How to improve the odds in trading

I've been pondering the thought..

We are playing a game of statistics. We are looking for the odds to be in our favor. Correct? Yet we do quite the opposite. All of us traders are taught to get a 2:1 return on our money.. For example.. having a 20 pip stop loss and a 40 pip take profit. Or a 1:1.5 ratio.

Looking at this we already have the odds against us ... You are 50% more likely of hitting the stop loss than the target.. Not to mention our entry strategy that helps improve the odds.

If we want to improve the odds and we change the stop loss to 40 pips and take profit to 20 pips.. then we have a 50% more likelihood of profiting!

There is good and bad to this.. because if we don't profit at least 75% of the time we are going to lose our money... So we need an entry that improves our odds..

Say we find an entry that improves our odds

Lets say we change the take profit to 10 and the stop loss is 40 then the odds improve to a 75% chance of wining this trade. I know the Risk Vs Reward isn't what we are all taught.. but I'm thinking the risk vs reward is counter intuitive. As long as you can endure lets say 7 loss's in a row and your not trading too much of your capital... i feel like you should be able to profit longterm by letting go of the risk vs reward we are taught.. As long as you receive more than enough winners to cover the losers than we create a profitable system. This system would have to win 75% of the time.. and i think this is very doable.

Think about the odds AGAINST you by changing the risk vs reward to 1:4 (Stop loss 10, Take profit 40) There is a 25% chance of losing that trade.. Thats a very good statistic. Lets say you improve the odds by having a conservative entry point and win 60% of the time.. this will improve your odds of losing to less than 20% chance of losing.... Those odds look very good to me.. what do you think?

I make this argument because i see some very good trading programs out there that make money that have risk vs rewards backwards like i propose... I'm NOT saying to not use a stop loss... Thats just stupid and amateur.

As you can see this will improve your odds of winning statistically... I've been paper trading this way for 5 weeks with great success.. I'll continue to watch it for a few more months. Just a thought for my fellow traders.. you don't have to adopt my philosophy fyi.. Just sharing a thought that might help. God Bless.. Goodluck to all!

I'm just an amateur that has been taking a beating on demo but I believe that setting R:R to a fixed value is not a smart move. The market doesn't give a rat's ass about your R:R... What if your TP is above a strong resistance?
Personally, I believe that you have to be realistic and analyse price action in order to answer two questions:
1) What will prove me wrong? That will be my SL.
2) Is there resistance in the direction of my trade? There, I'll put my TP.
If that gives me a R:R that's less than 1:1, I'll think twice before pulling the trigger, because that probably means that the move is already approaching it's end.

my 2 cents, on how to improve your odds, statistically and mathematically.

1. trade a bigger time frame. a larger time frame will require a larger SL and TP, but your spread will remain the same. you'll probably trade less too. don't work so hard to make your broker richer.

Assume : RR = 1:2, SL = 20pips, TP = 40pips, spread = 3pips win ration = 50%
After 100 trades ==> Win = +2000pips, Loss = -1000pips spread = -300pips ==> P/L = +700pips

Assume : RR = 1:2, SL = 60pips, TP = 120pips, spread = 3pips win ration = 50%
After 100 trades ==> Win = +6000pips, Loss = -3000pips spread = -300pips ==> P/L = +2700pips

2. It matters less how often you're right or wrong, than how much you make when you're right, and how much you lose when you're wrong.

Assume : S/L = 40pips, T/P = 10pips, win ratio = 75%
After 2 losses in a row ==> -80pips ==> need 8 wins to break even
After 3 losses in a row ==> -120pips ==> need 12 wins to break even

Assume : S/L = 10pips, T/P = 40pips, win ration = 25%
After 2 losses in a row ==> - 20pips ==> need 0.5 wins to break even
After 8 losses in a row ==> -80pips ==> need 2 wins to break even

I'm not sure what the statistics are, but I think the chance any system will take 2 losses in a row is very plausible, and probably a system that can make 8 wins in a row.

I'm not here to argue or start a shit storm, its just an opinion,

Great thoughts and ideas.. My mind is an open book.. I'm always looking for new possibilities and concepts.. Thanks for the feedback!

We use these trade ratios for our system, when it comes down to mathematics and probability you are very correct. but take a look at how we manage it... using a probability program. and some other things. this will give you some ideas on how you can adjust your system to do the same.

