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High hit rate vs big R:R - Which one do you prefer and why?

  • #81
  • Oct 10, 2015 9:31am Oct 10, 2015 9:31am
Quoting PipMeUp
Big RR:
Lower win rate means a more volatile equity curve with deep drawdowns. It is easier to find a working method: follow the trend. This is statistically sound. It's not sexy in a forum.

Big win rate:
Higher compounding power and smooth equity curve. High probability that the system is actually a complete fluke waiting for the kiss of death. I'm yet to see a high WR system that stood the test of time or is at least statistically sound.

Anyways you don't decide the RR or the win rate of your system. These are just properties of it.


Every time I try to explain anything in a thread, I eventually discover that you've already said it somewhere else, but more succinctly and more clearly than I have! I'm starting to think that I shouldn't post here, myself, but instead should just compile an indexed list of your posts and refer other people to them as and when needed.
  • #82
  • Oct 10, 2015 1:01pm Oct 10, 2015 1:01pm
using ratio means you are gambling and dont have a system ,you better have a system with high hit rate
all have a nice day please
focus while relaxed to see better
  • #83
  • Oct 10, 2015 2:22pm Oct 10, 2015 2:22pm
Quoting FXEZ
The deceptive part is that without the trends in the data there wouldn't be any positive result.
I like this sentence but it implies that the trend is the only edge. Is it true? I don't know. Yet so far I found nothing else.


Quoting Xela
{quote} Every time I try to explain anything in a thread, I eventually discover that you've already said it somewhere else, but more succinctly and more clearly than I have! I'm starting to think that I shouldn't post here, myself, but instead should just compile an indexed list of your posts and refer other people to them as and when needed.


To be honest I'm not sure I'd like to be quoted as if I was the Truth . BTW I have been disproven a few times by some members. This is good to be corrected and avoid mistakes. I do my best to explain and proof my points when I can. That's what I miss the most here. Guys post as if what they write is true but come with no proof, no evidence, not even a little hint it indeed is true. It's good to have other people saying the same thing differently. It helps others understand. Well for people who want to listen. There are so many people here who already know it all. They know where the market will go. They know how to make millions out of a piggy bank. I just wonder why they don't do it....
No greed. No fear. Just maths.
  • #84
  • Oct 10, 2015 2:28pm Oct 10, 2015 2:28pm
Quoting alphaomega
I made some simulations, Just for the sake of the argument, and to show/prove mathematically, that high Win rate is superior to high RR. Note that I am not saying which one is easier to achieve. Everyone should decide for themselves. Simulation 1 - WR 65% , RR 1:1, risk per trade 1% Simulation 2 - WR 30%, RR 3:1 , risk per trade 1% Simulation 3 - Shows simulation 1 , but on risk adjusted basis with simulation 2 (with the same expected drawdown) {image} {image} {image}
Expectancy = WR.(RR+1) - 1

Simulation 1 - WR 65% , RR 1:1, risk per trade 1%
=> Expectancy = 0.65*(1+1)-1=0.3

Simulation 2 - WR 30%, RR 3:1 , risk per trade 1%
=> Expectancy = 0.30*(3+1)-1=0.2

You say that a strategy with an expectancy 50% greater is better. I'm sure you will agree that someone who earns $3000 a month makes more money than
someone who earns $2000.

Yet if you set the expectancy to be the same you'll have the same kind of result. Compounding is faster with high WR. But can such a thing exist in first place? 65% 1:1 is near HG.
No greed. No fear. Just maths.
  • #85
  • Oct 10, 2015 4:34pm Oct 10, 2015 4:34pm
Quoting PipMeUp
{quote} Expectancy = WR.(RR+1) - 1 Simulation 1 - WR 65% , RR 1:1, risk per trade 1% => Expectancy = 0.65*(1+1)-1=0.3 Simulation 2 - WR 30%, RR 3:1 , risk per trade 1% => Expectancy = 0.30*(3+1)-1=0.2 You say that a strategy with an expectancy 50% greater is better. I'm sure you will agree that someone who earns $3000 a month makes more money than someone who earns $2000. Yet if you set the expectancy to be the same you'll have the same kind of result. Compounding is faster with high WR. But can such a thing exist in first place? 65% 1:1 is near...
What I wanted to show is that between strategies with similar expectation the one with higher win rate is always superior. Also, lower expected drawdown and smoother equity curve allows the trader to take higher risk per trade relatively safely. With higher win rate, the "gambler's ruin problem" doesn't affect you too much. With low win rate not only you have to trade smaller by default, but you constantly have to reduce(progressively) the trade size, because if you don't - you will lose everything in the long run. Because these strategies spend most of the time in drawdown.
I never said which type of strategy is easier or more probable to achieve. The question of the poll is - "High hit rate vs big R:R - Which one do you prefer and why? " and if I have a choice I always prefer the high win rate.
And by the way 65% with 1:1 definitely is possible and achievable.. Many people have done it (even better than that). Just one famous example - Martin S. Schwartz. This guy had around 70% win rate, RR 1:1 or higher and never had more than 3-4% drawdown. He turned 50K into 20 mil. in a few years back in the 80's, won several trading championships. Absolutely amazing. There are many other, less famous examples. So it is possible, but not probable for 99% of the people. You really, really have to know your game to achieve such result.
  • #86
  • Edited 8:32pm Oct 10, 2015 8:10pm | Edited 8:32pm
Much of the discussion here revolves around hypothetical systems.

