Why high expectancy trading is so important

fibonelli · Mar 3, 2009, 1:05pm

Expectancy and not win rate is the key to trading success.

Expectancy = (Avg win * Win rate) minus (Avg Loss * Loss rate)

Therefore, the emphasis is on maximising winners and minimising losses through effective position sizing and risk management.

Assumption: You do need a trading edge.

Discuss!

Joey25 · Mar 3, 2009, 1:33pm

Definitely. It seems very unfashionable though, with a preference instead for maximizing win rates with as tight a stop as possible.

Optimal position sizing can improve returns far more dramatically than the ever-diminishing benefits from attempting to improve the edge.

You don't need that significant an edge either (card counting for example).

new_trader · Mar 3, 2009, 1:46pm

Quote:

Originally Posted by Joey25

with a preference instead for maximizing win rates with as tight a stop as possible.

What gives you that impression Joey? The mere mention of the phrase "tight stops" around here would cause an almost uncontrollable riot. Now you say there is a preference? Please explain. If you ask me the preference around here is for pretty coloured lines and 'systems'.

Joey25 · Mar 3, 2009, 2:18pm

Quote:

Originally Posted by new_trader

What gives you that impression Joey? The mere mention of the phrase "tight stops" around here would cause an almost uncontrollable riot. Now you say there is a preference? Please explain. If you ask me the preference around here is for pretty coloured lines and 'systems'.

I think because that is my weakness, I'm tending to focus on people who are trading successfully with tight stops.

In all seriousness, if I could do it without the technological and psychological issues which make it difficult for me, I would.

Wide stops, in my opinion, don't necessarily affect the expectancy ratio, but they undoubtedly restrict your ability to compound.

AlexisD · Mar 3, 2009, 5:40pm

just a quick fact: most (not all, most) profitable trading systems used by funds average a 40-45%win. Do not ask us why, it's just something we noticed!

thx,Alex

chase1 · Jun 15, 2011, 4:41am

alex i heard it was 81 %
+
average pips per trade >=20

everthing above is doomed

Hoggums · Jun 15, 2011, 5:33am

Whatever happened to Gianni ?

jpadventure · Jun 17, 2011, 10:34am

I love hearing the word "Expectancy", game changer for me.

Really simple...
Win ratio's, risk reward, tight stops, doesn't matter what you do, is your method profitable?

Mar 3, 2009, 1:05pm	#1
fibonelli Legendary Member Member Since Oct 2006 1,341 Posts	Why high expectancy trading is so important Expectancy and not win rate is the key to trading success. Expectancy = (Avg win * Win rate) minus (Avg Loss * Loss rate) Therefore, the emphasis is on maximising winners and minimising losses through effective position sizing and risk management. Assumption: You do need a trading edge. Discuss! __________________ Audere est Facere "The trend is your friend and divergences are your best friend until the bend at the end" Party on like it's 1930, until Mr C (Wave) gatecrashes the party. Last edited by fibonelli; Mar 3, 2009 at 1:10pm.

Mar 3, 2009, 1:33pm	#2
Joey25 Veteran Member Member Since Mar 2005 874 Posts	Re: Why high expectancy trading is so important Definitely. It seems very unfashionable though, with a preference instead for maximizing win rates with as tight a stop as possible. Optimal position sizing can improve returns far more dramatically than the ever-diminishing benefits from attempting to improve the edge. You don't need that significant an edge either (card counting for example).

Mar 3, 2009, 5:40pm	#5
AlexisD Junior Member Member Since Jun 2005 42 Posts	Re: Why high expectancy trading is so important just a quick fact: most (not all, most) profitable trading systems used by funds average a 40-45%win. Do not ask us why, it's just something we noticed! thx,Alex

Jun 15, 2011, 4:41am	#6
chase1 Junior Member Member Since Mar 2011 37 Posts	Re: Why high expectancy trading is so important alex i heard it was 81 % + average pips per trade >=20 everthing above is doomed

Jun 15, 2011, 5:33am	#7
Hoggums Legendary Member Member Since Jan 2006 2,075 Posts	Re: Why high expectancy trading is so important Whatever happened to Gianni ? __________________ Hoggums ----------------------------------------------------------------------------- Outside of a dog, a book is a man's best friend, inside of a dog, it's too dark to read. -- G Marx.

Jun 17, 2011, 10:34am	#8
jpadventure Rookie Member Member Since Jun 2011 23 Posts	Re: Why high expectancy trading is so important I love hearing the word "Expectancy", game changer for me. Really simple... Win ratio's, risk reward, tight stops, doesn't matter what you do, is your method profitable?

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