                                                 

@forexalertsystem

I would like to see how your system is working. Will you update your demo account?

Just follow our live calls.. on here or on our YouTube channel. Don't forget to 'subscribe to it'

https://www.youtube.com/user/forexalertsystem/videos

Wel I would like to see the account updated rather than a youtube channel. This is the reason why myfxbook was made and why I am here and not at youtube.

Anyway your choice.

Regards
Ardit H.

New Trading Video Being Uploaded now - people use myfxbook for different reasons. we like to help educate traders on different methods for trading. especially manual trading. our demo account was just an example. of hft in action. nothing more. however we have a new product out that is designed for users with damaged accounts recover them. if anyone want to volunteer with a live account. contact me via email or p.m

                      

                                          

forexalertsystem posted:
New Trading Video Being Uploaded now - people use myfxbook for different reasons. we like to help educate traders on different methods for trading. especially manual trading. our demo account was just an example. of hft in action. nothing more. however we have a new product out that is designed for users with damaged accounts recover them. if anyone want to volunteer with a live account. contact me via email or p.m

                      

You'll get a lot more consumer confidence if you show a long term trading history on myfxbook... do you have a live account on here that you can prove your good results? Words mean nothing in this business. The proof is in the pudding my friend. Show the proof and us customers will come pouring in.

JC, r:r is there for a reason, small or big TF it does not matter if one risk 40 pips to make 20 over time he is going to lose.
again, everything depends upon strategy. r:r is not taken form the heaven but arrives through back testing of probabilities. one can set r:r 5:1 and lose his shirt. There must be tested r:r over time.
first trading plan should have positive expectancy. then other things should be tested. But if there is an edge than r:r becomes important. proven statistically possible r:r going to pull account from DD incurred during bad periods and here another important thing is daily $ loss limit to avoid getting big hits when things are not working and also have limited period to trade.

I would never use a set R;R of 2:1 risk/reward.. but when i initially enter.. i try to put my SL in a place where it is highly unlikely to be hit. Then i exit with my TP where it is highly likely to hit. I adjust each trade depending on conditions. I exit early when it goes against me. My main goal is to have the least amount of drawdown as possible. Sure i can make 400 pips plus a month but when the market is bad.. i'll surely lose 400 pips. I'd rather claim 100 good pips and risk losing 100 pips with odds highly in my favor. This is still a theory in my head.. demoing it out the last 2 months with good results.. gonna do one more demo month then i'll go live. I'll keep u posted.

Maybe it's just me, but whenever I see a system with a negative R:R ratio, it always has huge drawdown. If it's a small sample maybe it hasn't had one yet, but eventually it will happen.

Yes, agree some of the returns of these systems are phenomenal, but the drawdown is a worry. Not a problem when trading a small account and you're prepared to lose it all, eg 1K, you get a 50%+ drawdown, you think ' Ahh what the heck leave it and lets' see what happens', try doing that with something more substantial. Say 50K or 100K

JC, you can run but you cannot hide ;) I mean your stop orders.

It is not going to help thinking you will have such a high hit rate that it will cover your loses. The math is not there. If you cannot have bigger winners than losers on average that gonna hurt. Firstly no one knows what market will do next moment. So, you can have a huge losing streaks...with larger stops then take profits you will not be able to recover.
High probability trade at one time turns into serial loser next time and then back to high probability winner again with time. Hence, plan should be followed and not to be changed every time losing period starts or there will be never consistency. and I believe in fixed R:R. then the trade is being managed of course with trailing stop. I think going less than 1:1 is not very good.
Good luck man!

Donex posted:
Maybe it's just me, but whenever I see a system with a negative R:R ratio, it always has huge drawdown. If it's a small sample maybe it hasn't had one yet, but eventually it will happen.

Yes, agree some of the returns of these systems are phenomenal, but the drawdown is a worry. Not a problem when trading a small account and you're prepared to lose it all, eg 1K, you get a 50%+ drawdown, you think ' Ahh what the heck leave it and lets' see what happens', try doing that with something more substantial. Say 50K or 100K

I'm actually expecting to see the opposite. As I am entering in only very high probability trades.. I might put my foot in my mouth a few months from now.. but demo trading is going well so far lol

HolyCow posted:
JC, you can run but you cannot hide ;) I mean your stop orders.

