Firewalker's Journey: A path of discovery in search for enlightenment

This is a discussion on Firewalker's Journey: A path of discovery in search for enlightenment within the Trading Journals forums, part of the Reception category; Originally Posted by firewalker99 A win:loss ratio of 50:50 can be very very profitable, if accompanied with a risk:reward of ...

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Old Aug 16, 2006, 1:59pm   #151
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Quote:
Originally Posted by firewalker99
A win:loss ratio of 50:50 can be very very profitable, if accompanied with a risk:reward of 1:5. Doesn't even need to be that high.
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You are, of course, bringing in the argument of close stops. If your lack of tolerance to a loss is clearcut, with no dillydallying on exits, then lower than 50:50 is possible. It can't be brought home often enough. If a trader hangs on too long to a losing trade it doesn't matter how good his ratio is, his gains will be mediocre, at best.

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Old Aug 16, 2006, 2:03pm   #152
 
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Originally Posted by Splitlink
You are, of course, bringing in the argument of close stops. If your lack of tolerance to a loss is clearcut, with no dillydallying on exits, then lower than 50:50 is possible. It can't be brought home often enough. If a trader hangs on too long to a losing trade it doesn't matter how good his ratio is, his gains will be mediocre, at best.

Split
Of course, one has to obey to his system and take a loss whenever it's there and go beyond that and look for a next possible entry. If a trader hangs on too long to losing trades, then even if his system provides him with a high probability for success, he could still me on the way to liquidating his account...
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Old Aug 16, 2006, 2:49pm   #153
 
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All of which remains anchored in what one has read and what one has heard and what one has been told rather than in what one has experienced.

Yes, a win rate of 50% can be profitable with a profit:loss of 5:1. And when you've demonstrated that you can consistently accomplish a 5:1 profit:loss ratio, please get back to me. Until then, I suggest you pay closer attention to what ymonly had to say. Being satisfied with a win rate of 50% or less is usually a beginner's rationalization for being too lazy to find something better (experienced traders know what risk:reward really means*).

Db

*Edit: i.e., that risk:reward has to do entirely with probability. Pulling some target out of thin air is meaningless. Unless one has some idea of the probability of a target being reached, what is probable is that he will be disappointed. As for "risk", the market couldn't care less what the trader is willing to risk; it's up to the trader to determine what the market demands. He can then decide whether he wants to risk that much or not. Simply placing a stop somewhere according to how much the trader can afford to lose often does little more than guarantee that the trader will in fact lose it.

Last edited by dbphoenix; Aug 16, 2006 at 3:09pm.
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Old Aug 16, 2006, 4:08pm   #154
 
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Originally Posted by dbphoenix
All of which remains anchored in what one has read and what one has heard and what one has been told rather than in what one has experienced.

Yes, a win rate of 50% can be profitable with a profit:loss of 5:1. And when you've demonstrated that you can consistently accomplish a 5:1 profit:loss ratio, please get back to me. Until then, I suggest you pay closer attention to what ymonly had to say. Being satisfied with a win rate of 50% or less is usually a beginner's rationalization for being too lazy to find something better (experienced traders know what risk:reward really means*).
Like I said, this was a generalization and had in no means any reflection on my personal thoughts nor targets. Everything I said was based on the simple mathematical promise of expectancy and not on what trader x or y has proven to do or said he was able to do so. For the record, I'm not willing to trade anything with a 50% win rate because after all I've been through I want something to have (a lot of) confidence in. So until - or if - I reach that point, I'll keep looking, trying, reading, searching, observing, analyzing...
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Old Aug 16, 2006, 4:27pm   #155
 
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Originally Posted by firewalker99
Like I said, this was a generalization and had in no means any reflection on my personal thoughts nor targets. Everything I said was based on the simple mathematical promise of expectancy and not on what trader x or y has proven to do or said he was able to do so. For the record, I'm not willing to trade anything with a 50% win rate because after all I've been through I want something to have (a lot of) confidence in. So until - or if - I reach that point, I'll keep looking, trying, reading, searching, observing, analyzing...
Expectancy is not a promise but a calculation. The point is that whatever one has pegged as his "reward" is wishful thinking unless he has determined the probability of actually reaching that target. Otherwise, he's just playing math games.

