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The two sides of probability


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The two sides of probability

  #11 (permalink)
 
Massive l's Avatar
 Massive l 
OR/USA
Legendary /NQ Trader
 
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Massive l View Post
system not using arbitrary r/r

1.89 R/R 66% win $223 expectancy/contract/trade

0 - .85 14%
.86 - 1.70 17%
1.71 - 2.56 11%
2.57 - 3.42 11%
3.43 - 4.28 7.5%
4.29 - 5.13 4.3%
5.14 - 6.00 1.1%

Same system entries but with arbitrary R/R ratios

1:1 66% win $95 expectancy
2:1 50% win $98 expectancy
3:1 41% win $109 expectancy
4:1 36% win $141 expectancy
5:1 26% win $78 expectancy
6:1 23% win $90 expectancy

doing this backwards now. 1:2 (reward to risk)

1:1 66% win $95 expectancy
1:2 61% win $167 expectancy
1:3 61% win $88 expectancy
1:4 69% win $125 expectancy
1:5 72% win $129 expectancy
1:6 73% win $110 expectancy

Higher winning percentage and higher expectancy with reward kept at 1 while increasing risk.
1:3 has the lowest expectancy. It had the same winning % as 1:2 but with larger losers, therefore lower expectancy. 1:4, 1:5, and 1:6 was wide enough where the stop didn't get hit and price came back for a winning trade, creating a higher win % and a higher expectancy. Also, because of the increased risk, this strategy had about 50 less trades as the duration of the trade was increased by increasing the stop. It took the market a longer amount of time to reach the stop.

The largest string of losers in a row even with 1:6 was 3 and a couple of 2 losers in a row as well. The average loss on 1:2 vs 2:1 was of course 2x the amount.

Looking at the numbers the strategy I am leaning towards with arbitrary r/r is 1:2. The average loser is 2x the amount as 2:1 but it's still not a number that would affect me psychologically. 1:2 actually only had 33 less trades than 2:1. The higher the risk, the longer the duration therefore less trades. 1:4 - 1:6 all were around 50.

In the same amount of time, 1:2 out performed 2:1 by 15% ROE because of the 170% increase in expectancy.
All arbitrary r/r strategies under-performed the non-arbitrary exit strategy by about 50% ROE.

EDIT

Now increasing both the reward (target) and increasing risk (stop) while keeping the ratio at 1:1

2x 1:1 68% win $161 expectancy 80 trades
3x 1:1 65% win $198 expectancy 66 trades
4x 1:1 53% win $49 expectancy 55 trades
don't think I need to do 5x...

Doubling and tripling the target and stop out-performed the 1:2 ratio on about the same amount of trades by 15% and 16% ROE respectively. Average risk was the same on 2x vs 1:2 ratio of course however tripling the target and stop increased average loser by 36%. For only a 1% gain in ROE, increasing target and stop is not worth the risk in this case.

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  #12 (permalink)
 webradio 
Hamburg, Germany
 
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, vaguely related

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Last Updated on July 20, 2020


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