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Winner vs. Losers (Size) - Could Use Some Advice.

  • Post #1
  • Quote
  • First Post: Dec 30, 2005 5:52pm Dec 30, 2005 5:52pm
Hi,

I've been demoing for a few months now. I think I'm finally getting a rudimentary grasp on the basic concepts. BTW, reading this great forum is largely responsible for that, thanks.

I managed a small double digit percentage gain last month and had a greater sense of confidence in so doing. The latter part of that is more important to me than the first.

I've been trading mainly on 4Hr. Charts. The system I've been working with uses just price action and one indicator (EMA) for entries and exits.

I'm fairly comfortable with it so far and the backtesting I have done looks encouraging. However, it has one feature about which I am not as sure and would like some input from you all. The problem is the size of the winners is often smaller than the losers. From all I have read around here and on my own -- that is a bad thing. And that makes perfect sense.

To show you what I mean I've included a basic chart of my trades this week (25 in all).

I closed out 17 winners for an average gain of 24.5 pips.

I closed out 3 losers (5 losing still on the board -- the 5 negative trades listed at the bottom. Its not uncommon for a trade to be negative first -- of course they could still go lower before hitting stops.) for an average loss of 27.9 pips.

The raw number (in terms of pips) looks good to me for the week -- (+281 realized/+193 net). Clearly, I need to maintain a high number of right picks to be profitable.

My backtesting shows promise in terms of percentage right/wrong. But I'm uncertain about how reliable that is.

So, my question is basically, what is the next step when making decisions about a system? Is this likely to be a fatal flaw in what I am working on or not?

FYI, this is basically the way I posted my gains last month, and while this week is on the better side of what my testing has shown, it was not an unexpected week either.

Thanks for your help,

Jonathan

http://www.digitalbiblestudy.com/results.jpg
Quoting jbamaj
Hi,

I've been demoing for a few months now. I think I'm finally getting a rudimentary grasp on the basic concepts. BTW, reading this great forum is largely responsible for that, thanks.

I managed a small double digit percentage gain last month and had a greater sense of confidence in so doing. The latter part of that is more important to me than the first.

I've been trading mainly on 4Hr. Charts. The system I've been working with uses just price action and one indicator (EMA) for entries and exits.

I'm fairly comfortable with it so far and the backtesting I have done looks encouraging. However, it has one feature about which I am not as sure and would like some input from you all. The problem is the size of the winners is often smaller than the losers. From all I have read around here and on my own -- that is a bad thing. And that makes perfect sense.

To show you what I mean I've included a basic chart of my trades this week (25 in all).

I closed out 17 winners for an average gain of 24.5 pips.

I closed out 3 losers (5 losing still on the board -- the 5 negative trades listed at the bottom. Its not uncommon for a trade to be negative first -- of course they could still go lower before hitting stops.) for an average loss of 27.9 pips.

The raw number (in terms of pips) looks good to me for the week -- (+281 realized/+193 net). Clearly, I need to maintain a high number of right picks to be profitable.

My backtesting shows promise in terms of percentage right/wrong. But I'm uncertain about how reliable that is.

So, my question is basically, what is the next step when making decisions about a system? Is this likely to be a fatal flaw in what I am working on or not?

FYI, this is basically the way I posted my gains last month, and while this week is on the better side of what my testing has shown, it was not an unexpected week either.

Thanks for your help,

Jonathan

http://www.digitalbiblestudy.com/results.jpg
great job, try this next. try to use daily charts with similar stops. i think you will see a big difference. just demo it for a month and see if it helps. jim
I wanna throw two side-comment in:

1) Are you saying you entered 25 trades in one single week based on 4H chart set-ups? That is CRAZY! are you sure you are not overtrading? perhaps you might want to be more selective with your entry requirements.

2) Your average winner is 25 pips. Once again, considering you are trading off the 4H charts, 25 pips is nothing. Are you sure you are not cutting your positions short half-way through?
Quoting WTB
I wanna throw two side-comment in:

1) Are you saying you entered 25 trades in one single week based on 4H chart set-ups? That is CRAZY! are you sure you are not overtrading? perhaps you might want to be more selective with your entry requirements.

2) Your average winner is 25 pips. Once again, considering you are trading off the 4H charts, 25 pips is nothing. Are you sure you are not cutting your positions short half-way through?
good points wtb, thats why i suggested daily charts to lower the number of trades and hopefully increase the win size. it was the 17-3 that caught my eye. turn that ratio into more pips per win and thats some solid trading.
Hi,
Quoting jbamaj
The problem is the size of the winners is often smaller than the losers. From all I have read around here and on my own -- that is a bad thing. And that makes perfect sense.
I would say that it depends.

