The only thing I can add is that whatever way a person decides to make money from the market if it is tested thoroughly and produces the goods then it is right for that person.
Any comments made by other traders experienced or otherwise can be considered on the basis that they may offer something to improve on an existing strategy. Most you will see do not work for you and can be discarded immediately. However it can be beneficial to have an open mind because occasionally an item may jump out at you, and with further research may find its way into the strategy, improving it.
There comes a point when you reach a stage when to add anything further just makes the system more complicated. It is at that point you realise you have a complete system and regardless of what others might say is of no consequence because the system works.
Expectancy = average win * probability of win - average loss * probability of loss
Positive expectancy means the result is >1 i.e it is a winning system
e.g The system below has an expectancy of $5501 * 0.37 - $2272 * 0.63 = $604
If we have to risk $2272 (average loss) on every trade we can expect to make $604 from it, on average. In other words for every $1 risked the return should be $0.266.
Grey1 please feel free to correct me as I know you are the resident expert.
Consolidated Summary: All Trades for Frugi
Avg Profit/Trade $616.26 Avg Position Size $20,000.00
Avg % Gain/Trade 3.081% Avg % Gain/Bar $0.143%
Gross profit $232,580.03 Maximum Drawdown $7,300.00
Commissions $7,027.20 Average Drawdown $2,928.55
Net Profit $225,552.83 Ratio Avg Win/Avg Loss 2.42
Total # Of Trades 366 Percent Profitable 37%
Winning Trades 136 Losing Trades 230
Largest Winning Trade $18,380.80 Largest Losing Trade $7,669.20
Average Winning Trade $5,501.46 Average Losing Trade $2,272.37
Largest Winning Long $15,580.80 Largest Losing Long $7,669.20
Largest Winning Short $18,380.80 Largest Losing Short $7,269.20
Number Periods Long 4121 Percent Periods Long 47.03%
Number Periods Short 3744 Percent Periods Short 42.73%
Max Consec. Winners 5 Max Consec. Losers 10
Avg # Bars In Winners 38 Avg # Bars In Losers 11
Investor/RT Professional 7.0 Rev 3 Trading System Development, (c) 1996-2004 Linn Software, Inc. www.linnsoft.com
E-MINI S&P 500 INDEX - CME (60 Minutes) 02/12/1999 14:30 - 02/10/2004 15:34:28
Performance Summary: All ES`H Trades
I accept a good entry is probably the best position but it is not essential to profit that is what I was trying to say. Take a value entry system it does not always get the best price but it produces a good return of profit.
Another example would be entering a buy right on the trend break which on most occasions would be spot on. However when working with trend lines there are 4 possibilities for the new trend.
1. The obvious, trend breaks on intraday chart and it just keeps moving off your entry point putting you in profit virtually from the moment you entered. Fine.
2. Trend break so you enter, price moves up into profit but then falters and returns close to your entry nearly flat or 1 point above or below giving the appearance of a double bottom. It them moves up smartly another good deal.
3. Trend break so you enter, this time the price moves up as before and falters again but this time the price moves back but gathers support above your entry point and off it goes. Another fine entry.
4. Trend break seen and moves up but just like before it falls back but this time it goes through your entry point and probably your stop. However from a lower position than your stop it gathers support bouncing off the extended trend line it broke earlier and hey presto this one shoots past your entry and produces the strong trend you had been looking for at the beginning.
The point is all 4 returned good profit but the last was not on reflection the best entry price as it missed the rise from a lower position. In fact it is a signal that produces very good gains because it usually means the market has tested a lower level and there were no takers so it positively flys in the direction of the new trend normally producing quite good points. It is a feature that will normally appear towards the end of a good trend and is a sign that the opposite side is coming back in. Many get caught out because it looks as if the new trend has failed, but often it is only temporarily. Just to clarify I am attempting to describe an intraday trend change.
I obviously misinterpreted your reply, I thought you were advocating a perfect entry system. Of course I agree with the concept of risk entry, reward exit.
The risk element to your entry comes from what you have tested from your strategy and the expectancy that the results have recorded over a good time. The same can be said of the stop, and by a continuing programme of evaluation your trading becomes repetitive but profitable.