profitability....

P

paulus

hi,

as a new trader i have a system with a risk reward 1:2,
meaning mostly 0.75pt:1.5pt's or 0.5pt's:1pt;
with a win-rate around 35/40% (*) i am almost flat on a monthly basis (not taken into account commisions, slippage, etc..);
(every now and then i lose discipline but that's another point);
what could i possibly do to become profitable, apart from increasing my RR to 1:3 ? any suggestions ?
what win-rate should one have trading the short term time-
frames as i do ?

i like to thank all people for their contributions, in advance;

kind regards,

paulus
 
For purposes of discussion I'm assuming you're trading ES.
I can think of 4 ways to improve profitability.

1). Increase size - If your money management is very conservative like 1/2 of 1% risked per-trade you could increase it to say 1%. You'd think this would double profits and drawdown, but in reality it more than doubles profits without quite doubling drawdown. It works because of compounding (you remember compound interest?...same principle). The key is to make sure the method is consistent. If not, you'll spend lots of time just getting back to breakeven.

2). Improve expectancy - This is the amount you expect to make for each trade you execute. It's calculated as:

e = (aw * pw) - (al * pl) where
e = expectancy per-trade
aw = average win size in points
pw = percent of winners
al = average loss size in points
pl = percent of losers

In your post the expectancy is
e = (1.5 * .35) - (.75 * .65) or .0375

At this rate it'll take 27 trades before you can expect to have banked 1 point.

3). Increase frequency - Sometimes a method works equally well on 5 min. bars as it does on say 10 min. bars. If your method trades 2x per-day then if you can keep the same level of profitability and increase the trades to say 4x per-day, then you'll more than double your money. Same principle as 1).

4). Add a non-correlated method to your trading. The idea is to trade two or more methods where one could be losing money while the other is making money. By doing so, the drawdowns remain the same or are reduced from trading either of the methods by themselves. In a perfect fit the profits of one will match the losses in the other. When both methods are profitable, you make lots of money with 0 drawdowns. The key is to find a stable relationship between the two methods. Even if they are somewhat correlated, this can still improve your overall results because you'll get some degree of benefit no matter how high the correlation. This is as close to a "free lunch" in trading as it gets.

Good luck with whatever you try.
 
very nice post, thanks !

i'll certainly give it a lot of consideration;
concerning size (and frequency) i do not want to rush because i've been working very hard on 'flawless execution' i.e. taking my stops; my execution skills should be 100% (no more emotion
to take a stop); your solutions motivate me to work even harder
on discipline (mechanical part) before increasing position size !
and applying the other stategies you suggested;
thanks again !

paulus
i indd trade ES
 
Quote from paulus:

hi,

as a new trader i have a system with a risk reward 1:2,
meaning mostly 0.75pt:1.5pt's or 0.5pt's:1pt;
with a win-rate around 35/40% kind regards,

paulus
More...

Unless your system has 70 % + of winners all you will be doing is treading the water . My suggestion therefore is, stop trading till you have developed profitable system .
Walter
 
Quote from paulus:

hi,

as a new trader i have a system with a risk reward 1:2,
meaning mostly 0.75pt:1.5pt's or 0.5pt's:1pt;
with a win-rate around 35/40% (*) i am almost flat on a monthly basis (not taken into account commisions, slippage, etc..);
(every now and then i lose discipline but that's another point);
what could i possibly do to become profitable, apart from increasing my RR to 1:3 ? any suggestions ?
what win-rate should one have trading the short term time-
frames as i do ?

i like to thank all people for their contributions, in advance;

kind regards,

paulus
More...

You have to add commission and slippage. This is important.

Good Luck!

trend
 
You must log in or register to reply here.
Back
Top