Your opinion of this positive expectancy

Discussion in 'Trading' started by Kovacs, Dec 20, 2007.

  1. Kovacs


    Winning %: 52-54%

    Average winner is guaranteed to be 25% larger than average loser. 3-10 trades/day.

    What do you think?
  2. Sounds good, although I don't understand the term "guaranteed". For all we know, if you start trading it today, it's very possible that you'll have 100% losers and 0% winners.
  3. "Average winner is guaranteed to be 25% larger than average loser. 3-10 trades/day."

    Why trade, when you could sell this system and be rich.:D
  4. Kovacs


    It's guaranteed because the stop is always based on the target, the latter of which is 25% larger than the former.

    I have traded this for three weeks and had days with 80%+ losers, but always come out positive at the end of the week. The instrument offers room for scaling up.
  5. OK, but there is no guarantee whatsoever that you'll reach the target. So, again, it's very possible that you'll have 100 losers in a row, so your average winner will be $0. I guess what you really wanted to say is that from your back test results (or perhaps it was a forward test), the ave winner was 25% larger than the ave loser. That's fine. However, don't mistake these results for a "guarantee" of any kind. There is no such thing in trading and trading systems.

    The other thing that is troubling is the "three weeks" test period. You sound like it gives you confidence in your system. In reality, you can take almost any system and adjust it so that it gives you good results over a 3-week period. This is almost meaningless over such a short period of time. Try to run your system on the last 5 years of data. What do you get?
  6. Kovacs


    The target is the same size every time.

    So if I have 1000 losers in a row with each loser being $100, followed by two winners each worth $125, then average loser would be $100, while the average winner would be $125.

    What you're really saying is what if the winning percentage takes a temporary nosedive in the short-term. For that, I have no guarantee.
  7. Indeed, it may take a permanent nosedive in the long-term. You have no guarantee in that, either.
  8. ronblack


    Not good. Assuming you can maintain the success rate and average win is 1.25 times the average loss, your profit factor will be in the range 1.35 to 1.46.

    Something goes wrong and you end up in the red.

    If you don't have a profit factor of 2 or greater you are working for your broker.

    You need to increase your success rate to 61% for a profit factor of 2 and to guarantee positive performance in the medium term.