I like your rat studies, very eye opening. The challenge is in finding out how to trade this.
First issue is managing the stop loss. This is always my biggest problem in trading. Price could break the low (red rat) and then pullback 15 ticks. You have previously said that you'd exit at -10 ticks. So now what does the rat do? Does he sit out for this candle? Does he try it again at the previous low?
I found it really interesting that there was a big difference between exiting at the H/L and the close. Exiting on the close doesn't look very profitable. The problem is it's not easy to exit on the H or L. So one needs a way to exit. A profit target is the easiest way and could be determined by statistics. But then you'd miss the black swan. So I guess one would have to accept a profit somewhere in between exiting on the low and exiting on the close. How can we do this?
You're right you answered it in post 414, but the question still remains, what tells you that you should get out and take your profit? Even if it's a black swan event, at some point the trade will end and it's time to take profits? Since you only trade the long side is it a red candle that has it's low broken or something else? I mean if you did have a 10 pip stop and a 10 pip PT then you certainly would be limiting yourself if you in fact did get a serious runner. This is the only part that is a bit vague to me. I understand everything else, cuz it's simple, but if you could explain your method for exit I would appreciate that.
Draw a line on a high/low on a higher timeframe (e.g. H4) and trade away from the line in the right direction everytime it passes on the lower timeframe (e.g. H1) from the time a new H4 has started. The higher the range, the better it is (GBPUSD, EURJPY).