Frequent small profits, rare large losses...

You still haven't answered my question:

"What proportion of your capital would you lose on single trade if you hit your stop?"

If you don't know the answer then you really do need to stop trading. You're just gambling.

If you do know the answer:

Is the answer less than 2%?

If not, then eithier:

- you are using too much leverage. Cut the size of your positions. There is no such thing as "minimum amount of leverage". The minimum amount of leverage is zero.
- your stop loss is set too wide. Narrow it. The downside of this is it will cut your win rate (might not be a downside!) and it will shorten your average holding period, increasing your trading costs. So at the same time you should increase your stop profit.

GAT

 

lol don't listen to his garbage on pm....the math DOES make sense on 10% win rate 20:1 risk reward ratio assuming a liquid enough instrument without tons of slippage.

 

The most important thing is to test and verify everything and let the math do the talking.

 

Lol.

If this is the only math that you are referring and believe:

(0.9)(-1) + (0.1)(20) > 0 positive expentacy (in your dream)

This explain why most ET here are losers with this community college level of Math.

The real profitable trading is much more complicated than this 101 Math.

 

Please enlighten us simple folk.

In my world, if my average winners are 20x my average losers and my win rate is 10%, I crush it.

 

Then please explain. I can handle the math.

 

Proportion of my capital? Well one loss wiped 50%.

After having doubled checked this strategy with additional backtesting seems like my P/L < 0 even with a 90% success rate. Reducing the stops increase my P/L > 1.5 but the success is rate is like 20% now. Human error alone is enough to make this strategy redundant i guess.

 

This had been explained already. If your win rate is 90%, and the average loser is 20 times larger than the average winner, then your expectancy is negative:

E = (0.9 * 1) + (-0.1 * 20) = -1.1

In other words, you'd be much better off with a coin toss to decide when to take a trade.

 

No genius galvinlee says the math doesn't work to reverse his win % and RR. He says my simple brain is dumb and 10% winners with 20x wins compared to losses doesn't work. I don't need fancy equations to trade.

 

It is good to have an edge, but successful trading is about being in agreement and trading in direction of the market trend instead of going against it and being in agreement with other professional traders.