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 Updated: July 5th, 2012 (05:56 PM) Views / Replies: 40,360 / 433 Created: September 15th, 2011 (01:48 PM) by VinceVirgil Attachments: 186

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Elite Member
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VinceVirgil
 .. A trade has a 50% chance of being a winner or a loser. .....

Why do you believe this? Just because this event - making a trade - has two outcomes? Then you are ill-advised. What is the probability of you still being alive ten minutes after reading this? Do you really think that is 50/50?

Look up Binomial Distribution in Wikipedia.

You don't know the probability of your trade becoming a winner or not. That's one reason why people backtest or analyze their former trades to at least get an estimate for this probability.

I remember reading a research paper by a large trading house, wherein they tried to find a measure to detect successful traders early in their career. They classified their traders into two groups: Group A had a winning rate of 80% and Group B had a winning percentage of 30%. Which group represented the traders who were successful at the end of the year and why?

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FGBL07

The 30%, because they had a higher R:R and the ability to hold out for their profits.

80% had to be right and took lots of profits early....

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FGBL07

I only repeated the 50/50 win vs loss ratio because in absolute terms. Can a trader always trade without a loss? Every sucessfull trader I have read about has lost, at one time or another. Blow out an account, and learned from the experience.

As far as your question, the key here is the end of the year. I understand trading is less about the trade entry, it is important, and more about position size and risk management.

I would say the Group B, 30%, because they tried harder, realizing that they could not be right all the time, and if you were less than 50%, or 80% or 100%, you could still be a successfull trader.

Group A, thought all they had to do was be right 80% of the time, and thats it.

Was I right?

Elite Member
Oberhausen, Germany

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VinceVirgil
 .. Was I right?

Almost... The answer is a bit too formal.

Group A grabbed for every little profit they could get and were killed by letting their losers grow. Group B tried to enter a trade and when it did not look/feel/whatever right exited with a small loss, keeping their losses small. But they rode their winners.

It does not imply that you need a low winning rate to be profitable - you may be successful (profitable within your chosen time interval) with 80% (or more) winners. It is a statistical view of the old saying "Cut your losses short and let your profits grow".

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FGBL07
 Almost... The answer is a bit too formal. Group A grabbed for every little profit they could get and were killed by letting their losers grow. Group B tried to enter a trade and when it did not look/feel/whatever right exited with a small loss, keeping their losses small. But they rode their winners. It does not imply that you need a low winning rate to be profitable - you may be successful (profitable within your chosen time interval) with 80% (or more) winners. It is a statistical view of the old saying "Cut your losses short and let your profits grow".

The simple solution is always best! Why overcomplicate things?

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I feel better for Group A. Apart from other intrinsic detail of system, 80% win might produce distributet profit as oppose to accumulated profit of 30% win of Group B.

 Harvest The Moon Nest The Market
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devdas
 I feel better for Group A. Apart from other intrinsic detail of system, 80% win might produce distributet profit as oppose to accumulated profit of 30% win of Group B.

The answer could be ... they were both successful, or both unsucessfull. Simply put, any answer we state may, or may not be the correct answer.

Markets are inefficient, therefore traders manage those inefficiencies for profit.

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 futures io > This is good advise, so I will follow it...

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