Trading basics - a quick poll

[Bo_D_]

Quote from Compulsive:

How could you or anyone else KNOW the win percentage on that trade? Even at 90%

backtesting. if the system has had a 90% winning rate in the last 10years it could (possibly) be assumed it has a high winning rate.

not alot of information given on the trades so couldnt say. im currently weighing up options on 2 long systems im trading. 1 is way better then the other, but the other 1 still makes money. would be great to hear more on this as im a still a newbie and am thinking about using diff. pos. sizing on the systems.

 

[dtrader98]

expectation:

A: .9*5-.1*1 = 4.4
B: .51*1-.49*1 = .02

System A, expect $4.4 per $1 risked.
System B, expect $.02 per $1 risked.

hmm... which to choose, which to choose.

Assume you only have $1 and one event to make the choice..
System A has 10% chance of losing it all.
System B has 49% chance of losing it all.

which to choose.

B obviously.

I don't know about you, but if I was risking 1%/trade on system B, I would certainly have no problem with changing the risk amount for system A.
Particularly over the long run (if it lasted that long). Also, there are assumptions here... I'll assume A was derived over many observations for my answer.

However, if I was to trade you a copy of action #1 in mint condition for a pair of your old shoes, I think there would be a 90%+ chance of you accepting. Don't you love hypothetical situations?