Is a positive expectancy of 1 ES point/trade considered good?

This is a discussion on Is a positive expectancy of 1 ES point/trade considered good? within the Indices forums, part of the Markets category; Winning percentage: 69.77 Average winner: 4.15 Average loser: -6.26 My average winner is lower because my scratch trades tend to ...

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Old Oct 14, 2008, 5:36am   #1
 
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Is a positive expectancy of 1 ES point/trade considered good?

Winning percentage: 69.77
Average winner: 4.15
Average loser: -6.26

My average winner is lower because my scratch trades tend to be 1-2 ticks in the money to cover commissions.
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Old Oct 14, 2008, 3:31pm   #2
 
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Whether it's good or not depends entirely on whether you can execute your system in the markets, or whether it's just paper trading or backtesting.

And after that's established, there are many ways of expressing the profitability of a system. Different traders have different preferences. It might be the slope of your equity curve, for instance.
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Old Oct 14, 2008, 4:36pm   #3
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There's also the question of trade frequency. A 1 point expectancy might be great if you're doing a couple of trades a day, but probably isn't too exciting if it's one trade a month.

Also, over what timeframe have you developed these results?
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Old Oct 14, 2008, 4:47pm   #4
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Quote:
Originally Posted by Kovacs View Post
Winning percentage: 69.77
Average winner: 4.15
Average loser: -6.26

My average winner is lower because my scratch trades tend to be 1-2 ticks in the money to cover commissions.
This translates to an approximate profit factor equal to: (4.15/6.26) x 0.6977/(1-0.6977) = 1.53

Meaning that for every dollar lost you make one and a half dollars.

Not good enough. I wouldn't trade anything with a profit factor less that 2.00 minimum.
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Old Oct 14, 2008, 7:29pm   #5
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Originally Posted by equtrader View Post
This translates to an approximate profit factor equal to: (4.15/6.26) x 0.6977/(1-0.6977) = 1.53.
Meaning that for every dollar lost you make one and a half dollars.

Not good enough. I wouldn't trade anything with a profit factor less that 2.00 minimum.[/QUOTE]

You can't make an assessment of "not good enough" without taking into account trade frequency, and I would contend that your "profit factor" is a less useful indication than expectancy (avg win x win%)-(avg loss x loss%). With expectancy you can get to a total expected profit figure by multiplying out by the number of trades expected during a given period. With profit factor you've just got some number.
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Old Oct 14, 2008, 9:09pm   #6
 
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Quote:
Originally Posted by Rhody Trader View Post
There's also the question of trade frequency. A 1 point expectancy might be great if you're doing a couple of trades a day, but probably isn't too exciting if it's one trade a month.

Also, over what timeframe have you developed these results?
It's working out to an average of 12 trades/day.

Results were developed from the last 30 live trading sessions (I was paper trading prior to that).
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Old Oct 14, 2008, 9:11pm   #7
 
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Quote:
Originally Posted by equtrader View Post
This translates to an approximate profit factor equal to: (4.15/6.26) x 0.6977/(1-0.6977) = 1.53

Meaning that for every dollar lost you make one and a half dollars.

Not good enough. I wouldn't trade anything with a profit factor less that 2.00 minimum.
The problem is my profit factor on the long side is 1.0, while my profit factor on the short side is 4.0.

I kept mistiming the epic rally we were sure to have, and when it finally came, I missed both of them.
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Old Oct 14, 2008, 9:30pm   #8
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Originally Posted by Kovacs View Post
It's working out to an average of 12 trades/day.

Results were developed from the last 30 live trading sessions (I was paper trading prior to that).
This isn't enough data. Too small a sample to draw real conclusions - especially since these markets have been atypical.
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Old Oct 14, 2008, 9:51pm   #9
 
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Originally Posted by Rhody Trader View Post
This isn't enough data. Too small a sample to draw real conclusions - especially since these markets have been atypical.
How much data do I need?
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Old Oct 15, 2008, 1:29pm   #10
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Originally Posted by Kovacs View Post
How much data do I need?
Ideally, you need to test through at least a full market cycle - meaning one which includes different levels of volatility and trending and non-trending conditions.
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