Long term Profits within Negative Expectancy | Page 17 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

What is Expectancy? 13 replies

System Expectancy - Monte Carlo Simulation 5 replies

Short Term / Medium Term / Long Term? 3 replies

Random Market vs Set Expectancy 8 replies

Expectancy is always zero 41 replies

Attachments: Long term Profits within Negative Expectancy
Exit Attachments

Long term Profits within Negative Expectancy

  • #321
  • Apr 15, 2010 1:21am Apr 15, 2010 1:21am
[quote=charvo;3427854]
Quoting FX-Petra

Long Term Winning in a Negative Expectancy Game




...... If you go long E/U with a 2 pip spread, you must go a full 10 pips higher for a 10 pip gain, but you need only 8 pips lower for a full 10 pip loss. I hope that everyone can see that, from a probability standpoint, forex is negative expectancy.......
if you go long e/u with a 2 pip spread with aims in the 1000's of pips.. and it takes more than 1 week to go 1000's pips interest rate differential will cover the cost of the spread and thus make it positive expectancy?

or you go long the A/U with goal of 2000 pips + if stop not hit in 3 weeks you can start to adjust stop back with cost thus stop is always widening while profit is always the same or narrowing?
  • #322
  • Apr 15, 2010 8:44pm Apr 15, 2010 8:44pm
[quote=domino;3640265]
Quoting charvo

if you go long e/u with a 2 pip spread with aims in the 1000's of pips.. and it takes more than 1 week to go 1000's pips interest rate differential will cover the cost of the spread and thus make it positive expectancy?

or you go long the A/U with goal of 2000 pips + if stop not hit in 3 weeks you can start to adjust stop back with cost thus stop is always widening while profit is always the same or narrowing?
Your pip goal, small or great, has no affect on expectancy. Given a 2 pip spread, you start every trade -2 pips in the hole. For a 1-1 ratio, you must move 1000 pips for a win...but only 998 pips for a loss. What do you know that convices you that it will move in the direction that profits you?
  • #323
  • Apr 16, 2010 2:39am Apr 16, 2010 2:39am
[quote=FX-Petra;3643634]
Quoting domino

Your pip goal, small or great, has no affect on expectancy. Given a 2 pip spread, you start every trade -2 pips in the hole. For a 1-1 ratio, you must move 1000 pips for a win...but only 998 pips for a loss. What do you know that convices you that it will move in the direction that profits you?
I was simply using his statement and throwing in some new situations to see if he would still consider it negative expectancy.. im not making any statements like this.
  • #324
  • Edited 11:24pm Apr 24, 2010 11:00pm | Edited 11:24pm
Quoting FX-Petra

Your pip goal, small or great, has no affect on expectancy. Given a 2 pip spread, you start every trade -2 pips in the hole. For a 1-1 ratio, you must move 1000 pips for a win...but only 998 pips for a loss. What do you know that convices you that it will move in the direction that profits you?
I do not agree that pip goal has no effect on expectancy.

For equidistant 1000 pip goal, the house edge is 1 - (1000 - 2) / (1000 + 2) = 0.4%
For equidistant 100 pip goal, the house edge is 1 - (100 - 2) / (100 + 2) = 3.9%
For equidistant 10 pip goal, the house edge is 1 - (10 - 2) / (10 + 2) = 33.3%

To overcome the house edge for 1000 pip goal, our win% has to be at least 50.1%
To overcome the house edge for 100 pip goal, our win% has to be at least 51.0%
To overcome the house edge for 10 pip goal, tour win% has to be at least 60.0%

Obviously it is much easier to beat the house edge if you have greater pip goal.
  • #325
  • Apr 24, 2010 11:46pm Apr 24, 2010 11:46pm
Quoting ForexQuant
I do not agree that pip goal has no effect on expectancy........
Obviously it is much easier to beat the house edge if you have greater pip goal.
Yes, your math and logic make perfect sense to me.
  • #326
  • Apr 24, 2010 11:48pm Apr 24, 2010 11:48pm
Everything depends on your SL. If your system depends on a large SL - you probably dont know what you are doing. Its THAT simple. If you reach the point in life to be theoretically and practically experienced in economics - you will understand what I say.

And the spread must be looked as just a ticket to trade, like a commision to enter the trade. I personally pay the spread and commision both! But I am happy to do that while receiving straight and clear data.

