What are the odds in any given strategy?

What are the odds in any given strategy? And why is the amount of trades an important factor. Let's say we've a trading strategy with the same stoploss and profit target values. After 20 trades the strategy has a win/loss ratio of 70%. 

So 70% of all the trades were winning trades. This seems fantastic, but is it?

Instead of this strategy, we start coinflipping. Looking at a series of 20 flips might not be sufficient; each flip is independent, so it's quite possible to come up mostly heads or mostly tails. 

20 Coinflips

In other words, 20 good trades says nothing about the edge of a strategy

However, after flipping the coin hundreds or thousands of times, you'll start to notice the data converging on a pattern. If a strategy has more than 100 trades (with same stoploss and profit target values) and a win/loss ratio >50% it might have an edge

100 Coinflips

After 100 coinflips the simulated chance get very close to 0,5, so close to 50% chance of head or tail.

After 500 coinflips (or trades) the simulated chance got even closer to 50%

ProQuant US30 Kulb strategy

Lets take a look at the US30 Kulb strategy

This strategy have a current win/loss ratio of 57% after 221 trades. It has a sufficient amount of trades (coinflips) to be meaningful
Therefor I think that the US30 Kulb strategy has a slight edge in current market

Current US30 Kulb statistics

ProQuant US30 Kulb Strategy

More information about odds: https://blog.wolfram.com/

 

 
Sunday, August 02, 2020 knoeioei Weekly P&L 507
Weekly report - Week 31 (26 July - 31 July '20)

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