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Does more trading = more money?


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  #1 (permalink)
 
shodson's Avatar
 shodson 
OC, California, USA
 
Experience: Advanced
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Some people become impatient with trading systems that don't yield enough trading signals. However, this may not be a bad thing. It all depends on your expectancy. Here's a video that explains the math.


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  #3 (permalink)
daedalus
Omaha, NE
 
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great video. I agree completely that most people have that "work harder = trade more = more money" and I think it screws up a lot of traders by overtrading or always seeking that "better setup".


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  #4 (permalink)
 dbw451 
Atlanta, GA
 
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Actually, the expectancy presented in the video is a little simplistic because it does not consider trade risk. Suppose the $15/trade system risks $15 while the $50/trade system risks $5000. A few losing trades in a row for the $50 system could wipe out an account. A trading system's expectancy is better expressed as expectancy per dollar risked (as detailed in Chapter 6 of Tharp's book "Trade your way to Financial Freedom"). In this case the $15 system would have an expectancy of $1 per dollar risked and the $50 system would have an expectancy of $0.01 per dollar risked. When using expectancies to compare systems, it's best to normalize the expectancies to risk.

Trading is gambling and gambling is about managing risk. Focus on risk, not profit expectations to stay in the game...


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Last Updated on March 14, 2010


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