worthy7

I have been researching how to make money in multiple markets for about 5 years. I first started with the baby-pips course, traded a demo account, and then tried to make an algorithm which replicated my traded.
I then explored many books, from stocks and penny-stocks to forex and algo trading.

I learned that an ideal strategy can be exited at any time and gain a profit.
This in turn means that entry is very important, entry defines an edge.

The skill of the trader should simply be their ability to enter the market and move to profit ASAP. This is a skill we continually build over our lifetime.

Everything else can be calculated. After X time of the entry, what is the return distribution? You can set a stop loss to cut any large losses that may occur during X minutes. This needs to be researched before using real cash of course.

I learned that Expectancy (in pips) is the best measure of a system.

If expectancy of this system is positive, then the trader can make use of leverage to amplify those returns. How much leverage to use can also be calculated. Using monte-carlo simulations, Take a large list of trade results of the system (just the % returns based on the same risk every time), and randomize them 2000 times. See how many of these results would have gone broke. If the system is good, hopefully it is 0. Then multiple the results by various amounts of leverage and do the same thing. Some of the lists will ruin the account after multiplying the returns. We want this to be less than 1% of the randomized results. This is how you can systematically decide how much to risk on a trade. The risk per trade depends on the results of the strategy to ensure best risk reward.


As your edge (entry) gets better over time, your win rate will improve. So over time your results will improve and you can risk more. For example taking the last 50 trades and analyzing the Risk of Ruin to decide position size can work well.

traders4traders.com

Take care of the downside, the upside will take care of itself.