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

  • #121
  • Edited 7:44pm Oct 13, 2015 7:22pm | Edited 7:44pm
Quoting rvince
Copernicus, You want robustness in your position sizing with respect to future market conditions. can we stipulate that this is paramount? That being the case (and we are only discussing the simple case of trading one component at a time here), our criterion (in the sizes we are trading in) may not be to maximize (asymptotic) long-term expected growth, but perhaps something else (e.g. maximize MAR ratio, or something like that). We can estimate the peak of the curve as p'/2 because (if you are using the optimal f formula, which is "scaled,"; if...
Ralph I greatly appreciate you effort in response and your explanation is triggering my creative juices and putting more meat on the bones to my naive assumptions. Much obliged......and great to have you on this forum. I am humbled.

I clearly need to look into this more and will refer to your references. I need to mull on this to let it sink in. Quite clearly scaling is something I must do with my modelling which is popping up time and time again.

I have always suspected that I need to delve a bit deeper than expectancy alone with regards to developing a robust system and a few lightbulbs were starting to flicker with your post as the general thrust of what you were saying started to hit home. I unfortunately don't have the requisite skills for intense mathematical modelling so I cheat and ask those incredibly talented mathematicians out there to interpret it for me so I can apply it.

Your contributions to a forum like this will be invaluable and I hope you stick around.

C
  • #122
  • Oct 13, 2015 7:33pm Oct 13, 2015 7:33pm
Quoting Copernicus
{quote} Ralph I greatly appreciate you effort in response and your explanation is triggering my creative juices and putting more meat on the bones to my naive assumptions. Much obliged......and great to have you on this forum. I am humbled. I clearly need to look into this more and will refer to your references. I need to mull on this to let it sink in. I have always suspected that I need to delve a bit deeper than expectancy alone with regards to developing a robust system and a few lightbulbs were starting to flicker with your post...
What he is trying to explain here is the same thing I talk about in my thread about money management. But because I'm not mathematician (by education) I use only simple words and concepts.
  • #123
  • Oct 13, 2015 7:38pm Oct 13, 2015 7:38pm
My personal view is that both systems (high RR & lower WR) or (lower RR and higher WR) can be profitable across different pairs and some WR RR combinations work better than others, depending on the trade duration, time of day, etc. That said, I prefer to target a WR above 55 and RR above 1.1, only because I want my cake and eat it too (honestly I don't trust my systems' ability to predict future price action greater than 50% of the time, and I want to at least break even and hopefully make a slight profit, so I aim for 55% with at at least a 1.1 RR and greater, hoping to win 50% or greater). If you can predict 55% of the time, then RR 1.1 should make money even with slippage and spread.
  • #124
  • Oct 13, 2015 7:45pm Oct 13, 2015 7:45pm
Quoting alphaomega
{quote} What he is trying to explain here is the same thing I talk about in my thread about money management. But because I'm not mathematician (by education) I use only simple words and concepts.
I had a squiz at your thread AO and that lateral mind of your is impressive. These mathematicians make me feel sooooooo naive. :-)
  • #125
  • Oct 13, 2015 8:45pm Oct 13, 2015 8:45pm
But it may be to your advantage NOT to over-think it mathematically, because what we need are very robust tools for the immediate future. to me, this means simplified heuristics.
  • #126
  • Oct 13, 2015 8:51pm Oct 13, 2015 8:51pm
Little strokes fell great oaks.
I prefer High hit rate.

But i am from dreaming world so i want mix of them. High hit rate and big Reward vs small Risk.
When you lose, I'm the loudest who laugh at your face )
  • #127
  • Oct 13, 2015 8:51pm Oct 13, 2015 8:51pm
Quoting rvince
Copernicus, You want robustness in your position sizing with respect to future market conditions. can we stipulate that this is paramount? That being the case (and we are only discussing the simple case of trading one component at a time here), our criterion (in the sizes we are trading in) may not be to maximize (asymptotic) long-term expected growth, but perhaps something else (e.g. maximize MAR ratio, or something like that). We can estimate the peak of the curve as p'/2 because (if you are using the optimal f formula, which is "scaled,"; if...
If this is really Ralph Vince then it's really awesome. Everyone expect to benefit to your wisdom. A big thank you for your posts is an understatement.

