York daily predictions comes at around 5AM UTC-5.
London weekly predictions comes each Sunday at around 5AM UTC.
New York weekly predictions comes each Sunday at around 5AM UTC-5

Depending on the timezone you choose – log in on that time to see new predictions for that day.

Calculate possible gains

Your job is to decide which predictions are most probable as we done it in the previous section. Then take these predictions and decide how many pips are you betting on today. For example if current price is 1.025 and you are selling – you need to decide what is your closing point or Take profit.

First bin above or below current price is always most probable. So I always start by looking at them. If the first one is in Normal days volatility ranges, then it might be the one you need.

Exercise 4

 

Now to calculate your possible gains you can simply subtract Current price from you Take profit Price.

Calculate certainty

Your certainty is actually already defined on the Evolize graph. Here is how to calculate it:
Let’s say your probability High is 62.5, probability Low is 33.7 and probability to Stay in range is 3.8 and you are looking to Buy. The Certainty is calculated:
(probability High) – (probability Low) – (probability to Stay in range) = Certainty
In this case: 62.5 – 33.7 – 3.8 = 25

Let’s take another example:
Let’s say your probability High is 45.7, probability Low is 52.2 and probability to Stay in range is 2.1, and you are Looking to sell.
Since you are looking to sell – simply switch High and Low probabilities in the formula like that:
(probability Low) – (probability High) – (probability to Stay in range) = Certainty
It will be: 52.2 – 45.7 – 2.1 = 4.4

Quite easy, right?

Exercise 5

Now you are ready to create portfolio

To start of you can ask why do you need one. The answer is simple. Each order is associated with risk. If there wouldn’t be any – everyone would do that. So to minimize the risk you definitely want to create portfolio.

Let’s say you see 4 currencies on Evolize:

Currency High valid Low Valid Pips at stake Buy/Sell T/P Certainty
EURUSD Yes Yes 40 Sell 1.050 82.6
GBPUSD No Yes 40 Sell 1.224 13.0
USDCHF Yes Yes 40 Buy 1.014 27.6
USDJPY No Yes 40 Sell 113.6 18

You can have all 4 currencies in your portfolio, but depending on risk and validness you can decide to not open orders for some of them.

For example you can definitely skip GBPUSD, because high histogram seems invalid. This leaves you with 3 orders today.

Now if you are looking to optimize your portfolio according to Certainty you can change order Units according to certainty – the bigger the certainty, the more units you buy/sell.

If you are not risk tolerant you can change your Take profit according to Certainty. For example your current take profit per GBPUSD is 1.224 but the certainty is only 13.0 You are looking to sell so to reduce some risk let’s increase your take profit by 10 pips. You will still get 30 pips if it turns out ok, but this way there’s a bigger probability to reach this number.

Here are the results of this table. Take a look of how certainty correlates with the result:

2017 03 02 EURUSD UK result

2017 03 02 GBPUSD prediction UK result

2017 03 02 USDCHF prediction UK result

2017 03 02 USDJPY prediction UK result

Both GBPUSD and USDJPY had a lack of validness and certainty of both was below 20. And they turned out badly. Both EURUSD and USDCHF were valid and their certainty was high – they turn out very great.

Click here to get a spreadsheet that will help you to make trading decisions according to Evolize

When to close an order

It all depends on your risk tolerance and volatility. In order to miss as rarely as possible and not trap yourself in a mix of cognitive biases you must calculate and decide your closing price before creating your order.

For example:
You are looking to Sell EURUSD and take profit at 1.050. You will get 40 pips if it will reach you take profit but how much are you willing to lose? The simplest way is to have a coefficient. Is it 1:2 to your gains? 1:3?

Let’s get back to the table drawn before and add some columns:

 

Currency High valid Low Valid Pips at stake Buy/Sell T/P S/L 1:1 S/L 1:2 S/L 1:3 Certainty
EURUSD Yes Yes 40 Sell 1.050 1.058 1.062 1.066 82.6
GBPUSD No Yes 40 Sell 1.224 1.232 1.236 1.240 13.0
USDCHF Yes Yes 40 Buy 1.014 1.006 1.002 0.998 27.6
USDJPY No Yes 40 Sell 113.6 114.6 115.0 115.4 18

Now, you can choose you stop loss according to certainty, validness and it’s already defined by pips at stake. Isn’t that cool?

Now that everything is in place i highly recommend you to try out your strategies before executing them.

Here’s a checklist for you:

  1. Determine validness for each currency pair
    1. Is it possible, that today’s price will reach high mode, low mode or both?
    2. How tall are the Modes?
    3. What is the amount of variation in a histogram?
  2. Calculate different gains and certainty
    1. Did you logged in on data renewal time?
    2. What are possible gains?
    3. How certain are predictions?
    4. Do you have diversified portfolio?
  3. Decide Take profits
    1. What prices you are looking to reach?
  4. Decide Stop losses
    1. How many pips are you willing to lose?
  5. Decide if you are adjusting units according to certainty
    1. Have took certainty into your Take profits and Stop losses?
    2. Do you need another safety check for example optimizing Units?

Get an answer to each of these questions and you are good to go!