Ok, this is just going over the theory in a hypothetical scenario... In a world where a coin flip lands heads-tails-heads-tails on and on without variation.
Lets solve the win rate required for each risk percentage.
Risk 50%, Capture 50%
What odds are required?
If you have $100, and lose 50% you end up with $50.
To regain that you need first a 50% win to get to $75, then a 33.333% win to get back to 100%.
We could simply say you need two wins per each loss if risking 50% of your capital each trade. But, it's actually... 1 Loss to 1 win and 66% of a win(33% divided into 50%). So.... 1 loss to 1.66 wins required if risking 50% to stay breakeven. Or a 60.25% win rate? Not sure my math is correct... It could be a 66% win rate is required.
Remember... This is just a hypothetical scenario. In the real world the dice won't come out evenly and this will blow up eventually.
Anyway... Not important to know... Just important for everyone out there to realize that the larger capital they risk per trade the higher the win rate they must achieve to stay breakeven.
With a 2% capital risk per trade I think it's a 51% win rate required + whatever percentage for commissions/spread. 4% is about 53% win rate required + percentage for commissions/spread.
For those that use different types of "statistical analysis" for trading instead of "technical analysis" this is very useful to understand. I personally trade with a system that does statistical analysis of price vs price levels and odds of pullbacks, trend continuing, by how much... Etc... Crossovers/Signals/Etc... All that stuff is crap and will never make any money.
Lets solve the win rate required for each risk percentage.
Risk 50%, Capture 50%
What odds are required?
If you have $100, and lose 50% you end up with $50.
To regain that you need first a 50% win to get to $75, then a 33.333% win to get back to 100%.
We could simply say you need two wins per each loss if risking 50% of your capital each trade. But, it's actually... 1 Loss to 1 win and 66% of a win(33% divided into 50%). So.... 1 loss to 1.66 wins required if risking 50% to stay breakeven. Or a 60.25% win rate? Not sure my math is correct... It could be a 66% win rate is required.
Remember... This is just a hypothetical scenario. In the real world the dice won't come out evenly and this will blow up eventually.
Anyway... Not important to know... Just important for everyone out there to realize that the larger capital they risk per trade the higher the win rate they must achieve to stay breakeven.
With a 2% capital risk per trade I think it's a 51% win rate required + whatever percentage for commissions/spread. 4% is about 53% win rate required + percentage for commissions/spread.
For those that use different types of "statistical analysis" for trading instead of "technical analysis" this is very useful to understand. I personally trade with a system that does statistical analysis of price vs price levels and odds of pullbacks, trend continuing, by how much... Etc... Crossovers/Signals/Etc... All that stuff is crap and will never make any money.