Lose/Win Percentage for a Good Trading System

TheBramble

Legendary member
8,394 1,170
theknifemac said:
I think you mean Pl should be Probability for loss.... :cool:
Ha....! Lord, yes.

There's nothing quite like correcting someone else and getting it even wronger yourself in the process.

So, Matt321's (adjusted) formula is:-

(E pl) = Pw(Aw) - Pl (A l )

Pw = Probability for win
Aw = Average win
Pl = Probability for win
Al = Average loss

{Slinks away into a dark corner to lick wounds and hope this passes without too much attention...}
 

Matt321

Member
83 2
Have posted an example of the workings below



Trades
1 -4
2 4
3 6
4 -3
5 -2
6 4
7 5
8 3
9 -5
10 4
11 6
12 -5
13 -4
14 -5
15 4
16 -2
17 4
18 6
19 4
20 -5


Wins 11
Losses 9
Ratio 55


Average win 4.55
Average loss 3.88

Pw (Aw) - Pl (Al)

=0.55 x (4.55) - 0.45(3.88)
=2.50 - 1.75 = 0.75

Update:
If the last number turns out to be(ie -0.75) a minus then your system is losing,although the one above is positive.
There is no backtesting system I know of, you just get a calculator and your broker's statement.
The ratio is really a %,The way I did it was divide 20 trades into a 100= 5 then 11wins X 5 = 55 then 9 x 5 = 45 so thats your ratio or % of winners55%/losers45%.
You can also juggle figures around and play the "what if game" ie: if I had a closer stop
losses it would mean more losses but smaller ones etc the different combinations are endless,but it can help your tweak your system up.Try swopping the losers for winners
so you have 45% winners 55% losers the answer should be if i haven't got it wrong -2.15
bad news.
 
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pkfryer

Active member
243 0
Okay.. that makes a lot of sense. Is there a backtesting program or module that calculates that for your systems?

Also is there some relation to the sharpe score?

The P and the A stands for Probability and Average, the w and l stand for win and lose. It has to.. that means your correction of your correction is still wrong :OD
 

Matt321

Member
83 2
Yer its actually printed wrong/here is the final corrected version
Pw = prob win
Pl = prob loss
Aw = Average win
Al = Average loss
I stopped trading after applying this,I now looking for a good trading system
I might try the that trick of watching for the breakout on the currencies between 07.00 and 10.00.
 

pkfryer

Active member
243 0
TheBramble said:
One such system might be to cut your losses, quickly (a small stoploss - rigidly adhered to) and let your profits run (a trailing stoploss - equally rigidly adhered to).

I think for day trading it works to have extremely tight stop losses, but this is difficult to accomplish with short term trading. In order to cancel out market noise of a trend or oscillation it is important to place stop losses sufficiently far outside the average daily range to not be hit unnecessarily. The only problem with this approach is that if the trade turns against you you have a lot more to lose, which means you can only trade smaller sizes to adhere to money management rules, therefore reducing profit considerably on winning trades.

The complication is that an otherwise winning trade could be stopped out at a loss unnecessarily if the stop loss is too close, meaning that you would have to have several times more winners than losers... or have winners that can go sufficiently far to outbalance the losing positions.

If we need to let winning positions ride in order to be profitable, we would have to increase the distance that stop losses are placed away from entry, bizzarly enough making it necessary for the system to be more accurate.

Maybe this is why 95% of traders lose, and why many traders have the notion that stop losses are for losers! (I dont think this, but I can imagine some people coming to this conclusion)

Have I got this wrong?
 

TheBramble

Legendary member
8,394 1,170
You haven't got it wrong PK, but it is a tradeoff.

Lots of (very) small losses with a few good wins - or - a lower number of larger losses with a greater number of lesser (on average) wins.

Many traders start off with too big (or no!) stoploss in place - hoping to catch the money when the trade turns back in their favour.

Frankly, if you have a system which identifies entry criteria which you are comfortable with - and the criteria are met - the trade should very quickly prove itself to you as a winner - or you kill it.

That's just my opinion. I have tried both extremes and it's all down to personal comfort.
 

Matt321

Member
83 2
They say this system trades in any market every day(whether market is trending or consolidating) / I haven't tried it but the broad outline is as follows.
Ave price =( 2 x close) + high + low) / 4

The long trigger =(Average price x 2) -low
The short trigger= Average price x2) - High

If one position crosses the other trigger the positition is closed
The stats show the long trades winners 277 losers 211
short trades winners 299 losers 204

Stop losses should be minium of 3%
 
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growltiger

Member
91 0
Two Bars said:
Not true my friend. Those who have a 70%+ method just keep it quiet. Wouldn't you?

