Oke correct overview again
Probability of not gaining profit with PipShip; the risk vs return ratio…
It’s important not to hit the Abs Stop the first 7 months. (because then you will hit the -10% risk on original deposit) According to the TEST and LIVE performance of PipShip, we think the average time to hit the Abs Stop is about 3 years. (We made the prospect above with an average time of 3 years till hitting the stop) Then the probability to hit the Abs Stop is about 22% each year. (year 1: 78% traders still no hit, year 2: 0.78 – 0.22 x 0.78 x 100% = 61% traders still no hit, year 3: 0.61 – 0.22 x 0.61 x 100% = +/- 50% traders left)
Then by trading the first two trimesters (6/7 months) there still is a +/- 11% probability of not making profit with the PipShip Methodology the first time risking 10%. (0.11 + 0.11^2 + 0.11^3 + 0.11^4 … x 100% = 12%) Then we only look at the technical probability of profit of the system itself. Of course a bad trading philosophy/greediness of the investor -> overtrading -> not succeeding, this probability is not included. The probability of a technical failure of the HA server of course also not included. (but Abs Stop guaranteed by broker)
Until now, we have not seen DD’s below 600 pips. The probability to hit the Abs Stop (-1000 pips) therefore could also be somewhat lower. It’s a speculative subject. Only by gathering more LIVE performance data, more accurate statements can be made. But still then, we cannot look into the future. There is always a probability of not making any profits with PipShip. (the risk of trading) There is only an oppertunistic probability on gaining profit the first time risking 10%. (about 88%)
Hit Stoploss during the first 6 month period? Bad luck? Exceptional Market Circumstances? Or a bad Signal Provider Strategy?
Trying a second time after loosing 10% (probability of 12% of hitting the Abs Stop the first 6/7 months), the technical probability of not succeeding is still 12%. (again same characteristics) But in total, the probability of gaining profit with PipShip is far higher. (1-0.12^2 x 100% = 98%) About a probability of 98% of gaining profit with PipShip risking 20%.
10% risk on deposit and having a probability of 88% success or… 20% risk on deposit before having a probability of 98% success?
As investors ourselves, we understand that a 88% successrate can still feel somewhat low. A probability on profit of 98% maybe is experienced as more convenient or peacefull. Traders with a minimum deposit of $2000,– are also able to use a minimum risk approach (5% each month) instead of a normal risk approach (10% each month).
* We use both terms ‘probability of profit’ and ‘probability of success’. Of course there is a difference between ‘profit’ and ‘success’. Profit; any positive return on the original deposit. Success; the goal to achieve. Nevertheless, after trading the first 7 months, the profit buffer between the current return and the original deposit is large enough to start over a second time (after 8 months even a third time) if hitting the Abs Stop. The two terms ‘probability of profit’ and ‘probability of success’ therefore won’t differ in percentage or probability.
Normal Risk or Minimum Risk Approach?
On the other hand, there is a huge difference in the total profit of the normal and minimum risk approach after trading for example for 3 years. (and hit Abs Stop after trading 3 years)
Normal Risk Approach: E 5000 -> E 60.500, 88% probability of success, risk 10%.
Minimum Risk Approach: E 5000 -> E 15.000, 98% probability of success, risk 10%.
* E 60.500 and E 15.000 is the average return after trading for 3 years. The probability of success is the probability of making a profit risking 10% of original deposit only once. (hopefully trading for 3 years after making it through the first 6/7 months) The average profit after trading for 3 years is (normal risk approach) E 60.500 and (min risk approach) E 15.000. Illutrated in the image below: (normal risk approach)
‘Buying’ more security is also very costly. (E 60.500 vs E 15.000, 88% vs 98%)
There is a certain balance between return and probability of success.
Choosing for max profit? -> Normal Risk Approach.
Choosing for a max probability of success? -> Minimum Risk Approach.