How to account BE trades

In calculating expectancy, how do you guys account for breakeven trades? Do you count is as a winner, loser, or just don't count it at all including disregarding it from number of trades taken and so forth.

I want to know my expectancy in the long term but now sure how breakeven trades factor into all this

thanks

Good point hilmy, have wondered a bit about that myself. Will be nice to see what the more experienced people think.

If you didnt make any money from them, why account them as winners? if you didnt lose either, why as losers?

I account them for what they are, a neutral trade.

However, if you notice that a significant % of your trades end up scratched as B/E trades, let that raise some eyebrows as in that something is not quite working as it should.

Ok so you're saying i should ignore them?
So if i took 100 trades and 20 are breakeven, then in my calculation i should use 80 trades total for my expectancy??

Ahhh as far as the expectancy? hmm that's different then, you certainly got to include those trades into the equation. Not as a winner or loser though, but certainly you've got to account them in.

that's the question i have, how?

well, i dont do BE, i do make my SL to 1 pips profit.. so i can count it as profit.. just a thought to make it simple

as a winner, 0 profit. you covered spread or commission.

Hilmy, I measure expectancy using profit factor, i.e.

(# wins / # losses) x (avg net win size / avg net loss size)

so breakevens have no impact (hence I ignore them).

As an example: +10,+8,+6,0,-3,-5

Possibility #1: If we ignore the breakeven trade altogether:
#wins = 3; # losses = 2; avg win = (10+8+6)/3 = 8; avg loss = (3+5)/2 = 4; hence PF = 3/2 x 8/4 = 3.0

Possibility #2: If we include the breakeven as a win only:
#wins = 4; # losses = 2; avg win = (10+8+6+0)/4 = 6; avg loss = (3+5)/2 = 4; hence PF = 4/2 x 6/4 = 3.0

Possibility #3: If we include the breakeven as a loss only:
#wins = 3; # losses = 3; avg win = (10+8+6)/3 = 8; avg loss = (3+5+0)/3 = 2.667; hence PF = 3/3 x 8/2.667 = 3.0

Possibility #4: If we include the breakeven as both a win and a loss:
#wins = 4; # losses = 3; avg win = (10+8+6+0)/4 = 6; avg loss = (3+5+0)/3 = 2.667; hence PF = 4/3 x 6/2.667 = 3.0

PF = 3.0 in all cases, so it makes no difference.

Silly me , I just realized that the reason is obvious:

(# wins / # losses) x (avg net win size / avg net loss size)
is the same as
(# wins x avg net win size) / (# losses x avg net loss size)
i.e.
total winning $$ / total losing $$

So adding 0 to either winning $$, losing $$, both, or neither, is not going to make any difference!


However, if you are simply looking at win rate, and want to factor breakevens in, why not count them as a "half win/half loss", e.g.
in the above example, 3.5 wins and 2.5 losses = win rate of 3.5/6 = 58.33%

Or have I missed your point?

David

Hilmy,

In my personal trading, i count BE as neither a win nor a loss. It is like you never entered the trade in the first place. Think of it this way, if you give nothing back and you take nothing, then you neither profit nor loss, it does not increase/decrease your bottom line. However, if you have accrued rollover interest positive/negative then this does make a difference to overall equity and should be accounted for. If say,just for example,you trade short the gbpjpy and close the trade at BE but kept it for a few days then this trade has cost you money and should be counted as a loss. Just to emphasize my point,if you opened 50 trades short gbpjpy in the year(you may not do this,but its just an example) and every trade turned out BE and all trades were kept a few days to weeks, then your equity level has decreased due to negative rollover,even though you have not lost a trade. It is all about your bottom line. Ask yourself: Has my equity increased or decreased due to placing this trade?.It is part of doing business.
Just my 2pips worth.

Cheers
SK

but since we start with -spread in number, we always start with loosing position, if there is only 2 option, i will call it a winning trade.....

do you count operational cost, into the calculation too?

((R multiple win * number of wins)-(R * number of losses))/Total number of trades= expectancy

so it gets accounted for in your total trades taken

I agree with some of you that's why I actually like the profit factor formula because it takes away the effect of breakeven trades. Even though I think it's a good indication of trader's skill to limit losses, I feel that a breakeven shouldn't dictate the expectancy of the system. It's just a 'zero' trade. I don't see how having more breakeven trades would reduce your expectancy because you're not losing money.

The reason I asked about breakeven trades is because it has become part of my system now.My trading principle now is to "protect your money before making money" Because I know in the past I would follow the trade in the negative even though I was up "hoping" not to lose speculative profits. But now, I'm happy to set it at breakeven even when I'm out and the trades shoot up my way because i know that there are many opportuniites coming and that I didn't lose money. Not reacting to 'missed' opportunities is something that requires a lot of self control and discipline, and I feel I am learning to handle that