I still don’t get it. I mean, conceptually, I do.
And it feels very logical and good. But practically, my problem is that I don’t really have hard “stops” or “risk amounts”. (I know this is not good)
I just enter a trade with my full buying power (yes, full, which is pretty small. only one trade at a time. no sizing yet), am willing to lose about 3% and I want to earn about 1.5%+ on each trade. I believe if I do these trades consistently, multiple times a day (at least once), I will be adding value to my initial investment amount pretty quickly. Off course, assuming that my hit ratio (W/L) is at least 3.
I know this high probability system is not the smart way to trade. In fact, I think its a dumb way to trade. But the good thing is that, I know its dumb. 
I know I would rather have a high expectancy than rely on high probability to make money.
I just don’t know how to get there yet and making some money is better than just sitting idle and reading about all this “ideal” stuff.
May 29, 2008 at 2:55 pm
I think you’ve confused things a bit.
High probability and high expectancy are not mutually exclusive things. Expectency is a function of your win % and your winner/loser ratio. As such, a high win % (high probability) method could mean a high expectency if the winner/loser ratio isn’t too small. Of course, with a high winner/loser ratio you can get away with a lower win % and still have a high expectancy.
But getting back to an earlier point about R and not having defined risks, it sounds like you do. You said 3% was your cut-off. That’s basically your R.
My concern is what kind of volatility 3% represents in your trades. If it’s too small for what you’re trading, you’ll see you stop out level getting hit more frequently that you’d expected.
May 29, 2008 at 8:03 pm
Thanks for your comment John. That’s exactly the point of this blog.
I understand that “High probability and high expectancy are not mutually exclusive things” but when I said “I would rather have a high expectancy than rely on high probability to make money” I meant I don’t want to rely on high probability part of the E equation alone and would rather learn how to increase my profits when I win than expecting just more wins.
About defined risks, the problem is that, the 3% is still fuzzy. I don’t enter a fixed stop loss. I continue monitoring and if I “feel” (dangerous, I know) the price will rebound to where I want, I sometimes let it go past 3% into negative territory and at times I will pull out even before it hits the 3% mark if I “feel” the stock is not going to go where I want it to.
Btw, nice blog. And thanks for the comment. Looking forward to more in depth discussion on various topics.