AriaS
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Win Rate - winning trades vs losing trades. We can have the best win rate but still not be profitable: for example, if we won nine 10 pip trades and lost one 100 pip trade.
Risk:Reward Ratio per trade is basically SL:TP ratio. We can have 1:10 and still not be profitable: for example, if we won one 100 pip trade but lost eleven 10 pip trades.
To be profitable we either need luck or an Edge.
Edge is when we earn more than we lose, with statistical representativeness.
Or in other words, Edge is when we are right about more than 50% (+spread) of pip movements.
Statistical Representativeness - when we have lots of trades significantly distributed in time and direction, and show a significant profit factor and reasonable win rate.
With an edge we will be profitable no matter what win rate or R:R ratio we have.
Without an edge we will not be profitable no matter what win rate or R:R ratio we have.
Examples of No Statistical Representativeness:
1. We made money after 5 trades.
2. We made money after 100 buys today.
3. We made money after 100 trades this year with PF=1.05
4. We made money after 100 trades this year, 49 buys, 51 sells, PF=2.0, and 5 winning trades vs 95 losing trades.
So where does Edge come from, if no one can predict the future? Not from predicting, but from exploiting repeatable statistical tendencies that tilt probability in our favor over significant amount of trades.
Risk:Reward Ratio per trade is basically SL:TP ratio. We can have 1:10 and still not be profitable: for example, if we won one 100 pip trade but lost eleven 10 pip trades.
To be profitable we either need luck or an Edge.
Edge is when we earn more than we lose, with statistical representativeness.
Or in other words, Edge is when we are right about more than 50% (+spread) of pip movements.
Statistical Representativeness - when we have lots of trades significantly distributed in time and direction, and show a significant profit factor and reasonable win rate.
With an edge we will be profitable no matter what win rate or R:R ratio we have.
Without an edge we will not be profitable no matter what win rate or R:R ratio we have.
Examples of No Statistical Representativeness:
1. We made money after 5 trades.
2. We made money after 100 buys today.
3. We made money after 100 trades this year with PF=1.05
4. We made money after 100 trades this year, 49 buys, 51 sells, PF=2.0, and 5 winning trades vs 95 losing trades.
So where does Edge come from, if no one can predict the future? Not from predicting, but from exploiting repeatable statistical tendencies that tilt probability in our favor over significant amount of trades.
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