Would you ever trade a high probability, high risk method?

Discussion in 'Trading' started by clambill, Oct 13, 2008.

  1. I mean let's say if you could be right 80% or more of the time but your risk/reward ratio would be like 4:1. In other words, you'd be risking $4 to make $1.

    Anybody have an idea how you would manage the trades?
  2. wave


  3. empee


    i dont get it. So lets say:

    80% or 4 out of 5 times you make $1 = $4

    20% or 1 out of 5 times you lose = $4

    this doesn't have positive expectancy.
  4. sjfan


    Why not? Just trade a 1/4 your account size and keep the rest in cash and thereby deleverage the strategy.
  5. wave


    Figure out how to keep it 1:1 or 1:3 or better.
  6. Eventually at that rate $4 =$1, you will end up negative.
    You have 8 winners ina row at $1 each and two losses at $4 each = $0. then you have commission and time....A osing proposition
  7. sjfan


    Ah. I assumed he'd be posting a strategy with positive expectancy - otherwise what's the point of event wondering about this strategy.
  8. MTE


    Sounds like a typical option-premium selling strategy in the form of verticals/iron condors.
  9. Its called credit spreads :)
    #10     Oct 13, 2008