It may be that your strategy has a high % small wins with a small % of large losses. As long as the balance is 'consistently' positive then that is ok.

Most strategies are small % large wins with large % small losses and try to be consistently profitable.

Basically, the larger the target, the less probability of reaching it, so you have a larger probability of reaching a smaller target. However, with a smaller target, you need to watch out that your losses don't overwhelm your gains. It's a balancing act.

You can go back over your previous trades and see if smaller stops or larger targets would have made you more pips.

You can go back over more time periods/manually backtest to see how you would have done with the same parameters and/or different parameters.

In general, allow for at least 100 trades before coming to a tentative conclusion though in my personal experience I would go for 200-300 before coming to a firmer conclusion.

Best regards
Alan
Well, I think that's really impressive!

I've been trading live for a few months now, using my own system, and it's getting a bit better each month. I look at it in terms of ROI. Month 1 was 30% and December was 61%. I traded 12 part days in December, and missed most of the big moves as I was asleep at the time!

Personally I don't feel comfortable doing a high percentage of negative trades. Psychologically, trading is difficult enough! So at the moment I'm trading 97% positive. It would probably be 100% if I could stomach the waiting for some trades to turn!
Maybe I should move to the 4 hour charts thouggh, to increase the pippage! Thanks for the tip.

Happy New Year!
The framework is there; we just have to work on our frame of mind.
Quoting jbamaj
Hi,

I've been demoing for a few months now. I think I'm finally getting a rudimentary grasp on the basic concepts. BTW, reading this great forum is largely responsible for that, thanks.
I have the same problem, also with EMA system. My average losers' size is much more than winners', making the balance narrowly positive only by chance. I believe there's something psycological that determines. Anyone help me with that? thanks.

Best wishes for the new year,
Another Steve
Quoting WTB
I wanna throw two side-comment in:

1) Are you saying you entered 25 trades in one single week based on 4H chart set-ups? That is CRAZY! are you sure you are not overtrading? perhaps you might want to be more selective with your entry requirements.
I am trading this over the 6 major pairs. So that comes out to 1 trade per day per pair. Or roughly one trade every 6 bars. How far out of line is that?


Quote
2) Your average winner is 25 pips. Once again, considering you are trading off the 4H charts, 25 pips is nothing. Are you sure you are not cutting your positions short half-way through?


I don't believe I am. This is not a trend following approach (obviously, if I trading so much ) so there aren't a lot of home runs in it.

I'm going to play around with James' (thanks James) suggestion with daily charts and see if I get larger wins that way.

Thanks again,

Jonathan
Just wanted to give an update about the open trades from last week. Ended up with a fortunate results and 4 of them turned positive, which greatly changed the results for the week (21 winners/4 losers). And turned it into an exceptional week for me. Been on jury duty this week and haven't been able to trade anymore.

Thanks again your help.

Jonathan



http://www.digitalbiblestudy.com/result2.jpg
Quoting jbamaj
Just wanted to give an update about the open trades from last week. Ended up with a fortunate results and 4 of them turned positive, which greatly changed the results for the week (21 winners/4 losers). And turned it into an exceptional week for me. Been on jury duty this week and haven't been able to trade anymore.

Thanks again your help.

Jonathan



http://www.digitalbiblestudy.com/result2.jpg
great job j, jim
Sounds like a pretty solid system you have going there. Nice Work.

Hey, any chance you can post the system that you are using? Like, what are the entry exit signals and what are the details of the EMA you are using. Charts to accompany the explanation would be helpful as well. Thanks!
  • Post #12
  • Quote
  • Last Post: Mar 27, 2007 9:14pm Mar 27, 2007 9:14pm
Cut your losses short and let your profits run is one of the oldest Wall Street sayings.

Yet, it's still a very solid way to do trading nowadays.

If your losers are larger than your winners, you are doomed to keep a high winning % all the time, which is almost impossible to achieve over a whole year.

There's gonna be that week or that months where your system isn't perfectly in synch with the market...and guess what? You are gonna have a losing streak.

I would immediately try to find a way to get my winners larger than my losers. Not necessarily two or three times bigger. Just bigger. That way, with anything above 50% you'll be always positive in the long run.
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