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#476856 - 04/13/19 12:05 Is it possible to beat 50/50 with equal risk/reward?
Raisinbran Offline

Registered: 06/15/18
Posts: 6
Okay, so I appreciate fixed TP and SL have been discredited in other posts, but if we imagine a system that targeted some predefined constant == takeprofit == stoploss, how possible would it be to achieve a win% of say 55%+ over a period of time?

I just figured that if risk == reward (after commission, slippage, spread, rollover etc) and win% > 50, then surely the crazy old martingale system actually makes sense..?

I've tried some very basic decision making algorithms but with my limited experience have only been using the standard indicators in my bots and have never yielded anything significantly consistent in WFO; something I painstakingly did in MT4 before I discovered the magic of Zorro.

I note in the Zorro Manual it mentions something about a machine learning approach that was correct 57% of the time on EUR/USD H1 but can't really figure out under what conditions ( under Main Topics > Trading Strategies, the blue graph bit).

But the question remains. Is beating equal risk/reward trading with fixed TP/SL possible?

#476857 - 04/13/19 13:09 Re: Is it possible to beat 50/50 with equal risk/reward? [Re: Raisinbran]
AndrewAMD Online

Registered: 02/21/17
Posts: 631
Loc: Chicago
I donít think stop losses were discredited.

The real issue is TP. You need to determine on a case by case basis whether it is appropriate for your trading system.

One way to check this is to Test without TP and produce and analyze MAE and MFE plots.

Can you do well with TP? Maybe, but you might have better options.

#476859 - 04/13/19 14:34 Re: Is it possible to beat 50/50 with equal risk/reward? [Re: AndrewAMD]
Raisinbran Offline

Registered: 06/15/18
Posts: 6
Okay, but I was fishing around with the idea of seeing whether the Martingale strategy might actually be viable (albeit prone to occasional significant drawdown) if you had equal risk reward, but greater than 50% win rate.

In the above scenario we could apply expected value theory and show a projected long term return.


a system with equal net risk/reward = 1
winrate 55%
maximum affordable consecutive losses : 4 (on the 5th loss you cut your losses and start again)

Without Martingale we have 55 win - 45 loss = net +10 after 100 positions, therefore each position has an expected value of +10/100 = 0.1

With Martingale an absolute loss (5 consecutive losses) is worth -31 and has a likelihood of 0.45^5 =~0.0185
a non-absolute loss therefore has a likelihood of 1 - ~0.0185 = ~0.9815 and is worth 1
The net win - loss is then (0.9815 x 1) - (0.0185 x 31) = 0.41 for each position based on expected value theory.

0.41 > 0.1

This number is improved with a higher max loss count as you might expect.


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