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At 10:55 AM -0400 7/11/00, Bob Fulks wrote:
>As for bet-sizing, there are two parts of this problem:
>
> > Deciding how many contracts to trade on each trading signal
>
> > Deciding how much of your capital to allocate to each commodity
>
>You find that some trades will have a higher reward-to-risk-ratio
>than others so you need to trade more contracts for those cases. This
>obviously will improve the overall profitability.
At 9:30 AM -0400 7/14/00, HDD95@xxxxxxx wrote:
>I am interested in thoughts about how to have some idea in advance
>which trades will have a higher reward-to-risk-ratio. What you say
>certainly makes sense, but I lack ideas for how to determine
>reward-to-risk ratio in advance of a trade. I'm not sure it is
>possible. Any ideas?
At 6:36 PM -0500 7/15/00, M. Simms wrote:
>This was discussed in an earlier post....the premise here is that for
>a given set of logic and rules that any one trade's return can be
>highlighted as better than another. Restated: If the system's
>EXPECTED win rate is 60% you expect 6 out of 10 FUTURE trades will be
>winners......then which of the 10 trades will have the best return?
There are two parts to the reward-to-risk ratio, "reward" and "risk".
Risk is easier. At the time of the trade, it is usually possible to
determine the risk. This is related to how far away your exit stop is
on the bar of entry. Obviously, the stop moves as time elapses but
since losing trades usually exit soon after an entry, the stop will
not have moved a lot by the exit.
Reward is harder. You need to evaluate this on the bar of entry and
there is not a lot to go on in most cases. I usually assume all
trades have the same potential reward. But it is possible that you
could calibrate this. Possible examples:
> You could keep track of how large recent trades have been
running.
> Trades following a period of congestion might move further
than normal.
Sounds as if it might be worth some investigation.
Bob Fulks
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