Have a nice day
  • #327
  • Apr 25, 2010 12:01am Apr 25, 2010 12:01am
Quoting Ulterior
If your system depends on a large SL - you probably dont know what you are doing.
You're saying that traders who trade longer TFs don't know what they're doing?
SL should be ideally be based on technicals, and reflect the length of the move that the trader is trying to capture.

Quoting Ulterior
And the spread must be looked as just a ticket to trade, like a commision to enter the trade. I personally pay the spread and commision both!
Hypothetical situation:
Br0ker 'A' offers a spread of 3 pips.
Br0ker 'B' offers a spread of 5 pips, on the same pair.
Everything else is equal.

You're saying that you'd be just has happy to trade with br0ker 'B'?
  • #328
  • Apr 25, 2010 12:14am Apr 25, 2010 12:14am
Quoting hanover
You're saying that traders who trade longer TFs don't know what they're doing?
SL should be ideally be based on technicals, and reflect the length of the move that the trader is trying to capture.


Hypothetical situation:
Br0ker 'A' offers a spread of 3 pips.
Br0ker 'B' offers a spread of 5 pips, on the same pair.
Everything else is equal.

You're saying that you'd be just has happy to trade with br0ker 'B'?
1 - yes, I am confident in tight SL long term entries with clear knowledge of what ones is doing
2 - you misunderstood me - I was talking about ECN brokers vs bucket shops. Personally, I get lower, floating spreads and pay a commission on trade volumes. In your example Broker A and B would have same overall trade costs.
  • #329
  • Apr 25, 2010 12:26am Apr 25, 2010 12:26am
Quoting Ulterior
1 - yes, I am confident in tight SL long term entries with clear knowledge of what ones is doing
2 - you misunderstood me - I was talking about ECN brokers vs bucket shops. Personally, I get lower, floating spreads and pay a commission on trade volumes. In your example Broker A and B would have same overall trade costs.
1 - Fair enough, it depends on your entry/exit strategy and your market knowledge.
2 - Everything else being equal, I would choose the br0ker offering the lower costs, and consequently bank more $$$ from each trade. The br0ker I use employs floating spreads and no commissions.
  • #330
  • Apr 25, 2010 12:30am Apr 25, 2010 12:30am
Quoting hanover
1 - Fair enough, it depends on your entry/exit strategy and your market knowledge.
2 - Everything else being equal, I would choose the br0ker offering the lower costs, and consequently bank more $$$ from each trade. The br0ker I use employs floating spreads and no commissions.
What is a average spread on USD/CHF and EUR/USD you receive then? Under normal market conditions?
  • #331
  • Apr 25, 2010 12:43am Apr 25, 2010 12:43am
Fixed spreads are a way for Traditional Forex FCMs (Futures Commission Merchants) to mark up or mark down the best bid or offer. FCMs do this to hide their fee into the price of the currency pair instead of displaying their best quote. Common sense should tell you that no one really offers commission-free trading, so when you see an FCM claim they have "no commissions," that should be a red flag. So how are they getting paid? It's simple, they're making money by building a markup/markdown into the spread.

  • #332
  • Apr 25, 2010 10:12pm Apr 25, 2010 10:12pm
Quoting Ulterior
What is a average spread on USD/CHF and EUR/USD you receive then? Under normal market conditions?
Broker is GoMarkets. Time is around 0300 GMT, as I type this, so we're still in the Asian session. Their spreads tend to get tighter during the European/London session. Currently EU is showing as 1.0 pips, and UF as 1.6 pips.
  • #333
  • May 2, 2010 8:17pm May 2, 2010 8:17pm
Quoting ForexQuant
I do not agree that pip goal has no effect on expectancy.

For equidistant 1000 pip goal, the house edge is 1 - (1000 - 2) / (1000 + 2) = 0.4%
For equidistant 100 pip goal, the house edge is 1 - (100 - 2) / (100 + 2) = 3.9%
For equidistant 10 pip goal, the house edge is 1 - (10 - 2) / (10 + 2) = 33.3%

To overcome the house edge for 1000 pip goal, our win% has to be at least 50.1%
To overcome the house edge for 100 pip goal, our win% has to be at least 51.0%
To overcome the house edge for 10 pip goal, tour win% has to be at least 60.0%

Obviously...
I did not mean to say that widening your stops and TP's cannot reduce the negative expectancy. I meant to convey that those actions cannot change negative expectancy to positive. Surley, with a 100k account balance tading a $1 pip (with 1000 TP and 1000 SL) you could survive many, many years. Some of those years would be winning ones. That does not change the fact that you are trading with a disadvantage.

