Odds Automatically Against You

Fully agreed. If the success rate of a system is only 40% and the dollar amount of average win double the average loss then bingo.

Quote from ronblack:

Success rate means very little in this business. You can be right 95% of the time and still lose money. You can be right only 20% of the time and make a lot of money. The key is not just the success rate but the combination of success rate and avg. win to avg. loss ratio. These parameters together determine the profit factor as it is shown in this excellent paper by Michael Harris:

http://www.tradingpatterns.com/profitability.pdf

Ron
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Quote from antincedo:

just a curious question.. why is it that it seems as a trader with no knowledge of trading has less than a 50% chance of being right? when one can only go long or short


why does it seem that one needs an edge just to have a 50% success rate?
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A price does not have to move up or down. It can also move sideways. That is why collars and spreads, especially with options, can die at a net loss without the price moving substantially. Kinda like the house advantage in Roulette... sure, most of the time it will hit black or white, but there are special numbers that render the odds less than 50/50 by default.

The blind odd is 33% on any trade unless a stratgegy is employed.
 
If it hasn't already been said in this thread, the biggest reason why you will find it so hard to even break even is that your psychology/emotions will be sabotaging you at every opportunity. In other words they will get in the way of you cutting losers and letting winners run. The commissions, and slippage are icing on the cake.
 
Simple reality is that even if a financial instrument moves in your favor initially, it can retrace its steps quickly and move the other way decisively. There is always a question of where you are going to get out. There is also a problem of a financial instrument not moving at all, moving slowly, or moving in the "wrong" direction from the start.
 
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