Win Rate vs Risk Percentages

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.

Nice threads.

I've never been good at mm, understanding only the basics.

Had a thought:
The percentage chance of losing 50% in most trading approaches is very high,
and such for winning 50% is very, very low.
Winning almost as much again is well nigh impossible.

Of course, if you get into the rare move that drops then returns fast and lose the first way, then you're fine, if you have the psychology to recognize the opportunity within the seconds it may take to do so.

The psychology for losing 50% depends on the individual; neglect, letting go, forgetfulness, a down platform with manual stops, and other provide ample opportunity beyond simply an edge that only works sometimes.
Too, your mind may settle around the new, low amount, figuring 'well, that's what I have then', or it may be only one step in a series of bitter trades that burn your account into the ground; the chance of the former is low but not too, and the chance of the latter, after having lost so much, is average.
Revenge trading, or when you do win back your money or nearly so, means you just went through some wild mood swings with the manic-depressive market, and may attach to the market's mood again and 'feel' you must lose or keep balancing your account around break-even only the next time you don't return to zero. The chance of this last one is also a bit below average.

The madness of losers.
I simply stay in simulator and m-c between method developments: Easier on the nerves ; )