High risk low reward but
- Thread starter gobar
- Start date
I had an automated system that was about 90% win-rate with the risk 3 times as much as the reward. I dropped it because I didn't feel comfortable with the fact that I needed to win three times to make up for one loss.
Now I've settled on 50% win-rate with the reward being at least 2.5 greater then the risk.
Now I've settled on 50% win-rate with the reward being at least 2.5 greater then the risk.
It don't mean anything. Expectancy is equal to win rate x average win + loss rate x average loss.
If win rate = 0.9 and Expectancy is equal to to 0 (break-even) then
0.9 x average win +0.1 x average loss = 0, which means that
(average win /average loss) ratio must be greater than -0.11
which further means that if you have many small wins but once in a while a big loss you probably won't be making any money.
How high is âhighâ riskâ¦.
Multiple of each winning tradeâs profit
You whole account
Multiple of your account
=========================================================================================
Simplified example (because the math works⦠and I prefer simple)
Over 100 trades
If youâre winning a dollar â 90% of the time = 90 dollar profit
If you lose 5 dollars â 10% of the time = (50 dollar loss)
You net 40 dollars â if wins/ losses are somewhat distributed (and not factoring commissions/ fees)
Nowâ¦, ifâ¦, butâ¦, that 10% comes back to back (which is very possible) youâve lost 100 dollars, OR more, before making a dime
Hellofa drawdown imoâ¦, not to mention the mental toll it will impart on you
Again how high is âhighâ (a rhetorical question for you are the one who will live or die with it)
Also notice Iâm not asking you how much you're winning â because it doesnât matterâ¦
The wins will never bankrupt youâ¦, the loss(es) will
=============================================================================================
May be worthwhile to discuss win expectancy â but I canât really say for sure⦠I donât think, or trade, that way
=============================================================================================
fwiw â My opinion is; Trading this way is a disaster waiting to happen
But you know how opinions go - just like "A" holes... Everyone has one - and they all stink
RN
Multiple of each winning tradeâs profit
You whole account
Multiple of your account
=========================================================================================
Simplified example (because the math works⦠and I prefer simple)
Over 100 trades
If youâre winning a dollar â 90% of the time = 90 dollar profit
If you lose 5 dollars â 10% of the time = (50 dollar loss)
You net 40 dollars â if wins/ losses are somewhat distributed (and not factoring commissions/ fees)
Nowâ¦, ifâ¦, butâ¦, that 10% comes back to back (which is very possible) youâve lost 100 dollars, OR more, before making a dime
Hellofa drawdown imoâ¦, not to mention the mental toll it will impart on you
Again how high is âhighâ (a rhetorical question for you are the one who will live or die with it)
Also notice Iâm not asking you how much you're winning â because it doesnât matterâ¦
The wins will never bankrupt youâ¦, the loss(es) will
=============================================================================================
May be worthwhile to discuss win expectancy â but I canât really say for sure⦠I donât think, or trade, that way
=============================================================================================
fwiw â My opinion is; Trading this way is a disaster waiting to happen
But you know how opinions go - just like "A" holes... Everyone has one - and they all stink
RN
Better to get high risk high reward with some diversification or hedging of the risk. I don't believe low reward is worth putting your capital on the line in a high risk fashion.
The 90% probably is short term market conditions, which can change overnight and suddenly your "at risk" capitals gone. Need to make good money when the going is good to make up for the inevitable drawdowns.