I hope some VIP from big RR camp can show up here too

Man, this thread is getting more and more interesting



*Guys, don't forget the poll please
Different/opposing ideas will make us learn and understand many things.
  • #128
  • Edited 10:13pm Oct 13, 2015 9:34pm | Edited 10:13pm
Quoting rvince
But it may be to your advantage NOT to over-think it mathematically, because what we need are very robust tools for the immediate future. to me, this means simplified heuristics.
I am with you there Ralph. The problem to me lies in applying these mathematical principles to trading without falling into the trap of 'cognitive bias'. I obviously need to spend some time on your blog and with my head in your books to see how you achieve this in a non-subjective manner. Any pointers in this regard regarding building systematic robust simple systems without to much discretion would be greatly appreciated. :-)
  • #129
  • Edited Jan 5, 2016 4:36am Jan 4, 2016 6:11am | Edited Jan 5, 2016 4:36am
my take was/is:

1. you start with 1:1 RR and develop big winrate% (>>60%)
2. you have the signal and then try to expand RR ratio as much as you can

?

First is only about the signal rite, and you point some TP/SL structure on this with 1:1 RR.

how do you do the second point? I would say

after initial signal, how we can track the trade and what are our ins/outs to track it? Ultimately for automated system (im talking only about that) one needs to track the trade alone. that means conventional pipwizze or % change SL and TP category dies out. The system alone tries to close on a contra signal or at least a part of the trade when systems gets into overheated territory to hold a trade longer. In negative or positive territorry of course.
  • #130
  • Jan 6, 2018 5:36pm Jan 6, 2018 5:36pm
This is an easy pick: RR is 100000% times better than big win ratio. Reason?? You cannot take control of your win ratio even with the best predictive powers they wear out and have a lot of periods of bad luck. But you CAN take control of winners by letting them run more than your losers.
  • #131
  • Oct 10, 2019 1:58am Oct 10, 2019 1:58am
Quoting Don_xyZ
{quote} I don't know who coined the term high probability trade but apparently it means a setup that has a hit rate. A setup that can offer 70 wins out of 100 trades can be said a high probability setup. And this mean, scraping the majority of trading opportunity just to find that one or two setups that are proven to be profitable over the course of x period of time. So yes, in this sense, there is a thing called high probability trade/setup.
Trading is a psychological adventure...High hit rate tends to boost emotions than low hit rate. Who on earth would dare opening another trade after after suffering a loss of 30 trades in a row?
  • #132
  • Oct 12, 2019 12:55pm Oct 12, 2019 12:55pm
Quoting orabi
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
I agree with you. Building a system that is characterised with high win rate reinforces one psychologically.
  • #133
  • Oct 12, 2019 1:01pm Oct 12, 2019 1:01pm
Quoting Don_xyZ
{quote} I don't know who coined the term high probability trade but apparently it means a setup that has a hit rate. A setup that can offer 70 wins out of 100 trades can be said a high probability setup. And this mean, scraping the majority of trading opportunity just to find that one or two setups that are proven to be profitable over the course of x period of time. So yes, in this sense, there is a thing called high probability trade/setup.
I am also beginning to think more of high hit rate and less of rr these days.
  • #134
  • Oct 12, 2019 1:05pm Oct 12, 2019 1:05pm
Quoting FerruFx
Yes that's why you can't dissociate both winrate and R:R ...
I try to stand in between RR and high hit rate. I found that that RR does not matter more than hi rate. So I try to ensure that they enhance each other. Some traders aim for 1:10...I think that is more unlikely.
  • #135
  • Oct 12, 2019 1:14pm Oct 12, 2019 1:14pm
Quoting Don_xyZ
{quote} Yes, you said it yourself. Let's say low R:R means 1:1 risk to reward ratio so: For those with low RR they must increase their hit rate. So in a sense, High hit rate + low RR = profitable result For those with low hit rate they must increase their RR. So in a sense, High RR + low hit rate = profitable result Please don't forget the poll on the 1st page guys. Your participation might or will help other people
I like your conclusion:

1. High hit rate + low RR = profitable result

2. High RR + low hit rate = profitable result
  • #136
  • Last Post: Oct 12, 2019 1:17pm Oct 12, 2019 1:17pm
My own observation in forex trading over a reasonable length of time shows that
Hit rate is inversely proportional to risk -to- reward ratio (RR).
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