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elitetradesman

Registered: May 2010
Posts: 93

10-15-12 07:29 PM

Consider two hypothetical setups. One setup has a winning rate of 55% with a potential profit of $433 and a potential loss of $407. The other setup has a winning rate of 10%, a potential profit of $1000 and a potential loss of $50. Both have the same expectancy at $55.

Which setup do you find more attractive and why?

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2rosy

Registered: May 2012
Posts: 336

10-15-12 08:15 PM

Quote from elitetradesman:

Consider two hypothetical setups. One setup has a winning rate of 55% with a potential profit of $433 and a potential loss of $407. The other setup has a winning rate of 10%, a potential profit of $1000 and a potential loss of $50. Both have the same expectancy at $55.

Which setup do you find more attractive and why?

use options to construct a spread so you have better odds

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the1

Registered: Feb 2009
Posts: 2326

10-15-12 08:51 PM

Both would yield identical profits over time so picking one over the shows no advantage.

Quote from elitetradesman:

Consider two hypothetical setups. One setup has a winning rate of 55% with a potential profit of $433 and a potential loss of $407. The other setup has a winning rate of 10%, a potential profit of $1000 and a potential loss of $50. Both have the same expectancy at $55.

Which setup do you find more attractive and why?

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Wide Tailz

Registered: Sep 2011
Posts: 1519

10-15-12 09:09 PM

Quote from the1:

Both would yield identical profits over time so picking one over the shows no advantage.

I'm going to take the other side.

The first setup with the higher win rate will have much milder equity swingz for the same expectancy, therefore the position size can be higher for the same max drawdown.

This is just my hunch, of course, as no statistical distribution actually exists that would allow me to prove this mathematically.

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henri_toubon

Registered: Oct 2012
Posts: 1

10-16-12 01:56 AM

in theory it's an easy choice: profit factor of 1.30 vs 2.22.

the second setup may have the same returns expectancy but standard deviation is lower, average drawdown over time will be lower, etc.

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jb514

Registered: Apr 2011
Posts: 134

10-16-12 02:26 AM

Quote from Wide Tailz:

I'm going to take the other side.

The first setup with the higher win rate will have much milder equity swingz for the same expectancy, therefore the position size can be higher for the same max drawdown.

This is just my hunch, of course, as no statistical distribution actually exists that would allow me to prove this mathematically.

I agree based on my poker experience. I think the first will have less swings meaning you can bet much bigger.

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