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More Winners or Larger Avg. Winner?
- Thread starter Corso482
- Start date
Quote from Mr Subliminal:
It will not have a higher return - the returns are identical.
You're treating the 2 trades as 4 separate series of two trades.
You're also resetting your account equity after every 2 trades. Would you really add or subtract money from your account after every two trades? If so, then yes, the expectancy would breakeven.
If you combine the 4 series of trades in any order as you would when trading using % of equity, then this is what you'd see:
Attachments
Quote from darkhorse:
This doesn't make much sense to me, as when you add to a position, the initial part of your position is still in play and so there is no progression from one trade to the next, simply a continuity of growth. From a risk management perspective it is still one trade as well, as the profit of the initial position is used to lay off the risk of the addition, thus keeping risk level the same or even decreasing it (adding in such a way that you are break even if you bail)- again, this implies continuity rather than a fresh play. Last but not least, generally the only reason you add to a favorable position is because you planned for it from the start, thus suggesting your initial goal was to target a unified move in stages, like a football game has quarters or a baseball game has innings.
From the way you put it, it sounds like pyramiding is a necessity in function of the amount of money involved. I mean, the larger your account the more you will need pyramiding to balance risk and reward. It's probably a special task for funds which have to play the big move and have the hard task of making money flow in and out of the markets effectively, without exposing themselves too much to risk.
I don't want to abuse your generosity, professor Dark, but could you give us a simple, practical example of pyramiding? I am just keen to knowing more about the modus operandi of the big guys.
OPC
It doesn't matter whether it's 2 trades or 200 trades - when analyzing X trades, then yes, I would reset the account equity after every X trades.Quote from acrary:
You're treating the 2 trades as 4 separate series of two trades.
You're also resetting your account equity after every 2 trades. Would you really add or subtract money from your account after every two trades? If so, then yes, the expectancy would breakeven.
This is not a 2-trade model but rather 1 scenario of an 8-trade model. There are 255 other possible combinations which, when weighted by a factor of 1/256, will total exactly $100,000. somedrag.gif is thus a misnomer.If you combine the 4 series of trades in any order as you would when trading using % of equity, then this is what you'd see:
Interesing debate here.
Backtesting over different periods usually has the equity re-set, so in that sense it does equate with having strategies that work some times and not others.
In practice strategies don't always work all the time either and periods of heavy draw down followed by periods of good profitability attest to this.
The question then becomes how to apply this knowledge?
Corso has also raised that question in a different thread about analysing the equity curve. Maybe the 2 threads are now very much in paralell with eachother?
Natalie
Backtesting over different periods usually has the equity re-set, so in that sense it does equate with having strategies that work some times and not others.
In practice strategies don't always work all the time either and periods of heavy draw down followed by periods of good profitability attest to this.
The question then becomes how to apply this knowledge?
Corso has also raised that question in a different thread about analysing the equity curve. Maybe the 2 threads are now very much in paralell with eachother?
Natalie