General Topics
Markets
Technical Topics
Brokerage Firms
Community Lounge
Site Support

# Does anyone track Profit per Risk?

Discussion in 'Strategy Development' started by aeliodon, Jan 4, 2007.

1. ### aeliodon

Usually most traders track gains and losses. Lets say you use a 10 point stop on the YM and on one trade you lose -10 and the next trade you make +20. So your PF is 2.0.
But you actually had a max risk exposure of -20 (if both trades got stopped out) and you ended up +10. So basically you risked -20 and made +10. And looking at it this way doesn't make you look as profitable as a PF of 2.0 makes you look - you're actually making less than your maximum risk exposure.

2. ### aeliodon

Looking at it this way I bet even the most profitable traders simply end up making what they risk. If they risk 10%, they're likely to make 10%. Or better yet use numbers, if you risk 1500 points on the YM a year, you end up making 1500. No reward without risk.

3. ### infolode

I suppose it all depends on your point of reference.

Speaking of points, yours is a good one. It's helpful to examine a system or strategy from various perspectives or angles, if you will.
Set it down in front of you and walk around examining from a birds eye view, then look back, then forward. Observe how it reacts in various situations.

Picture it as multidimensional, then faceted with interacting parts, then as a single unit.

My point being when I learned to view things with a new eye, it opened doors to greater possibilities. The focus of which is applicable to all things, financial or not.

4. ### lescor

Your point is incomplete without including win rate in the calculation.

The formula for expectancy is:
(avg win * avg win rate) - (avg loss * (1-win rate))

Risk 20, make 10, but with an average win rate of 70%:

(10 * .70) - (20 * (1-.70)) = 1

The expectancy of your system is 1, meaning for every trade you enter, you expect to make an average of 1 point. All you need to do then is size appropriately based on your capital, risk tolerance and expected draw down.

ET IS FREE BECAUSE OF THE FINANCIAL SUPPORT FROM THESE COMPANIES: