Author Topic: Positive Strategys in odds maker with a 3:1 risk to reward - impossible???  (Read 3016 times)

Andy

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I tried about 30 times to create a strategy which has positive expectations when you run it with for example a profit target of 5 cents and a stop order of 15 cents. I also tried then with 4:1 etc. Not one single strategy was positive... When I change to a 1:1 - all strategys are cleary positive... DO I understand here something wrong?

Why is it impossible to create a strategy and run it with a stop of 1x and a target of 3x (or 4x, 5x etc.) ? This seems kind of weird to me... I mean for a 1to1 I need a bigger then 50% hit-ratio, for 1.5to1 > 60%, 2:1 > ~ 67%, 3:1 > 75% etc. Is there something wrong - could anyone may help here? I can't be normal that there aren't any possible strategies which get me a hit-ratio of for example ~ 85% with a 3:1 risk to reward - isn't it?

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A

TradeIdeas_DA

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Very good question. If i understand you correctly You're asking why can't you find strategies that win 85% of its trades with an average winning trade 3x that of an average losing trade. The answer is its entirely possible but it is not found by mandating profit targets and stop losses in the OddsMaker.

You're creatively using profit targets and stop losses when running the backtest report to work backwards from a result you desire, in this case a 3:1 ratio. However profit targets are not the same as average winning trades. The former measures performance and the latter measures volatility within that performance result.

If you're strategy's trades perform with higher volatility than your stop loss, you'll get of trades that eventually turn around in your favor.

I also must question your original example. Why would you want your tolerance for a loss to be 15 cents while capping your winning trades at a 5 cent gain, a 3:1 ratio as you describe it. Why increase it to 4x, 5x?
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