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Unless there is a dependency between wins and losses (ie. a win begets a
loss or a loss begets a win) in your system, you are simply eliminating net
winning trades by standing aside after a winning streak. If you have a 65%
chance of a win, you still after a 65% chance of a win after your winning
streak.
On the other hand, if there is a mathematical depedency, you can exploit
that, too, by getting smaller prior to a likely loss. You should prove this
dependency first, however, before trying to trade it.
Regards.
----- Original Message -----
From: Charles Turner <cturner002@xxxxxxxxxxxxxx>
To: Omega-List <omega-list@xxxxxxxxxx>
Sent: August 2, 1999 12:37
Subject: Question for you math/probability types
> Let's say I have a system that takes an average of +7.0 points out of the
> market each week. It has about a 65% win rate. The average trade is +1.4
> points. What would happen to long term performance of the system if I stop
> trading when I reach a total of +7.0 points each week. By doing this, I
know
> I would be skipping profitable trades, but I would be skipping losers too.
> It just seems that if I hit +7.0 points on Monday or by Tuesday morning,
I'm
> limiting exposure to losers by standing down until next week.
> Obviously, I'm going to hit a point where I encounter a max drawdown
> somewhere and if that drawdown happens to start on a Monday what I would
do
> is continue to trade each day until I made up the drawdown and got back to
a
> cumulative +7.0 points per week before I would go back to skipping trade
> days.
> Give me reasons why this would not work in the long run.
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