It's all about expectancy 
August 16th, 2012, 08:41 AM  #1 (permalink)  
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It's all about expectancy
Hello
I am coming to you for advise, as I need an expert eye to look at my logic below and confirm or comment/correct my system's expectancy and tell me if I am too far off from reality. I have a capital of $40,000 of which I am willing to risk maximum 1% or $400 per trade (8pts). I am going to trade 2x ES contracts per trade with a fixed ATM strategy that goes as follows: First Contract Stop 4 points from entry Target +4 points from entry Second Contract Initial Stop 4 points from entry Target +16 points from entry Auto break even stop at +4 points from entry Trailing stop 4 points, trigger +8, frequency 1 point So, with the above ATM strategy, I have calculated 11 possible exits for each trade and assigned it a subjective probability of success. I am basically looking at the following exit scenarios: Case 1: 8 points probability 30% Case 2: +4 points probability 25% Case 3: +8 points probability 10% Case 4: +9 points probability 10% Case 5: +10 points probability 5% Case 6: +11 points probability 5% Case 7: +12 points probability 5% Case 8: +13 points probability 2.5% Case 9: +14 points probability 2.5% Case 10: +15 points probability 2.5% Case 11: +20 points probability 2.5% I believe there are no other possibilities except for staying in the trade which I do not object. No end of day flattening requirement, so I can hold overnight if needed. My expectancy per trade if I am calculating correctly, turns out to be 3.5 points on the ES or 175$ before commissions and net of slippage of course. This is very theoretical for the purpose of illustration. Do you think my calculation is correct? Is it the right approach? Please share if you can what you think is most realistic in terms of probability per the above cases. I don't have a detailed journal to derive these probabilities from my own past trades. Also I had never used ATM strategies consistently in the past to know how they behave over a long period of time. So could you please share your experience on this? I hope I am not completely out of my mind with this Thank you in advance, and happy trading! Cheers Fadi


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