Profit Factor

What matters is
1. An EDGE
2. RUIN Avoidance

Positive expectancy setups:
Without an edge and over the long run,
2 Risks 1Reward should reap 2/3 win.
1Risk 1Reward should reap 1/2 win.
1Risk 2Rewards should reap 1/3 win.

You will oscillate around 0 minus fees, commissions, slippage.

Exploiting a bias is either
1. Getting a better payout for the odds,
2. Getting better odds for the payout.

Not Over betting:
Even a profitable system in theory,
Can in practice lead a bettor to ruin.
If he does over bet he will be taken out by natural drawdown.
Take this bet: Risk 100$ Earn 110$. You should earn over the long run.
But if you can't handle the 12K drawdown then you'll end up broke.
To bet on a fair game, you need a fair bet size and a fair bankroll.

You can't turn an expensive situation into a profitable one.
No money management ever will turn a sucker game into a favorable one.

Next time, before to get into a trade, ask yourself:
Does the price is fair ? (Implied vs True odds)
Does my exposure is fair ? (Optimal betting size)
Does my account size is fair ? (Maximum Drawdown)

If the three boxes are checked.
You've done a fair trade.
Won or Lost.

Congrats !

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i'm not sure but i think straightness of equity curve is more important, because if you have a straight curve, you also have less drawdown, higher profit factor, etc...it encompasses all good metrics
 
ionone said:
i'm not sure but i think straightness of equity curve is more important, because if you have a straight curve, you also have less drawdown, higher profit factor, etc...it encompasses all good metrics
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Not sure what you're arguing here? Of course that all sounds great in theory, but when you have skin in the game, your curve will fluctuate in ways you preferred it not regardless.

So IMO, the ultimate determinant of a certain equity curve is the position sizing of the trades, frequency, and time-frame. Risk management and how you manage winners/losers, order entry, order exit, etc etc all depends.
 
Vixyup said:
1st post here been an advid reader... for all the guru traders what do you see more important profit factor or win loss percentage? I have noticed with tighter stops you can significantly increase profit factor which intern decreases win %. I know this is a simple inverse relationship, yet it seems critical... i know it depends on strategy etc but would luv someone to elaborate.
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I guess it depends on the strategy is being used
 
Sekiyo said:
...
Does the price is fair ? (Implied vs True odds)
...
View attachment 220908
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A couple of my humble observations about this post:

- true odds can never be known in financial markets due to not knowing all the factors which effect price levels.
- the metric one should maximize in a trading system is payoff = (profit factor x winning percent).
 
panzerman said:
A couple of my humble observations about this post:

- true odds can never be known in financial markets due to not knowing all the factors which effect price levels.
- the metric one should maximize in a trading system is payoff = (profit factor x winning percent).
More...

Agree.
True odds is not an exact quantity,
And it’s not objective knowledge otherwise the market would efficiently adjust. But in the absolute you still need to figure out a statistical bias that makes your true odds > implied odds.

Profit factor x P(w) is indeed what’s need to be maximized.
 
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