Regards,
  • #334
  • Aug 21, 2010 8:43am Aug 21, 2010 8:43am
Quoting FX-Petra
Is there a system that can produce positive expectancy with equidistant profit/ loss points? I do not believe there is such a system available to small retail traders. I have seen many claims of such systems, but none that I have reviewed hold up to long term scrutiny. Please do not buy a retail forex system. If any of these systems could produce a positive expectancy, even a small one, the developer would be rich beyond their wildest dreams and not interested trying to get you to send them your money....
Hey Petra,

I've been thinking lately about this thread and what you present herein, and it occured to me that your main premise is market order dependent or at least cost dependent, but more so market order oriented (you assume a spread is paid). I'm sure you've already thought of this, but the closest one could get to neutral expectancy is with the use of limit orders in the futures market. You would not pay the spread, but you would pay a round turn commission of $12.5USD/contract + a small exchange fee (assuming you were trading fx futures).

If one used only limit orders, over time this would seem to make a big difference. There would still be negative expectancy, but you'd be much closer to that neutral mark as a general starting point.

In your examples you use a 2 pip spread, but in reality, you'd really never have any guarantee what type of spread you were going to pay because of market conditions, slippage, ect. As a retail trader using a bucket shop broker, you always have to pay the spread, even though they supposedly offer the use of limit orders, while being exposed to all the possible abuses at the same time. So the odds are really stacked against your everyday novice uninformed trader.

To wrap up the thought: the less informed one is, the less one should trade, but if one should choose to trade, use real limit orders!

One simple thought that comes to mind in terms of strategy while employing limit orders would be simple high time frame S/R trading, or something slightly more sophisticated such as trading off of high volume prices as seen in market profile methods. Just thinking out loud here...

If anybody is interested in futures and the use of limit orders, CME is rolling out new "Micro Forex Futures" where ticks are worth $1.25 USD instead of $12.50 in a standard contract.
  • #335
  • Aug 21, 2010 10:25am Aug 21, 2010 10:25am
Hi Scotty,

1. Hope all is well with you

2. Yes, trading limit orders with futures can lower your negative expectancy. It can give you greater chance to experience short term positive fluxuaction.

3. Unfortunatley, it cannot turn negative expectancy to positive expectancy. We start every race BEHIND our opponent (the market), not even with or, God forbid, ahead of. If we have greater knowledge than the market, we expect to make this ground up and close our trade in profit. If we have equal knowledge with the market, we are flipping a coin that is weighted very slightly against us. If we have less knowledge, we can expect to be wiped out pretty quickly. Obviously everyone wants to make money. So how do we enter our trades with geater knowledge, or positive expectancy? To do this on a short term, day trading basis is, for the vast majority, not possible.

Regards,
  • #336
  • Aug 21, 2010 11:50am Aug 21, 2010 11:50am
Quoting FX-Petra
If it gives someone a moment of pause before they put down their hard earned money, thinking "How hard can this forex thing be?".... then I am glad.
I think this is wishful thinking. I expect most people who read this thread will fall into two camps:

1. Those who know better.
2. Those who don't.

I don't think either will change (barring the odd exception). One doesn't need to learn, and the other can't or doesn't want to (though they may in the future).

Quote
I have been doing some research lately focusing on the first 1000 trades of any system.
We can learn far more about a trader by analyzing a few dozen trades in depth, than by looking at the results of 1000 trades.

Quote
That is assuming any retail day trader has an edge (this is a BIG assumption).
It's a bigger assumption to assume that no retail day trader has an edge.
  • #337
  • Aug 22, 2010 12:30am Aug 22, 2010 12:30am
Quoting FX-Petra
Hi Scotty,

1. Hope all is well with you

2. Yes, trading limit orders with futures can lower your negative expectancy. It can give you greater chance to experience short term positive fluxuaction.

