This is a discussion on Probability in Trading within the Trading Psychology forums, part of the Trading Control category; I suspect the other flaw with this approach is that the market is not random. its either fractal or a ...

 Dec 30, 2011, 11:47am #17 Legendary Member     Member Since Jun 2004 Re: Probability in Trading I suspect the other flaw with this approach is that the market is not random. its either fractal or a quantum world its worth checking how much you would lose with 15 losses in a row __________________ You have to decide !
Dec 30, 2011, 12:37pm   #18
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Member Since Apr 2006

Quote:
 Originally Posted by pbylina Thats what I thought. At 50% your profit is 0. How does someone get over that 50% ?
You have other variables to play with in addition to just win rate, plus a bunch of other really obvious stuff !

You need to have this discussion on a trading site really

Dec 30, 2011, 12:41pm   #19
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Member Since Nov 2010

Quote:
 Originally Posted by the hare You have other variables to play with in addition to just win rate, plus a bunch of other really obvious stuff ! You need to have this discussion on a trading site really

 Dec 30, 2011, 12:44pm #20 Legendary Member     Member Since Nov 2007 Re: Probability in Trading Masquerade's Trading System - usually £815.30 RANDOM.ORG - Clock Time Generator + RANDOM.ORG - Coin Flipper
 The post above is recommended by: the hare
Dec 30, 2011, 1:00pm   #21
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Member Since Apr 2006

Quote:
 Originally Posted by pbylina Whats a good trading site?
To be honest, you are probably better off verifying this stuff by testing.

At the most basic level, you have 3 variables. You want to increase win rate and the size of the average win, and you want to decrease the size of the average loss.

Fixed stops and targets add an additional constraint to achieving 2 of those objectives !

Something as simple as trading with the trend will improve win rate if done correctly (identifying trend objectively isnt as easy as everyone makes out)

 The post above is recommended by: pbylina , Lord Flasheart
Dec 30, 2011, 1:12pm   #22
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Member Since Nov 2010

Quote:
 Originally Posted by the hare To be honest, you are probably better off verifying this stuff by testing. At the most basic level, you have 3 variables. You want to increase win rate and the size of the average win, and you want to decrease the size of the average loss. Fixed stops and targets add an additional constraint to achieving 2 of those objectives ! Something as simple as trading with the trend will improve win rate if done correctly (identifying trend objectively isnt as easy as everyone makes out)
Thank you. This is what I was looking for. To increase win rate I should go with the trend. Even it only gets me to 55% win rate I will still be making money correct? I just have to accept the fact that there will be drawdowns right? I read a good article here. Psychology: Thinking in terms of Probability & Expectation

Dec 30, 2011, 2:00pm   #23
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Quote:
 Originally Posted by Alec Leamas IMO this is a very dangerous way of thinking about trading.
I'm interested in why you think its dangerous

I'd argue that its the completely unrealistic expectation that every trade is going to go as planned, and most days are going to be profitable that really screws up peoples chances of being successful.

I've said it a few times previously, but more than 80% of my time as a trader is spent losing money or treading water. The last time I looked I was only making new equity highs around 18% of the time.

Even with such appalling statistics, I can guarentee that most people posting here simply would not believe my annual returns, and thats trading at very low leverage by most peoples standards.

I'd argue that understanding the practical realities of the role of probability and varience is one of the fundemental first steps.

Dec 30, 2011, 2:35pm   #24
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Member Since Nov 2010

Quote:
 Originally Posted by scose-no-doubt Anyone care to tell me why I'm talking sh1t? I'm fairly certain I am.
Here is my attempt I am sure you could use the tree you draw to calculate probabilities but there is another way.

Let TP - take profit in ticks, Ptp - probability of taking profit, SL - stop loss in ticks, Psl - probability of stop loss.

Ptp + Psl = 1
EV = TP * Ptp - SL * Psl = 0

TP * Ptp - SL * (1 - Ptp) = 0

Ptp(TP +SL) = SL

Ptp = SL / (TP + SL)
Psl = TP / (TP + SL)

Example 1.
A 3 tick stop loss and 2 tick TP
Ptp = 3 / (3+2) = 60%

Example 2.
A 8 tick stop loss and 2 tick TP
Ptp = 8 / (8+2) = 80%

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