Do we really have to use fixed Targets and Stop Losses? Up until now, while discussing how to trade by using Expected Value, we have been looking at making our statistical analysis with a trading method that uses a consistent fixed number of ticks for a Stop Loss and a fixed number of ticks for … [Read more…]
An interesting question. What lies behind it? A belief held by many traders that they must have a win rate where they win 70% or more of their trades and also be able to place their targets using some magic ratio (usually 3:1), the distance from their stop. Of course, the stop must also be … [Read more…]
I can hear you asking:”What in the blue hell is an EVRatio?” To put it simply, the EVRatio (as we shall choose to refer to the Expected Value Ratio) is the true Reward/Risk ratio of a trading method, after the probabilities of the exits (both target and stop) being hit have been taken into account,. … [Read more…]
Paradoxically, most traders,especially the ones with the “Get Rick Quick” mentality are all gung-ho about how much money they want to make, and have no considerations on how much they might lose. The stars in their eyes show all the potential profits, and never consider the potential losses if they are wrong in their trade. … [Read more…]
There are some who think that trading is easy. We almost all did at some time. Then we learned better, did we not? Trading is not easy, but actually it is simple: we must sell at a price higher than we buy. That is pretty much it. But we know that there are many times … [Read more…]
In Part 2a, we showed how despite using the much vaunted 3:1 reward/risk ratio of 3:1, a trader could still end up with a losing trading system. We asserted that the profitability of a trading system depends not only on the relative sizes of the distance to target and stop, but also on the probability … [Read more…]
So you have obeyed the gurus, who told you that in order to be profitable, you must have your target at 3 times the distance to your stop; and that that should pretty much ensure your success. You have done it, but you equity is still going down. Now you want to know what is … [Read more…]
How many instances of the setup to examine. In Part 1a and Part 1b of this series of posts, we examined how to determine the likelihood that our exits will be hit. In that particular post, we posited looking at 100 setups, and I said that that was because it made the analysis simpler. Heard … [Read more…]
What do the counts mean? In Part 1a, we examined how to determine the likelihood that our exits will be hit. In that particular post, we posited looking at 100 setups, and I said that that was because it made the analysis simpler. Our first order of business is to use our counts to determine … [Read more…]
Starting with the basics “Trading with Expectation.” What a strange statement? Do we not always trade with expectations? Of course, but the word I used is expectation, not expectations. There is a difference; and it is not just the “s” at the end of the word. Every trader has expectations, usually of gain, when they … [Read more…]
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