Mathematically, it is easy to create a 70% method, but without being very profitable. All you have to do is cut your winners very short. In fact, a system that sets a target stop that is less than one volatility measure away from the entry, and a stop loss that is three times that distance, can almost be guaranteed to generate a high percentage of wins and very likely an overall loss. Whether the system is actually profitable or not will depend on the actual behaviour of the market, of course, but the natural volatility of the market will ensure that the profit target is hit much more frequently than the stop loss (and if prices are more or less normallly distributed, this can be guaranteed). In system optimisation, it not infrequently seems to happen that the the "solution" is to have no stop loss combined with a tightish profit target; I ran one such system for the S&P for a while, but while the expectancy was reasonable, the drawdowns were not (unfortunate, but consistent with the backtesting statistics). And, of course, very tight targets and stops mean you trade a lot, so commissions are high relative to the bare expectancy, and slippage may be a problem too, relative to a tight target.
 

Hooya

Experienced member
1,802 2
elliottmillion said:
a 50/50 trading system really is the best you can hope for. anyone who claims to have invented a system 70+ is fibbing!


two things to think about..70% strategy is possible but would likely come from an none mechanical system. and secondly a 70% wining strike rate doesnt necessarily mean you make money...it all comes down to how much you win when you win and ahow much you lose when you lose.
 

dc2000

Veteren member
4,766 129
a 50/50 trading system really is the best you can hope for. anyone who claims to have invented a system 70+ is fibbing!

Hmmm how about 89% win rate, av win 140, av loss 23.25 for last 12 months to April.
A myth, a legend or ?
 

growltiger

Member
91 0
Expectancy

Mayfly said:
PKF,

Take a look at the attached spreadsheet, it should help to explain the points about money management the others are making?

HTH

Cheers

Mayfly
The spreadsheet is very interesting. But a simpler way may be to apply the expectancy formula that was mentioned by others in this thread. Because there are three independent variables (stop loss, target, win%) the area of interest needs to be looked at in three dimensions. The clearest way to do this is to run sensitivities of the capital growth to: (a) different combinations of gain and loss percentages on winning and losing trades respectively, holding constant the win/loss ratio; and (b) different combinations of gain percentage with different win ratios, holding the stop loss percentage constant.

It becomes clear, as people have said, that the different combinations make available whole families of winning and losing styles. And the winning styles definitely include styles where a majority of trades are losses, but also completely different styles where the trader aims for a high win ratio and accepts lower levels of profit. Taking 20 trades as the basis for comparison of the compounded returns, someone who set a stop loss of 10% and made 2*risk would do quite well on the basis that 40% of the trades were winners: before costs, the overall return would be 49%. The same return would be achieved, with the same stop loss, by someone who aimed to make 1*risk on 60% of his trades.


The analysis does not, of course, take any account of the influence of the chosen combinations of stop and target on the probability of winning. That is another story.
 

Attachments

  • Wins v Losses.xls
    21.5 KB · Views: 305
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pkfryer

Active member
243 0
dc2000 said:
Hmmm how about 89% win rate, av win 140, av loss 23.25 for last 12 months to April.
A myth, a legend or ?

Whose success rate is that? sounds fantastic.

growltiger - very interesting. An optimising parameter for a system could also include size of trade related to win percentage. (Is this related to optimal f?) Would this encourage losers to gamble more the worst they are doing with the premise that by so doing they will perform better in the long run. Or have I got the wrong end of the stick?

I'm also wondering whether having a fixed profit target and exiting trades whenever this is achieved without trying to chase the 'perfect trade' has merit. Grab lots of small profits and restrict yourself to even smaller losses. The amount of times I've been in a marginally profitable trade waiting for it to do something interesting only for it to suddenly reverse and hit my stop. If I had merely taking the small profit each time I would be out ahead. Is this an approach that is worth any consideration or does it make becoming profitable very difficult. As winning trades are cut short in there tracks.
 

TheBramble

Legendary member
8,394 1,170
dc2000 said:
Hmmm how about 89% win rate, av win 140, av loss 23.25 for last 12 months to April.
A myth, a legend or ?

You haven't mentioned drawdown, but if the other figures are genuine, I calculate it wasn't more than 150.

As someone else once said, "Come on Sir, spill the beans!".
 
 
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