Strategy Expectancy / Today’s Results

I posted my Trading Plan over at Informed Trades for additional feedback. Someone asked me what I thought my expectations were in terms of the risk and reward ratio of my plan. As I said there, I am vaguely aware of expectancy calculations and R values. But it always makes my head want to explode, especially when Trader Mike talks about it, but I should really think such issues out.

Based on my paper results this past week, and extrapolating in a very unscientific and approximating way, I would think out of every 100 trades I will make using my strategy:

• 30% would be losers with $40 loss per trade
• 30% would average to be break even trades (ranging from $5 loses to $5 gains that would accumulative to an overall scratch).
• 40% winners average profit of $106.25 in the following ways:

This would mean for every 100 trades I would expend $300 in commissions with the expectation that I would rack up on average $1,200 in losses while garnering profits of $4,250 for a net gain of $2,650.

I will review my trades from today over the weekend in detail. My main takeaway is that as always, there is a transition in going from paper to real trading – I had issues with my stop orders that were not prevalent in sim trading this week. I didn’t place a stop order in one trade – anxiously exiting seconds later; my trading platform didn’t execute one stop order; and I manually over-rode one stop order for a .05 shakeout that cost me a half-buck move. Here are my trades today:

Six trades with the following rates to compare to my expectancy projections above with my commissions added into transactions:

• 50% losers average loss of $23.78 (higher rate, lower average loss)
• 33% scratches average loss of $4.84 (similar rate)
• 17% winners average profit of $25.66 (lower rate, lower average win)