As for a setup that occurs once a week and has an 80% expectancy with a reward of "only" five points, how is that inferior to the beginner who overtrades every day and watches his equity dribble away? Those five points, if played with size, will look pretty good.

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Old Aug 16, 2006, 4:34pm   #156
 
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Quote:
Originally Posted by dbphoenix
Expectancy is not a promise but a calculation. The point is that whatever one has pegged as his "reward" is wishful thinking unless he has determined the probability of actually reaching that target. Otherwise, he's just playing math games.

As for a setup that occurs once a week and has an 80% expectancy with a reward of "only" five points, how is that inferior to the beginner who overtrades every day and watches his equity dribble away? Those five points, if played with size, will look pretty good.

Db
That 80% setup is without a doubt very good. But you left out the most important part of my sentence: and you have to place your stop at 20 points with a target of only 5 points? After every month, the fiffth week would be a losing trade that equals the profits he made. Otherwise I'd be glad to trade a setup with that frequency or expectancy.
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Old Aug 16, 2006, 4:43pm   #157
 
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Originally Posted by firewalker99
That 80% setup is without a doubt very good. But you left out the most important part of my sentence: and you have to place your stop at 20 points with a target of only 5 points? After every month, the fiffth week would be a losing trade that equals the profits he made. Otherwise I'd be glad to trade a setup with that frequency or expectancy.
And you're continuing to play with numbers rather than address what's involved in real-time trading with real money. Would you trade exactly the same size for your fifth week if the previous four weeks had all been winners? Would you have no contingency stops? Would you make no changes to how you scale in or out? What do all of your calculations have to do with real trading?

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Old Aug 16, 2006, 4:44pm   #158
 
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Quote:
Originally Posted by dbphoenix
*Edit: i.e., that risk:reward has to do entirely with probability. Pulling some target out of thin air is meaningless. Unless one has some idea of the probability of a target being reached, what is probable is that he will be disappointed. As for "risk", the market couldn't care less what the trader is willing to risk; it's up to the trader to determine what the market demands. He can then decide whether he wants to risk that much or not. Simply placing a stop somewhere according to how much the trader can afford to lose often does little more than guarantee that the trader will in fact lose it.
I would define my stoploss on several criteria like ATR and depending if the target(s) is(are) fixed or not. Anything based on how much I was willing to lose in absolute numbers, would be an inferior strategy and subjective. My "risk" in total, depends on the probability of the setup and volatility at that moment which define the number of contracts to enter the trade with. Incorporated in the probability of the setup, has to be a target of course. What about time stops?
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Old Aug 16, 2006, 4:52pm   #159
 
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Originally Posted by dbphoenix
Would you trade exactly the same size for your fifth week if the previous four weeks had all been winners?
If I would not, than I'd let myself be emotionally influenced on what happened before.

Quote:
Originally Posted by dbphoenix
Would you have no contingency stops? Would you make no changes to how you scale in or out?
Do you mean with contingency stops, emergency stops where I pull the trigger manually? Wouldn't that seem like abandoning the plan? Then again, why would I change my entry/exit if I had 4 successive profitable weeks? Are you implying you should change your plan depending on the outcome? This seems to go against everything you've told me to stick with the plan.

Quote:
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What do all of your calculations have to do with real trading?
Nothing, I'm not real time trading. But all this has to be defined if I ever were to begin again.
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Old Aug 16, 2006, 4:56pm   #160
 
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You're breezing by all the prerequisites as if they are givens and wading back into the theoretical. What evidence do you have that "defining" your stoploss based on anything you've posted has any value? How would you set your target? What evidence would you have that you had set it properly? What's the probability of your setup? What, as far as that goes, is your setup?

In any event, shouldn't all of this be in First Steps or in your journal?

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