3. Unfortunatley, it cannot turn negative expectancy to positive expectancy. We start every race BEHIND our opponent (the market), not even with or, God forbid, ahead of. If we have greater knowledge than the market, we expect to make this ground up and close our trade in profit. If we have equal knowledge with the market, we are flipping...
Hey Petra,

Thank you for your response. Now, I am not one who is scared to make a complete and utter fool out of myself, just go over some of my early posts if you don't beleive me .

I have never taken a strong interest in math, to be honest, I never really needed to or I just didn't care--until this point of my life that is. Anyways, I don't really know what I'm doing, but I attempted to make an expectancy table in excel so I could play with the formula you used in your first post. Would you be so kind to look at it and tell me if it's sets up correctly and if I can adjust the numbers in this particular formula?

You said in your post that what you were presenting was based on an equidistant profit and stop loss. How would the math change if I wanted to skew those variables or what would that type of formula look like?

I've ordered the stat book Medici has mentioned around these parts, I just need some help in the interim. I commited myself last August to getting serious about my trading, and I cannot avoid this part of it :nerd:The trading is good, but I need to know how the numbers apply to my particular situation.

Thanks so much, keep up the great work.
Attached File(s)
File Type: xls expctbl.xls   15 KB | 342 downloads
  • #338
  • Aug 22, 2010 9:04pm Aug 22, 2010 9:04pm
To Mr. J,

Why 1000 trades? Well, this is really a small figure, but it gives us some small sample size to work with. The first 12 trades? There is really no way to extrapolate long term results from 12 trades. Yes, you could analyize a small number and recongnize obvious mistakes.... but as to the underlying truth of your assumptions that are the bedrock of your system 12 trades could not begin to teach you anything..... especially if you are daytrading!! (all postions closed at the end of each day).

Small retail daytraders having an edge? I am not saying it is IMPOSSIBLE, just that it is very, very, very, very..... unlikley. When I enter a short term day trade looking for a few pips, it really has nothing to do with the underlying fundamentals of a country's currency. Such short term trades have to do with momentum and psycology. When I enter at a certain price the market has agreed, at that moment, that that price is where the market should be. Do I have some knowledge that the price should be higer (or lower for a sell) that the market does not? If the market had that information, it would already be reflected in the price. What knowledge do I have to give me confidence that the price will move in the direction I wish? I have none. I submit the vast majority of daytraders have none. The market has access to the same charts and indicators that I do. To think that I could stare at those charts and indicators and arrange them in such a way as to get the drop on all those poor sots who don't know what I know is (it seems to me) the height of hubris. Pride goeth before the fall!!

Of course, I may be wrong. Just my 2 cents.

Regards,
  • #339
  • Aug 22, 2010 9:11pm Aug 22, 2010 9:11pm
Scotty,

I am not in a postion right now to really look at your spreadsheet and give you any feed back. I will try to have a look tomorrow if I can find some time. I will PM you with any toughts I have.

Stay with it. I have been working on a system trading Daily, 4hr, and 1hr charts and have been having some good success. Backtests look good too. I do still believe there is money to be made in forex.... just not in short-term daytrading.

regards,
  • #340
  • Aug 25, 2010 5:27am Aug 25, 2010 5:27am
Quoting FX-Petra
To Mr. J,

Why 1000 trades? Well, this is really a small figure, but it gives us some small sample size to work with.
We need to factor in probability and expectancy when calculating a reasonable sample size. For someone with a 1% edge, 1000 trades is going to be far too few. For someone with a 30% edge, it's plenty.l

Quote
The first 12 trades? There is really no way to extrapolate long term results from 12 trades.
Maybe not 12, but a few dozen. In poker, analying a few dozen hands and the thought process of the player during those hands, would be far more informative than analyzing a sample of tens of thousands of hands. I'm certain this also applies to trading, and to many other activities of skill.


Quote
Small retail daytraders having an edge? I am not saying it is IMPOSSIBLE, just that it is very, very, very, very..... unlikley.
I don't disagree, though we must consider timeframe. Someone who scalps is going to have a much, much tougher time than someone who trades the hourly. I would expect that the successful small day traders are more concentrated towards slower timeframes.

Quote
To think that I could stare at those charts and indicators and arrange them in such a way as to get the drop on all those poor sots who don't know what I know is (it seems to me) the height of hubris.
A great trader doesn't necessarily see the same chart as a horrible trader. Same information, but processed far more skillfully.
0 traders viewing now