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nobody went broke taking a profit

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Not applicable
Louis, out of 100 trades, if your system is giving you 50/50 odds, then you will only need 25% of them to give you a return of 2*R or better to give you a 50% return on total portfolio (assuming 1% risk per trade). The rest will cancel each other out.
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doomsdayza
Super Contributor
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SimonPB
Valued Contributor
yip, van tharp has done it and talks a ot about it in his book, trade your way to financial freedom .. all that matters is exit and trade size .. in other words risk management ..
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doomsdayza
Super Contributor
interesting though is they say the reason it worked was because he did the testing during a nice trending bull market.
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SimonPB
Valued Contributor
nah, read the book .. his initial test was during the bull (and he out preformed the market) .. in the book he uses coloured marbles ..
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doomsdayza
Super Contributor
simon, do you include position sizing / expectancy / R multiples etc in your trade to trade well course now?
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Not applicable
Ah, should has studied your question more carefully. With a 5% stoploss, you have a 0.4% comms on buy and another 0.4% on sell (although OST's comms are a bit higher). So 5.8% is the breakeven on the gain - except that you will have comms on that figure as well. I work on an extra 0.4% for my breakeven (the maths is not 100% correct, but it is a good enough approximation), so I look at 6.2% as breakeven. Actually, I use a 4% stoploss on average, and a 5.6% breakeven on the gain. I have a pretty decent system for managing slippage, and hardly ever incur slippage costs - but I still give myself an extra 0.4% for slippage - so I work on a 4%/5.6% breakeven ratio. My 2*Risk strategy would then be 10.8% (5.2% * 2 + 0.4% comms)
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louisg
Super Contributor
On the 50 losing trades, what would be the realistic average % stop loss attained? I assume that it's highly unlikely to attain the best case scenario, in this case being 5%. I don't trade, so my guess would be 6-7%.
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Not applicable
Nah, a decent enough strategy can easily keep your slippage costs in check, so keeping it to 5% is easy to manage.
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louisg
Super Contributor
We were posting at the same time. Ok, so I can take 5.5% as an average stop loss plus 0.4% comm in and 0.4% out = approx.6.3% loss. Therefore, one would need to attain a 6.3% gain after all costs including tax on the winning trades to break-even. At the max marginal tax rate of 40% that would be about 11.6%. At the company rate of 28% it's about 9.5%. Just to break even.
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bangbul
Regular Contributor
Tx for this thread. Been checking up on past trades & come to the conclusion that my exit strategy is like my sexlife; premature!
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Not applicable
Nah, you can't apply the tax rate in isolation and you shouldn't factor it into your risk/reward ratio. The tax rate consideration should be factored into your entire trading system - and is part of your expectancy measure. But since i sense that you are about to start comparing trades vs investments again, I would like to remind you of this. In a bull market, the goal of a good trading system should outstrip an investment through leverage, but I grant you that it is pretty difficult to outstrip a buy and hold strategy. But we also work on the premise that real bull markets are rare. In a bear market - well obviously a trading system will score. In a sideways market, a trading system will score as well, since your investment aint going to go nowhere
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prancing_horse
Super Contributor
Tax rate does not come into the equation as any loss is offset against profit so if you think you paying 40% on your profit, the Receiver is contributing 40% to your loss. The 40% tax is only applicable to your NETT profit if you are already on the marginal tax rate.
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prancing_horse
Super Contributor
Contrary to mine, over staying my welcome, but ending up with the same final result
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louisg
Super Contributor
Absolutely correct. The figures should have been approx. 9.2% and 7.6%.
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louisg
Super Contributor
One's portfolio will only go sideways with the market(in a sideways market) if one is invested in the market as a whole eg via the Alsi. Individual shares, although significantly effected by sentiment in the short term, will follow earnings of the underlying company itself in the longer term. I assure you that their are many Japanese companies that are way ahead of their stock prices of 20 years ago when the Nikkei was at 40000. The Nikkei is at about 10200 now, while many of the quality companies listed 20 years ago have multiplied their stock price many times over. Our market has rallied significantly since March, while the likes of LABAT and Milkworks are still in the doldrums. If one is happy with the average, then buy the market. Certainly nothing wrong with 18.2% over the last 20 years, compounded. That's with very little effort, if any.
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