Hope Mathematics, is equal to the sum of the probability of each possible random event multiplied by the value of that event. That said, it represents the average amount that is “expected” as a result of a random test when the probability of each event is kept constant and test a large number of times is repeated.
It should be considered as a reference point that capital is our instrument or raw material, which allows us to carry out our investment strategy. The higher, the better chance of success we have, this seems a utopia but so, with the premise of using it the right way, we must protect and safeguard it in every way. “Without capital there is no chance.”
The problem that many traders is that they begin with profits, created a false confidence to control the market, and never controlled the market is the market that controls the investor or trader.
In all trading operations winning streaks and losing streaks are therefore good it is created that is the strategy, this happens because the market is repetitive and has both sides of the scale.
The aim is to get the gains outweigh the losses with a score of positive expectation.
People think that when it comes the losing streak is easy to carry if you have won before but is totally false, by the influence of psychological factor that humans possess, always hurt and whether there has been increase in positions.
Another mistake is; that novice traders focus on successes, prefer many continued spurts, rather than the size of them, wanting to always hit, and it is a big mistake what matters is the relative size of the gains and losses, to be a great success in trading and last over time with the account of positive results.
This relative size of winning trades against losers, focuses on the system developed and implemented could have a high hit rate that chanced almost 80% of the time, but if their size is less than the benefit of capital to a single operation loss of the same size is useless, we would start without any consolidated profit account.
As instructed traders must assess in detail the relative size of the positions that run on numbers. A system hit rate of 40% with 100 points gains and losses 50 points per transaction, the results would be: 100-60% to 40% * 50 = 10 pts profit.
This system your expectation is 10 pts per transaction, despite being failing 60% of the time.
The important thing here is shown in assessing the size. Do not hit more often earns more.
Is the “Achilles heel”, being influenced by the psychological factor, which does not tire of repeating, some prefer to win every day just to endure weeks with small losses, and as a result of this way of operating, it happens that leak the big trend, get away with a small slice of the pie to be picking up a few points continually case which lead to certain failure.
In developing the trading system should be considered; have very implemented the strategy and identify and define guidelines inputs and outputs. We must have a correct operation manual leaving nothing to chance and its evolution will be the automation system.
This will get the veracity of their operation and we can audit the results to find the best point of convergence.