Price data has infinite variance, there is no useful application of the much discussed ideas of 3:1 or 1:1 with high hit rate. These are simply trying to fit the market into an emotionally comforting mould.
Quoting Xela
Much depends on trading frequency, too, of course: a system that trades only four or five times a year isn't so much use to anyone, really?
Trading frequency does not matter.
  • #87
  • Oct 10, 2015 8:42pm Oct 10, 2015 8:42pm
Quoting kprsa
{quote} Just to generalize: it is a secret hidden away from the average retail trader. {image} Proof: Oanda order book. (1) First look at the net positions in E/U (plot right on the image above). It shows that the most open volume below the current price are sell trades and the most open volume above the current price are buy trades. Both at a loss. So, on average, retailers are keen to cut their profits and let their losses run. (2) Second, the plot on the left tells you about the...
without seeing chart, above hypothesis is too generalizing. perhaps another example with H1 chart shown would be more realistic.
  • #88
  • Oct 10, 2015 8:52pm Oct 10, 2015 8:52pm
W * R = C

where...

W = Win Rate%
R = R/R (Reward/Risk)
C = Outcome/Results (IS a constant because whether you like it or not, only God can change that). Lets take C=1 then.

if you raise the R, W will drop, vice versa.
Try R = 5, you might just have 20% (or 0.2) chance of winning assuming a random market.

Example 0.2 * 5 = 1
Example 5 * 0.2 = 1

Please state your explanations if you disagree.
  • #89
  • Oct 10, 2015 9:21pm Oct 10, 2015 9:21pm
Quoting Xela
{quote} Every time I try to explain anything in a thread, I eventually discover that you've already said it somewhere else, but more succinctly and more clearly than I have! I'm starting to think that I shouldn't post here, myself, but instead should just compile an indexed list of your posts and refer other people to them as and when needed.
I agree Xela. There are a few on this forum that are masters in their field, PipMeUp and Fxez are just two examples. I don't want to offend them by talking in the 3rd person but it takes intense effort to look into the parsimony of their words to understand what in fact they are saying as these words are packed with meaning and may as well be a mathematical formula. You need to stretch your mind to reach these heights. This is the same problem I face on science forums when talking to experts in the fields of relativity and quantum mechanics.

Where the likes of you come in, and this is essential to this forum, is that your method of divulging important features of this market in a coherent and understandable manner for teaching purposes is invaluable. While we might stand in awe of these 'masters', we can assist others and ourselves to navigate around these economical words to add meaning provided we don't 'stuff it up in the process'.

That is where then PipMeUp and Fxez can state candidly 'that we were wrong through empirical validation' and then we can determine better more coherent ways of expressing ourselves to assist our understanding and that of others. In the process we might find that we overthrow these egg-heads at their own game *sniggers*

PS Be aware of Atokys as well as I suspect he is another Denizen of the deep.
  • #90
  • Oct 10, 2015 9:36pm Oct 10, 2015 9:36pm
Quoting Copernicus
{quote} I agree Xela. There are a few on this forum that are masters in their field, PipMeUp and Fxez are just two examples. I don't want to offend them by talking in the 3rd person but it takes intense effort to look into the parsimony of their words to understand what in fact they are saying as these words are packed with meaning and may as well be a mathematical formula. You need to stretch your mind to reach these heights. This is the same problem I face on science forums when talking to experts in the fields of relativity and quantum mechanics....

PPS
Quoting PipMeUp
{quote} There are so many people here who already know it all. They know where the market will go. They know how to make millions out of a piggy bank. I just wonder why they don't do it....
I think you doth protest to much Pip. From my perspective I believe you know the answer to this but in a tactful way you are shrouding your opinion
  • #91
  • Oct 10, 2015 10:19pm Oct 10, 2015 10:19pm
As I've learned... real trading is about accuracy. But that doesn't necessarily correlate to low R:R as the title implies. I used to trade a low win rate high R strategy that you can see in my journal. But that is old news now.

