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Realistic expectations for day trading returns


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Realistic expectations for day trading returns

  #11 (permalink)
randomguy
Braga, Portugal
 
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danielk View Post
I get the point you're making but that wording will easily confuse folks. I'd say you're risking $125 to make $125 with a 55% win rate. The net effect over a large enough sample rate is that after the 55% winrate you expect to make an average of $12,5 per trade (even less after comms and slippage) which over 6 trades a day should statistically result in 12,5 x 6 = $75 daily average.

Basically: 100 trades

45 losses, 45 * 125 = -5625
55 wins, 55 * 125 = +6875
$1250 gains / 100 trades = $12,5 avg. theoretical gain per trade before comms, slippage, fatfingers, missed signals etc.

Throughout a day with 6 trades you are risking a worst case scenario of 6x125 = $750 max drawdown to make an expected average of $12,5 x 6= $75 a day.

But on a roll by roll basis you are risking 1 to gain 1.

To me these are not very favourable margins, and they come with a huge skew potential if/when your winrate dips (4 losses a day: -500 + 2 wins +250 = -250 net, meaning you need at least 2 wins the next day just to recoup previous day). But to each his own.

Yes, that was what I was trying to say, sorry if I was misunderstood. Also, the 125$ risk is an average, sometimes I risk more or less, and the 10% expectancy that I'm getting is AFTER I account for slippage and commissions. Before slippage and commissions I have an expectancy of ~18% (22,5$ profit per trade).

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  #12 (permalink)
 
rassi's Avatar
 rassi 
the congo
 
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danielk View Post
I get the point you're making but that wording will easily confuse folks. I'd say you're risking $125 to make $125 with a 55% win rate. The net effect over a large enough sample rate is that after the 55% winrate you expect to make an average of $12,5 per trade (even less after comms and slippage) which over 6 trades a day should statistically result in 12,5 x 6 = $75 daily average.

Basically: 100 trades

45 losses, 45 * 125 = -5625
55 wins, 55 * 125 = +6875
$1250 gains / 100 trades = $12,5 avg. theoretical gain per trade before comms, slippage, fatfingers, missed signals etc.

Throughout a day with 6 trades you are risking a worst case scenario of 6x125 = $750 max drawdown to make an expected average of $12,5 x 6= $75 a day.

But on a roll by roll basis you are risking 1 to gain 1.

To me these are not very favourable margins, and they come with a huge skew potential if/when your winrate dips (4 losses a day: -500 + 2 wins +250 = -250 net, meaning you need at least 2 wins the next day just to recoup previous day). But to each his own.



I think I understand

Yup your still going to get torn a new one with that expectancy with manual trading.


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  #13 (permalink)
 danielk 
Stavanger, Norway
 
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randomguy View Post
Yes, that was what I was trying to say, sorry if I was misunderstood. Also, the 125$ risk is an average, sometimes I risk more or less, and the 10% expectancy that I'm getting is AFTER I account for slippage and commissions. Before slippage and commissions I have an expectancy of ~18% (22,5$ profit per trade).

No worries, you already did the math and had the end results fresh in mind which isnt always obvious to follow for folks who've just tuned in.

Dont get me wrong, a positive win rate is great but the R:R is very closely tied together and a healthy balance between the two i find is important for recovering losses and reducing huge drawdowns. Needing 1 win to recoup 1 loss i think would be too much of a struggle for a relatively low win rate. I would do some more digging to see if you can either improve the R:R or winrate.

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  #14 (permalink)
 
rassi's Avatar
 rassi 
the congo
 
Experience: Advanced
Platform: North sea oil rig
Trading: Cl
Posts: 927 since Jun 2009
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Thanks Received: 1,199


danielk View Post
I get the point you're making but that wording will easily confuse folks. I'd say you're risking $125 to make $125 with a 55% win rate. The net effect over a large enough sample rate is that after the 55% winrate you expect to make an average of $12,5 per trade (even less after comms and slippage) which over 6 trades a day should statistically result in 12,5 x 6 = $75 daily average.

Basically: 100 trades

45 losses, 45 * 125 = -5625
55 wins, 55 * 125 = +6875
$1250 gains / 100 trades = $12,5 avg. theoretical gain per trade before comms, slippage, fatfingers, missed signals etc.

Throughout a day with 6 trades you are risking a worst case scenario of 6x125 = $750 max drawdown to make an expected average of $12,5 x 6= $75 a day.

But on a roll by roll basis you are risking 1 to gain 1.

To me these are not very favourable margins, and they come with a huge skew potential if/when your winrate dips (4 losses a day: -500 + 2 wins +250 = -250 net, meaning you need at least 2 wins the next day just to recoup previous day). But to each his own.



I think I understand

Yup your still going to get torn a new one with that expectancy with manual trading.


Sent from my iPhone using Tapatalk

Visit my NexusFi Trade Journal Reply With Quote




Last Updated on September 4, 2017


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