More trades means more risks ?

[Glenn]

Each time you take a new trade, you take on a completely new risk.
i.e. More trades = More Risks (and higher trading costs).

On the other hand the longer you stay in the market the more likely something will go wrong. So the longer you stay in, the greater the risk.

Question is, which do other people think is the greater risk ?

Glenn

 

[Grey1]

Quote " More trades means more risks ? "

Not a correct statement.

It means more commission though

 

[donaldduke]

If you have a positive expectancy system the more trades you
make the more likely you are to make money.

If you have a system that is right 75% of the time and has
win/loss ratio of 1:1, after 10 trades you could still be sitting on a
loss but after 100 trades the chances of still being down
are very very remote.

 

[donaldduke]

Quote: "It means more commission though"

Not if you SB!!

 

[Glenn]

Quote " More trades means more risks ? "

Not a correct statement.

It means more commission though

Hi Grey1
I'd be interested to know why you think it's not a correct statement.
Daresay others would too.
Glenn

 

[Newtron Bomb]

I see a defined risk per trade

If you only risk "x%" per trade then it is defined each time on each trade.
however, I see your thinking with two trades being equal to 2 x "x%" risk but your risk per trade should remain the same and therefore no increase in risk just the number of times you take the risk of "x%"

Hope that was clear
Newtron Bomb

 

[ChartMan]

more trades leads on to overtrading whichleads on to chasing losses = recipe for disaster. Each trader will (hopefully) find their own balance of trades that works for them and is within their risk profile.

 

[Grey1]

Glen,


Systems with positive expectancy are defined by the equation below.. The number of trade does not make the system less expectant..

Expectancy is defined by a simple formula = ( Average win* probability of win - Average loss* probabilty of loss )

If this value > 1 then we have a Pos expectancy system other wise we have a negative expectancy system

So if you had a coin system which would pay even amount then

Expectancy would be = (1*1/2 -1*/1/2 ) = 0

How ever if you had a Coin system which would pay a little more than even if you won ' then the MORE you trade the system the more you win ,,

Regards

 

[BBB]

Question: If it's 50% likely to rain this Saturday, and 50% likely to rain on Sunday, what is the chance of it raining this weekend?

Answer: 25%

Does this help?

 

[Grey1]

A quiz for our Traders...

If I had a system with negative expectancy would an excellent money managment system make me a winner ?

 

[BBB]

Oooooooooooooohhhhhhhhh there's a poser!

Tempted to say yes, but only if the trade management was first rate as well! Sorry if that sounds like I'm sitting on the wall

 

[Grey1]

BBB,

punters in Casino's have negative expectancy ?? Doyou think some kind of a money managment system will make us a winner in VEGAS ,

If the answer is yes then I will pay for the ticket .. LAS VEGAS we are cominnnnnnnnnggggggggg..

What do you think ?

 

[Quercus]

Sticking my neck out here!
If we're talking about an infinite number of outcomes of the system a negative expectancy system must surely come out on the losing side. This has to do with the product of average losers and %losses being greater than the product of average winners and % wins.
Excellent money management may keep you playing longer and enjoying the free food and drink!
Cheers
Quercus

 

[BBB]

Ouch! You got me!

If I still say the answer is yes, will you still pay for the ticket ? lol

 

[Grey1]

Qurecus,

Spot on.. No amount of Money managment can save traders who trade systems with negative expectancy..

SO lets get on with the VWAP strategy

 

[frugi]

Question: If it's 50% likely to rain this Saturday, and 50% likely to rain on Sunday, what is the chance of it raining this weekend?

Answer: 25%

Does this help?

If you were deciding whether to bring an umbrella it wouldn't.
75% might do though...

 

[Quercus]

Must get my system to look a little more positive then!
Cheers
Quercus

 

[Glenn]

Glen,


Systems with positive expectancy are defined by the equation below.. The number of trade does not make the system less expectant..

Expectancy is defined by a simple formula = ( Average win* probability of win - Average loss* probabilty of loss )

If this value > 1 then we have a Pos expectancy system other wise we have a negative expectancy system

So if you had a coin system which would pay even amount then

Expectancy would be = (1*1/2 -1*/1/2 ) = 0

How ever if you had a Coin system which would pay a little more than even if you won ' then the MORE you trade the system the more you win ,,

Regards

Gey1
So a positive expectancy means that the chances are more than 50% that each trade will be profitable.
This is how I figure the maths:-
Lets say we have two systems, both of which have a positive expectancy of 60%.
One system is short term and averages 10 points per trade, the other is longer term and averages 50 points per trade.

To keep things equal, lets say that the longer term trades last 5 times as long as the short term trades and we will take a fixed time period to make a comparison and both have the same percentage stop loss.
So we do 10 short term trades and 2 long term trades.
[Prob(A and B and C) = Prob(A) x Prob(B) x Prob(C) etc.]
The chances of all 10 short term trades making a profit is
60%x60%x60% .....x60% 10 times i.e. 0.36% chance of 100 points profit
The chances of the 2 longer term trades both making a profit is 60%x60% i.e. 36% chance of 100 points profit

This suggests that fewer bigger trades have more (10 times more) chance of winning the same amount in the same time period.

Glenn

 

[Trader333]

Glenn,

So a positive expectancy means that the chances are more than 50% that each trade will be profitable.

Not exactly as it will depend on the reward you get compared to the loss. For example if you have a 40% success rate but get 2 back for every 1 lost then you still have a positive expectancy.

For an example of 100 trades your results would be:

(40 x 2) - (60 x1) = + 20 profit which is still a positive expectancy even though your percent of successful trades is less than 50%

The example above was for coin flipping which we all know is 50%


Paul

 

[Grey1]

Glen,

Quote "So a positive expectancy means that the chances are more than 50% that each trade will be profitable ",

Not my friend. I did not say that.. The coin example I gave you was the most straight forward example one could give because we all know a Coin system is a long term 50/50 system....