Is a Reward to Risk Ratio Inherently Better Than Another? How are price formed in the Stock and Forex markets? In the last article in the series, we discussed robust trading ideas, comparing moving averages with a channel breakout strategy, showing how forex market profile strategies for teaching latter is of much greater value and how using a moving average system may show great results in back testing but can be fatally flawed in actual trading. The reason that channel breakout systems have stood the test of time is likely because markets trend in the long term and a new multi-month high is always going to have much more psychological significance than the crossing of two arbitrary moving averages.
The findings strongly support the argument that any system based on predictable market behaviour, is likely to be much more robust than one based on arbitrary mathematical algorithms. This has been exploited in the futures markets with strategies such as the opening range breakout. The New Market Wizard’ by Jack Schwager. The most liquid period is the opening. Liquidity starts falling off pretty quickly after the opening. The second most liquid time of day is the close.