Creating an AI strategy: 2. What you want to predict

Remember you’re building a fixed RR strategy. The AI Model will aim to provide a signal when at any time over the course of the next X candles the price will be likely to hit your TP and not your SL. Here’s a picture

Remember that the actual trained model won’t catch all the occasions like that, so expect some signals you’d ideally want to have to be missed. That’s alright, as long as your WIn% is sufficient for your RR, in the end.

1. You should define the horizon for your predictions (that is, X in “in the next X candles”). Short horizons might be easier to predict but they would imply using smaller values for TP/SL. Longer horizons might be more tolerating though.
2. Define your TP and SL. There is an infinite set of combinations of TP/SL which yield the same RR.
3. Yellow candles on a chart mark candles where you’d ideally have a signal for your Horizon/TP/SL. That gives you a clue for what to expect. Consider maximizing the chart in order to make it easier to see a lot of candles, when tweaking your signal parameters.
4. You should find a combination of TP/SL which happens “often enough” on a market of your choice, but not “too often” (otherwise odds for the model to discover patterns will be lower, because signals will be just everywhere).
5. Colored areas on the chart illustrate the magnitude of your TP/SL. Dark green area is “Open + TP”, semi-transparent green is “Open + 2x TP”. The same goes for red areas with SL.
6. You can also define whether you want your model to be conservative or aggressive, by selecting how TP and SL should be considered.
7. The default option is that a candle would be considered a legitimate signal when over the course of the next {HORIZON} candles the price hits your TP and never ever hits your SL within the next {HORIZON} candles.
8. You can be a little more aggressive and accept signals when over the course of the next {HORIZON} candles the price hits your TP and either never hits your SL, or hits it after the TP within the next {HORIZON} candles.
9. For example, in this picture below, the yellow candle A would be considered a signal in the “aggressive” mode, but will not be considered a signal in the “conservative” mode — for the reason of SL being hit (after the TP, but still) within the prediction horizon.