Quote from riskfreetrading:
Trading mistakes: you do not know what you do not know, and what you do not know may hurt you.
Example: The nature of Probs, and Its Repercussions on Gains, Losses, What To Trade, and How Often you should take gains!
1.a) The probs that the gain/loss is greater than a value X at T bars in the future are ONLY half the probs that the gain/loss will be X sometime durind the next T bars.
1.b) A consequence of 1.a) is: for the typical average trader, he will be stopped twice as much as he gets a gain of value equal to the loss. He win rate is then on average equal to 33% if his wins are equal or greater than his loss.
His only hope to win is to bank MORE than twice as much as his losses. You now have a mathematical proof of why your win to loss ratio needs to be greater than 2, assuming an average timing. If your timing is worse, you should understand that your only hope is a gain/loss ratio far far geater (and you should not trade indices).
Ponder this more than once my friend!
1.c) Paradoxically, 1-a) is even the reason why we trade, as we know that time cuts the probs in half, and therefore we should take our position off as soon as potential gains cannot outweigh the loss in probs during to passage of time. You should remember that time cuts your probs in half.
1.d) If you trade short term you should trade indices , because the probs fade faster than the gains progress.
1.e) And if you hold for longer, you should own individual stocks because the moves outweigh the probs.
I want you to deeply reflect on the probs point started here. It is a central point to trading (what to trade, how to trades, how long to keep a position, and what to search for to achieve success).
The above is an example of gems RFT shares or intend to discuss with his readers particularly his blog readers.
Cheers (do not forget to take the assignement question below).
It is all in your head, or in the head of another guy you should seek help from.
RFT
PS: Timing Question:
For an intended period T, what is the most likely time that you should take your profits, or the average time that your stops are taken (the answer is the same for gains and losses)?
PS 2: I know there are many typos. If someone can edit this post, and PM it to me or repost it, I would appreciate it. I lack time to devote to this, so thanks for lending your time.