It is not going to help thinking you will have such a high hit rate that it will cover your loses. The math is not there. If you cannot have bigger winners than losers on average that gonna hurt. Firstly no one knows what market will do next moment. So, you can have a huge losing streaks...with larger stops then take profits you will not be able to recover.
High probability trade at one time turns into serial loser next time and then back to high probability winner again with time. Hence, plan should be followed and not to be changed every time losing period starts or there will be never consistency. and I believe in fixed R:R. then the trade is being managed of course with trailing stop. I think going less than 1:1 is not very good.
Good luck man!

I always tackle a strategy with the assumption i will have about 7 losing trades in a row. With that in mind, I only risk 20% of my account max in those 7 losing trades total.

I know noone knows what market will do.. thats why i'm scalping.. getting in and getting out to minimize my risk. My strading strategy isn't completely fixed on hard rules.. I assess it thoroughly each time to see if each trade is worth the risk. I know there will be losers.. i plan for them and i do my best to avoid them. Every trade opportunity an indicator gives isn't going to be a good trade. I don't follow completely fixed entry rules although i use a generalized rule for all trades which make them similar. I'm not getting into my strategy yet because I don't want to reveal the golden goose if it is one lol. Last months trading went well. I made 6% conservatively with 2% drawdown. I did have my big loss but... that loss came because i made 2 really dumb mistakes which i've learned from.

https://www.myfxbook.com/members/johncarrus/1hr15min-scalp/790266

Here's my current demo account. I might be living a fallacy but i'll test it for a while to see how it plays out. Drawdown at 2% and gains 6.5% in January. The major dip you see was 2 losses in a row which happened because i accidently closed a trade while trying out the new trading app, then jumped back in like an idiot to make back my losses which occurred more losses.

New rule is.. if i'm emotional in my trading .. turn it off for the day.. Emotions have no place in this market.

As you can see i'm taking small profits at a time.. I do see the downside of this and am thinking about trying to capture more pips in another account. But with slow and steady profits this month with low DD. I see potential. I did profit in December as well but i was trading micro units so you can't see it on the equity curve. My first month of trading i always do micro units so i can build up the account slow in case i hit a big DD from the start.. Also it helps me fine tune my trading strategy before initiating it.

I'm in agreement with @Donex . Systems with inverted RRs will eventually blow up. I've seen systems on this site with almost linear upward growth running for 2-3 years, but with one bad run, it melts down. Just take my earlier mathematical example and make the numbers more extreme, and you can easily figure out why.

wlk1 posted:
my 2 cents, on how to improve your odds, statistically and mathematically.

1. trade a bigger time frame. a larger time frame will require a larger SL and TP, but your spread will remain the same. you'll probably trade less too. don't work so hard to make your broker richer.

Assume : RR = 1:2, SL = 20pips, TP = 40pips, spread = 3pips win ration = 50%
After 100 trades ==> Win = +2000pips, Loss = -1000pips spread = -300pips ==> P/L = +700pips

Assume : RR = 1:2, SL = 60pips, TP = 120pips, spread = 3pips win ration = 50%
After 100 trades ==> Win = +6000pips, Loss = -3000pips spread = -300pips ==> P/L = +2700pips

2. It matters less how often you're right or wrong, than how much you make when you're right, and how much you lose when you're wrong.

Assume : S/L = 40pips, T/P = 10pips, win ratio = 75%
After 2 losses in a row ==> -80pips ==> need 8 wins to break even
After 3 losses in a row ==> -120pips ==> need 12 wins to break even

Assume : S/L = 10pips, T/P = 40pips, win ration = 25%
After 2 losses in a row ==> - 20pips ==> need 0.5 wins to break even
After 8 losses in a row ==> -80pips ==> need 2 wins to break even

I'm not sure what the statistics are, but I think the chance any system will take 2 losses in a row is very plausible, and probably a system that can make 8 wins in a row.

I'm not here to argue or start a shit storm, its just an opinion,

I'm not here to argue either and I truly Value everyones thoughts and opinions. Can you guys post your favorites accounts on myfxbook so i can take a look at them?


Those are great points.. as this (Theory) is just an experiment at this point. I do hear that swing trading is the way to go for big money. My main goal here is to be right 80% of the time.. which so far I am with 50 trades on my belt. I don't think that's luck because I screen my trades very closely. But again.. This is just a test :)

Also.. can you guys post your personal trading accounts? I would love to see how you guys are doing.. Thanks!