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Winning Trade % Confidence vs. Straight Losers Expectation
I won't lie, I slapped this together pretty fast, so please let me know if you find any errors.
I hope the attached image is self-explanatory. Find your trade confidence in the left column (60% to 90% success rate). Then look up %s of having 2 or more losers in a row with that confidence.
Example:
Your trades have a 78% confidence level.
You're likely to get:
3 losers in a row about 1% of the time.
4 losers in a row about 23 times out of 1000 times.
5 losers in a row about 5 times out of 10,000 times.
etc.
Depending on your trading frequency, you can (roughly!!) estimate how many losers in a row you can expect in a year, a decade, or a lifetime of trading (of course, your confidence interval changes with time!!).
For example, assume:
3 trades a day, 22 days a month, 12 month a year.
About 800 trades a year.
8000 trades in a decade.
Therefore, the green color represents a 'decade' threshold under these assumptions (since green outcome is at least 1 in 10,000).
In other words, with 3 trades a day frequency, you might see a green outcome in a decade of trading.
You are not very likely to see a blue one... assuming your trade confidence estimate is accurate.
Anyways, it's a bit simplistic, but gives you a ballpark idea. Enjoy.
A similar question is if you start with $2000 and you risk $100 per trade with r:r=1:1, your win rate is say 2 out of 3. What's the probability the account balance would dip below $1000? I think the probability is smaller than 5%.
2 out of 3 puts you in the 66% row, meaning you can reasonably expect 8 losers in a row at some point during your trading career. So your account would probably not dip more than $800 at any one time (assuming the constant scenario above). Of course, you may have a string of multiple losers... but that's a different question and a more complex one.
Yes, it's more complex. It's possible to have 6 losers in a row followed by 2 winners, then another 6 losers in a row. I think a Monte Carlo simulation can answer this question better if a precise math formula is too complex.
I love this kind of stuff but suck at creating it, I have such a poor understanding of math.
To me, this gets us a part of the picture of risk of ruin, something I would love to see in a color coated index like you prepared if that is somehow possible. I think risk of ruin should be talked about more on the site.
It's the SUPER FREAK ....Horst Blows it OFF The CHARTS
It's Friday and a beautiful day to start the weekend....let's have some fun.
Ok, I'm only presenting what is FACTUAL based on futures.io (formerly BMT)'s postings, NOT Opinion.
Please review and attachment and sing along with .... Rick James...Baby....
"Faith is the substance of things hoped for, the evidence of things not seen." --- "Therefore, I Believe it and I will see it. And every day and in every way, I am healthier, wealthier, and wiser."
"Faith is the substance of things hoped for, the evidence of things not seen." --- "Therefore, I Believe it and I will see it. And every day and in every way, I am healthier, wealthier, and wiser."