It *is* true that retail traders can't expect 100% probability trades, fair enough. But you *can* trade with greater and lesser probabilities of [desired] outcomes. and you *can* work the expected trades for greater and lesser profit beforehand. "Expectancy" of our trades is where our entries (and "expected" exits!!) and those now-"expected" profits meet. Positive expectancy means we have a long-term workable system -- and that is what the replies above refer to, when describing a back-tested system: these entry/exit points have been vetted, and have a positive expectancy. Does one *know* a particular trade is a winner or not? No. But the trade *can*be* described with particular detail, in terms of loss, gain, and expectations over X-many trades. Not bad. "Cherry-picking" is a relative term -- a loosely-defined, not-so-well-vetted system may have some trades that *barely* clear this ill-defined system, and some that *clear* qualify. The more robust the system, the less cherry-picking is even *possible*.
Exactly so. Every time I enter an individual trade, I don't know whether it will be a winner or a loser, don't pretend to, and don't need to. But with (well) over 95% statistical confidence, I can tell the collective outcome of my next 300 trades to within 3% accuracy - and that I do need to be able to do, otherwise I wouldn't be exposing my funds to risk.
Great comment. Can you give me an example of Expectancy as it applis for long term profitability? Say for past trades or so. Thanks
Good comment Xela. Can you touch on this a bit more? I have collected data on about 300 trades? How can I gain statistical confidence in this as well for my next 300 trades? A book reference will be appreciated if no time to explain to me. Thank you so much.
Just by having a method with a pretty fixed/constant edge under whatever circumstance you trade it (and only trading it under those circumstances, of course). The closer your win-rate is to 50% (on either side of it), the smaller is the number of "samples" you need, to achieve "statistical significance". Ralph Vince (who sometimes posts here): The Mathematics of Money Management: Risk Analysis Techniques for Traders
yes, thats what i boiled down to,,, after losing for so long, i boiled it down to the MACD indicator,,, i integrated extra variables, so far as 2016 made excellent percentage return on a sizeable account, iam working on backtesting further variables and more so further instruments to broaden the scope of trading since of course i cant expect what works to work forever,, the most important thing when iam backtesting, i test for my worse case scenario,,, i diversify by making sure position size is always equal, and i take every trade, regardless of what i think, and i always calculate what wouldve happened if i got caught on the wrong side of the market on the worse day on the chart for the last 20 years, what ever that is, i double it and make sure that if i suffer it iam still in the game
do u mind elaborating on this please? i believe i understand it as that if u have a reason of why u entered that in itself is a cherry pick,,, when ur entry should be more because the system told u to enter rather than u having a reason for it