[Tip] How to improve the probability and length of your trades?

Trading Discussion
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Good day Traders!

Mathematically, the outcome of a system over a long period of time is the expected value. Therefore, we are interested in trades that are as likely and as long as possible, and we want losses to be as unlikely and as small as possible. That’s what the math says. And that’s what the task is derived from. Solving it shows a clear direction for improving the system.

The task is to think more deeply about what makes your inputs better:

1. What factors make your trades likely?

Example: Entries in strong trends in stocks. So far we have only looked at the technical side (strength of the movement, momentum) but now we are starting to look at the fundamentals and macro.

2. What factors will make the trades longer?
Think about what makes trades short when they could last longer. Why are you cutting trades too fast? On the other hand, what factors can extend the position?

3 What factors will make you have the fewest losses?

Maybe the losses you take have something to do with each other? Maybe, for example, you’re adjusting SL and magnifying losses when you should be cutting them mercilessly?

This is an example of how the psyche worsens the performance of a system by creating in us a short-lived but toxic hope that the market will turn around. It does not make sense, if the trade no longer meets the assumptions, it is better for the overall result to close the trade and not to code in your psyche that "you can wait, because the market sometimes turns. And even if it reverses five times, but not the sixth time, you will lose 30-40% of your account.

On the loss side we have two factors:

  1. The probability of loss should be as low as possible.
  2. The size of the loss should be as small as possible.

Analyzing the factors that serve these two things - it’s an interesting direction to improve the performance of the system.

And the best traders have another way of improving performance - pyramiding.

Pyramiding, in a nutshell, means adding to a profitable position. In this way you can increase and expand the profitable position. In the future, I will describe best practices in pyramiding and discuss how AI will take advantage of these opportunities.

Example: Entry when a move is still unlikely will be small and testing. As profit is made the automat will add to the position. Many funds will skip these moves but this is one of the interesting niches that will be created.

In such an interesting niche is one of the most efficient funds - Medallion. Its system has only 51% of profitable trades (so say the representatives, I must admit I have a few different opinions on this). This discourages others quite effectively but Medallion alone earns about 7 billion a year with an equity of 10 billion. Therefore, I think that the niche I mentioned is interesting and for a long time will give an advantage over traders and funds that think in classic categories of discrete trading ■

PS. Thank you for your questions in previous posts. We collect them and will answer in a while.

Cheers from rainy (and snowy!) UK, D.

I’m a scientist. Some have opinion, I have expertise and PhD.

2 Likes
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Focus on lowering risk is important rather than on reward alone. How long to leave a trade on is a tough one as you need to balance when enough is enough. Personally, I use structure to decide when I take profits, be it full or partials. If I think a trade is showing signs of having more to give I’ll take the partial to ensure I’m paid and leave a portion to run to the next logical price structure (as I see them).**

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Focus on lowering risk is important rather than on reward alone.

That’s true! Confirmed by many notable traders I have had the opportunity to work with or talk to.

How long to leave a trade on is a tough one

This should be answered by your system rules. If you are building it yourself, rely on statistics. You can work on historical charts and symulators, and see how situations build. Next, take 50-100 of your recent trades (successful as well as unsuccessful) and look for correlations, repeatability there, etc. Document thoroughly (notes, screenshots, videos), test. PS. Don’t be afraid to work on multiple TFs.

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Surely the one-line answer to increasing the probability and length of trades is to move to a higher time-frame?

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Yes, because you have a broader view of what has happened and can happen. But there’s more. It may turn out that the price is approaching some important moment and there is no point in doing something (eg no point to open a trade) or on the opposite - it is necessary to act… But again, it all depends on the assumptions of your system. You may find useful higher or lower TFs, or both.

If I can make a suggestion, it is worth to check out the assumptions of 2-3 systems that use 3-4 TFs at the same time. Just to explore the idea behind this approach. You may find it useful.

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Very curious as to how you found this community! Also great to have you here!

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To have a high probability, you need to have less risk. This can be done by placing higher stop loss or not overtrading, meaning you take less trades per day. If you want to see improvement in the length of your trades, you need to manage your emotions better. If something goes against you, you need to control your emotions and not overtrade.

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Oh, I know it since loooong time ago. Was really cool to be here then. Now, when I have somethng valuable and curius (like AI in trading or alternative data - very nice topic!) to share with you guys, I decided to came back.

PS. Sorry for late answer, I have a really busy schedule.

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Ooh like how long ago??

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2007 I believe.

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when A happened ,we assume B will happen next.
if your trading system based on such assumption ,you can’t really improve your probability,that’s pure guessing.

for me ,i found that A will happen for 100% without exception,once you stop trading with assumption ,analysis ,psychology ,attitude stuffs ,you will become the 1%