Expectancy Revisit

Had a chat with fellow trader today and prompt me to take a look back at my earlier blog on EXPECTANCY.
Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)
We can look at it in another way, as a ratio between accuracy and risk reward.
Expectancy = Accuracy * Risk Reward
Lets say we've an accuracy of 40%, i.e we're correct 4 out of 10 trades; and we've a risk reward of 3, i.e target is 3 times that of stop loss. We'll get this.
Expectancy = 4/10 * 3 = 1.2 (positive)
To break even, i.e. Expectancy of 1. Risk Reward has to be greater then 1/Accuracy
Risk Reward > 1/Accuracy

For above example, for accuracy of 40%, RR need to be greater then 1/(40%) or 10/4 or 2.5

Minimum Risk Reward needed for various Accuracy is as follow
Accuracy - Risk Reward
10% - 10.000
20% - 05.000
30% - 03.333
40% - 02.500
50% - 02.000
60% - 01.666
70% - 01.428
80% - 01.250
90% - 01.111

20101111

DbPhoenix mentioned trading on the right side of chart.
It is to plan out the trade before market open.
Here is my analysis for today.

Price drop down below support in pre-market. What I'd like to see if price climb back up, bounces off support area. With a 5pt stop and 15+20pt target, I'll have a nice 3.5 Risk Reward ratio.

Price move according to plan but didn't move as high as anticipated. Top at bottom of range formed earlier of the week. Partly because it has already gain 30 points from LOD in earlier session.

20101110

Post market analysis, price drop pass area of interest.
Another good area is as shown.
With 5 points stop and 10pt+15pt target. RR of 2.5 (entry on breakout)
With 3 points stop and 10pt+15pt target. RR of 4.16 (entry on bounce off support)

20101108

Price is moving in 10 points range. Looks like it'll bounce between 2177 and 2187.


Looking at longer term chart. I'm still LONG bias.

Trader-X is back

Trader-X is one Trader that I respect alot and followed.

I like his idea of simplicity.
He is back with some nice new post. Check this out.

Back from the dead?

The evolution of my strategies...

The evolution of my strategies (part 2)

The evolution of my strategies (part 3)

Questions and Answers

Wyckoff Forum by DbPhoenix

Has been reading DbPhoenix Wyckoff Forums over in Traders Laboratory for a while now. It's style of trading with very similar to what Anek advocate in his AHG - Trading without indicator.

Trading without indicator "forces" one to immerse one selves in PRICE. To feel the pulse of market.

It is also with this understanding of price that one can look for "area" of interest. To trade only when price reaches an area where we can look out for "signs" for advancement or reversal, and not middle of no where.

DbPhoenix is very generous, as Anek, shared freely his insight in trading and gave many examples and writeup in the forum. It is definitely an eye opener for me.

20101104

Pre market moved to high. Expecting it to drop back to ~2155. Not an easy play as there is no reference as to when it'll peak before reversing down - a full 30pts move from where it is now.

20101103