Long and short term position sizes - page 2

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Okay i want to expand on one more thing which is it also works in reverse.

It's also possible to calculate the take profit level.


The empirical thing i wanted to show is this,

As you can see from this graph, setting a higher take profit level can increase Probability as well as Profit.

In the graph it shows that, if take profit is set at for example 20 Pips, it occurs less, then a take profit of 30 pips.

Even the 40 pips as well as the 50 pips are more frequent then the 20 pips, statistically spoken it means if you set it to 20, in ideal situation, you will hit the 20 pips, 6182 times,

However, in all cases where it would also go to 30, 40 or even 50, it still closes the trade at 20, and so anything over 20 is cut off unless you are trailing, which leads to other calculations,

This is where the real number crunching begins, and these are ideal situations.

So in 7310 cases you make 20 where you could have made 30,

And in 7049 cases you make also 20 where you could have made 40,

In 6411 cases you make only 20 where you could have made 50.

But this is not totally correct because if you set it at 50, some of the 20's and 30's etc. would be inside of the 50's.

In any case it is possible to calculate pips total, for 20 it will be 123640, and for 50 it will be 320550, a rather large difference... more then double and, close to triple the amount,

between doing the math and not doing the math.

This is for the people that may think, i'm happy with 20 Pips profit, i don't need more, not knowing, that setting it higher statistically spoken, yields more over the same run.

And that's why doing the math is important because doing so, you can try to tune to the highest probability & maximize profit.

 
Marco just basically carried my overly general tweaking statement to a level that would definitely be very helpful, but he is right, if you do the research, you can find out more information, and then pool that information and take a step back, figuratively, and look at all of it, you can start to see very clear patterns sometimes.  The trick with that is to make sure that you know how to read and profit from those patterns as well.  And that is where, as Marco said, "do the math" comes into play.  Another way I have said it, and again, it is more generalized, educate yourself.  What Marco has covered here is definitely a part of that.
 
Marco vd Heijden:

Okay i want to expand on one more thing which is it also works in reverse.

It's also possible to calculate the take profit level.

...

  • I like your reasoning but I don't understand your math. How this chart is build ?

In any case it is possible to calculate pips total, for 20 it will be 123640, and for 50 it will be 320550, a rather large difference... more then double and, close to triple the amount,

How do you come to this numbers ? If it reaches 50 pips TP obviously it also reaches 20, 30, 40 pips. So if your total cases is 65000 (just to say something I didn't calculate it from your chart ;-) :

It reaches 20 pips in 65000-513(0 pips)-3392(10 pips)=61095 cases, so total is 1,221,900 pips. It reaches 50 pips in 61095-6182-7310-7049=40554 cases, so total is 2,027,700 pips. That's less than 2 times.

  • Aside vital question, what is the drawdown while we wait a given TP to be reached ? You can't analyse (or do the math) for the TP independently of the SL or drawdown, unless you want to blow out your account.
 
Alain Verleyen:
  • I like your reasoning but I don't understand your math. How this chart is build ?

How do you come to this numbers ? If it reaches 50 pips TP obviously it also reaches 20, 30, 40 pips. So if your total cases is 65000 (just to say something I didn't calculate it from your chart ;-) :

It reaches 20 pips in 65000-513(0 pips)-3392(10 pips)=61095 cases, so total is 1,221,900 pips. It reaches 50 pips in 61095-6182-7310-7049=40554 cases, so total is 2,027,700 pips. That's less than 2 times.



These calculations based on ideal situations, this means you win every bar, it is not comparable to reality.

What is calculated is pips total to illustrate the product of the entire run in ideal situation.

20 pip bar was triggered 6182 times i take the 6182 * 20 = 123640 in ideal situation and 50 * 6411 = 320550 for 50 pips.

When 50 is calculated all others, 20,30,40 are also triggered, since they are lower <50

Notice there is no time span in this calculation it is only done to expose the difference in outcome between setting it to 20 || or to 50.

When it happens is not important in this part of the equation , only what happens most frequently, by the way this is a chart from M15 time frame.

It is only to show that setting it a bit higher, can statistically, almost triple the outcome,

And the most important part is to expose that the 20 level, is actually lower then the 50 level.

This means you have less chance on success when setting it lower.


Alain Verleyen:
  • Aside vital question, what is the drawdown while we wait a given TP to be reached ? You can't analyse (or do the math) for the TP independently of the SL or drawdown, unless you want to blow out your account.

It will depend on the strategy used, you can only calculate the trajectory that happens most frequently and see if it differs from, trying to shoot a duck, in the dark.

There are several options to work with the numbers, they can be used as guidance to set TP and SL levels, it gives a definite numbers + visual about what happens more frequent and what happens less frequent,

But they can also be used in Hedging strategy's, they can be used as , triggers to trade some follow up event.

Many things are possible, and i am trying several things to see what works best, as of current i do not have all the answers, yet.

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