Really as I found, what I had developed there was a profitable gambling system. I really don't know how to explain it in a sentence but imo to have a preference for either or is missing the point. Unless of course you are too busy or unpassionate about learning to be an actual professional in this business, then sure, pick one or the other but there's no right or wrong answer, it's just a metric applied to some end objective.
  • #92
  • Oct 11, 2015 12:00am Oct 11, 2015 12:00am
Quoting Atokys
These are simply trying to fit the market into an emotionally comforting mould.
Yes I make no attempt to fit a given R:R or win rate for my strategies. Of course higher is better for both metrics, but I tend to measure other things rather than focus on R:R which tends to simply be a reflection of the underlying market dynamics and how a particular system interacts with it.

Quote
I like this sentence but it implies that the trend is the only edge. Is it true? I don't know. Yet so far I found nothing else.
So to PipMeUp, I don't know if it is correctly called "the trend" or just "market structure" or something else, as there may be multiple things going on at the same time.
  • #93
  • Oct 11, 2015 12:04am Oct 11, 2015 12:04am
Quoting FXEZ
{quote} Yes I make no attempt to fit a given R:R or win rate for my strategies. Of course higher is better for both metrics, but I tend to measure other things rather than focus on R:R which tends to simply be a reflection of the underlying market dynamics and how a particular system interacts with it. {quote} So to PipMeUp, I don't know if it is correctly called "the trend" or just "market structure" or something else, as there may be multiple things going on at the same time.
I reckon it is safer to use the words 'market bias' or 'levy flight/drift' than say 'trend' as random behaviour has the ability to knock the stuffing out of euclidean patterns. :-)
  • #94
  • Oct 11, 2015 12:16am Oct 11, 2015 12:16am
I prefer high R:R particular pyramiding trends, the R:R is undefined but I've been as high as 1:200
  • #95
  • Oct 11, 2015 12:29am Oct 11, 2015 12:29am
This is what i think this is what i do....
Attached Image
  • #96
  • Oct 11, 2015 12:33am Oct 11, 2015 12:33am
Quoting Ace66
This is what i think this is what i do.... {image}
Wow!!!! Impressive. What sample size? and do you have an idea of the volatility of returns?
  • #97
  • Oct 11, 2015 1:02am Oct 11, 2015 1:02am
IT IS IRRELEVANT to compare RR and win rate.

We need both. And we can have both.
  • #98
  • Oct 11, 2015 1:16am Oct 11, 2015 1:16am
Quoting Ace66
{quote} Some from last week.... but i don't want to go to tu much details ..... was just answering the question in regards to R:R to WR..... Green pips... {image}
No probs.

If you want to determine what Van Tharpe uses as a basis to assess system performance (System Quality Number SQN) then use the following formula over consecutive n=100 sample sizes for as long as you can go and then average the total result to get a total result. The SQN is a very effective relative measure to assess system robusteness in tandem with performance and then utilise this to optimise position sizing to really ram results home :-)

Embedded in the formula is expectancy plus sufficient sample size plus volatility of returns.

SQN = Squareroot (#Trades) * Avg R/Std Dev R

Attached Image (click to enlarge)
Click to Enlarge Name: SQN.JPG Size: 28 KB


More here and here .

It sounds like you may have a cracker of a system. All power to you.
  • #99
  • Oct 11, 2015 1:29am Oct 11, 2015 1:29am
Well from psychological standpoint i think WR is more important and fix R:R is just impossible ...And I think is the reason why many fail they don't respect price but focus on hit the target(R:R) As long as you are taking profits home you are golden... even small profits rather than small loss... You can always get in again ...
  • #100
  • Edited 1:53am Oct 11, 2015 1:41am | Edited 1:53am
Quoting Atokys
Price data has infinite variance, there is no useful application of the much discussed ideas of 3:1 or 1:1 with high hit rate. These are simply trying to fit the market into an emotionally comforting mould.
My experiences have led me to much the same conclusion. Genuine edges come from somehow finding and exploiting genuine inefficiencies in markets that are generally very efficient. Anything else is little more than a crapshoot, which transaction costs will eventually cause to fail.

Quoting PipMeUp
Big RR: Lower win rate means a more volatile equity curve with deep drawdowns. It is easier to find a working method: follow the trend. This is statistically sound. It's not sexy in a forum. Big win rate: Higher compounding power and smooth equity curve. High probability that the system is actually a complete fluke waiting for the kiss of death. I'm yet to see a high WR system that stood the test of time or is at least statistically sound. Anyways you don't decide the RR or the win rate of your system. These are just properties of it.
Agree with all this. When looking at trader performance on forums, very high win rates are frequently the result of unsustainable MM (e.g. excessively wide or no SL; adding to open losses; martingale variants). Obviously you could potentially fix your system RR by employing a rigid SL/TP across every position, but there is no guarantee that this in itself will provide an edge.
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