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Realistic win/loss ratio in % ?
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Realistic win/loss ratio in % ?

  #1 (permalink)
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Realistic win/loss ratio in % ?

I have been reading the Risk of Ruin thread in the forums, and I was wondering what an acurate ( with, if any realistic expectation ), a win/loss ratio would be. I always like to undercut my math, as to not calculate to high of any " expected " positive outcome. I like the win/loss that was mentioned in the Risk of Ruin thread , in regards to trading the YM of 45% win to 55% loss, and assume a $4 comission cost per trade and a slippage of 1 point . This example I will assume trading the ES , with a account balance of $7,000 Trading just 1 contract and risking at a max ( 2% ) of my account per trade. This also assumes I stay in each and every trade till either my Target or stop is hit. I know that in reality, I will take smaller wins and losses, as I may reverse a trade from a Long to a Short quickly, but I want to try and keep the Math simple. I know that my account will also flactuate in amount, per day, based on whether I increased my account ( wins ) , or my account goes below $7000 ( due to any loss I incured that day )........So if I stuck to trading 100 trades per month , with a target of 3.5 to 4 points and a Stop of 2.5 points , a comission of $5 per trade and allowing for slippage per trade of 1 tick ( -$12.50 ) , my " expected " win per month would be $375 ? If my math/calculating is correct on this example, and I only have under $10,000 to trade with, to gain any " Edge " , what would be recommended? Would trading an Index that isn't as expensive per Tick/Move increase my potential profit per month ( like if I traded the YM at $5 per tick vs the ES at $12.50 per tick ) ? Thanks so much everyone for your time and help with my question. I really appreciate it - Michael

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  #3 (permalink)
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First of all, opinions vary greatly on this topic. You can have good methods with a 30% win percentage and good methods with a 60% win percentage. Profit factor is generally considered a better measure of overall performance. The closer to 2 the better. If your profit factor is considerably over 2 then either you aren't calculating it correctly or your method is on a hot streak and you can expect it to average lower over a longer test period, so you probably want to expand your testing.

Win percentage primarily factors into psychology, i.e. low win percentage means you will have long periods of draw downs with many losers wiped out with a single winner whereas a high win percentage means you will have shorter periods of drawdowns but many winners wiped out with a single loser, it's a matter of preference.

Average win per trade is a good measure of how well your method will be able to overcome slippage and commissions in live trading. For day trading, the closer to 3 ticks the better. Again, if it's considerably over 3 ticks then you definitely want to expand your test period to make sure it holds up over time.

Trading a higher dollar value instrument will increase profitability for the same movement in ticks, but ES is a low volatility instrument, so a move on YM is often worth a similar dollar amount to a move on ES. You are more considering the ratio of the commissions to the tick value and volatility of the instrument. Also on a higher volatility instrument you will typically have more opportunities for entry.

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  #4 (permalink)
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vegasfoster View Post
First of all, opinions vary greatly on this topic. You can have good methods with a 30% win percentage and good methods with a 60% win percentage. Profit factor is generally considered a better measure of overall performance. The closer to 2 the better. If your profit factor is considerably over 2 then either you aren't calculating it correctly or your method is on a hot streak and you can expect it to average lower over a longer test period, so you probably want to expand your testing.

Win percentage primarily factors into psychology, i.e. low win percentage means you will have long periods of draw downs with many losers wiped out with a single winner whereas a high win percentage means you will have shorter periods of drawdowns but many winners wiped out with a single loser, it's a matter of preference.

Average win per trade is a good measure of how well your method will be able to overcome slippage and commissions in live trading. For day trading, the closer to 3 ticks the better. Again, if it's considerably over 3 ticks then you definitely want to expand your test period to make sure it holds up over time.

Trading a higher dollar value instrument will increase profitability for the same movement in ticks, but ES is a low volatility instrument, so a move on YM is often worth a similar dollar amount to a move on ES. You are more considering the ratio of the commissions to the tick value and volatility of the instrument. Also on a higher volatility instrument you will typically have more opportunities for entry.

Stupid question, do you mean 2% return on total capital or capital risked. I am sure this has been covered a thousand times.

the meanest bean of all,
MeanBean
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  #5 (permalink)
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Profit factor is the total of winning trades divided by total of losing trades.

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