Waht PF shoul I aim

Discussion in 'Risk Management' started by amitman, Mar 18, 2008.

  1. amitman

    amitman

    a few comments
    first sorry for my bad english i write fest so i miss letters from time to time also i'm not american,
    second you all misunderstood me, my current R/R ratio is worse then 1:1 not better! as i clearly explaind I risk 13 loss for a 10 dollars reward (the numbers, of course are just an example) . this is why i Don't feel too comfortable with it.
    second this R/R includes commisions and slippage (without them it's about 1.1:1 or even 1:1) and the Instruments i'm testing it on is currently the SPY, ES and NQ ,currently mainly on SPY testing for about 3 months and about 1000 trades so far and the results are as i described.
    i do feel very comfortable with the system itself and i love trading it but i fear that this R/R ratio is not good enough and I'm doomed to fail in the long run so i wanted to hear the advice of some more experienced traders.
    Hope I'm clearer now and look forward to your comments.
     
    #11     Mar 19, 2008
  2. bespoke

    bespoke

    Oh, my mistake. I misread your statement.

    You should backtest the strategy for a few years. You'll have a much better idea then. I find that R:R is more for psychological comfort and doesn't play as much as a factor in how well the system performs (as long as its not totally skewed to one side). I'd be more concerned with factors such as Profit Factor and Max Drawdown.
     
    #12     Mar 19, 2008
  3. amitman

    amitman

    Thanks, according to my calculations the PF is about 2.2 now and the max drawown is pretty small (never had more then 2 losing trades in a row) what numbers should be my target in terms of PF and MAX DD?
     
    #13     Mar 19, 2008
  4. John, did you read the original post? You've got it backwards. His win to loss ratio is 1:1.3 so the formula should read:

    PF = 0.7/ ((1 - 0.7) x 1.3) = 1.79

    Still a pretty good PF. Too bad it is not likely to be achieved in real trading.
     
    #14     Mar 19, 2008
  5. amitman

    amitman

    thank for the "confidence" in me... I'll come back with reports... :)
     
    #15     Mar 20, 2008
  6. You are right! Thanks, I read it backwards. Still a good PF. I think it can be achieved in real trading but not under current market conditions:)

    John
     
    #16     Mar 20, 2008