Monday, September 25, 2006

Why Winners Must Be Bigger Than Losers - Answers to Odds Maker Feedback

The Odds Maker uses about 15 trading days of history to judge your strategy's ability to produce winning trades. Some feedback received recently questions why 15 days? We also answer why it's so important to keep winners larger than losers in The Odds Maker results.

  1. The Odds Maker keeps you current with the market's activity in that last near turn. On the weekend a program automatically runs maintenance on The Odds Maker. It gets cleaned out so that only two weeks worth of data remain. Then as trading days accumulate during the week new data is added until on Friday there is about 3 weeks worth of data.
  2. When designing a strategy in The Odds Maker it is critical in the readout that the size of the Average Winner be substantially bigger than that of the Average Loser. Why is that? This is to account for slipage and commission and other market factors that are impossible for us to throw into the mix without adding complexity and programming that frankly doesn't help you in terms of reward/effort. Basically, give yourself a handicap. Avoid the pitfall of an Average Winner being 2 to 5 cents bigger than an Average Loser and then relying on a system trading 50 times a day to make the large Net Gain.
  3. Here are some example results from actual strategies that make good trading candidates. Get your results to look like these and you'll be fishing in the right waters.
  • Day Trade Long Strategy:
    170 / 249 = 68.27% up $0.01 in 30 minutes; Average winner = $0.8059, Average loser = $-0.2991, Net winnings = $118.09, Best = $4.22, Worst = $-2.68; Casino Factor = 100%

  • Day Trade Short Strategy:
    355 / 511 = 69.47% down $0.01 in 30 minutes; Average winner = $0.7078, Average loser = $-0.2644, Net winnings = $215.23, Best = $3.39, Worst = $-1.13; Casino Factor = 100%

  • Swing Trade Long:
    53 / 82 = 64.63% up $0.01 at the close; Average winner = $0.476, Average loser = $-0.3179, Net winnings = $16.0101, Best = $2.62, Worst = $-1.40; Casino Factor = 99.47%

    It takes some experimenting to tune into what the market is doing. Fortunately there are some additional resources available to help in the journey. We just finished a 3-part series on how to generate these kinds of results.

Keep up the feedback!

    8 comments:

    nysetrader said...

    hey, those results are great. unfortunately, i can't come up with anything close to those :( . would you mind sharing the settings to get a starting point?

    TI Maven said...

    Hi nysetrader,

    First thanks for looking at the Odds Maker. We would definitely be glad to help. Why don't you post the strategy you are trying to come up with using collaborate and we will take a look at it and see if we can get it going in the right direction. This might be a great exercise so maybe write out in general what it is that you are trying to do.

    nysetrader said...

    ok great :) really appreciate the offer. looking for a good version of the infamous pullbacks from highs and lows for momentum stocks - such as those that are having news or are just making big moves - in either direction. have tried various forms of breakouts, and pullback settings combined with gaps and momentum, and have tried a couple taking into count, but they all come up around 50% winners with a slight profit or loss.

    TI Maven said...

    Ok Try this set up. Use collaborate to paste it back into TI Pro.

    http://www.trade-ideas.com/View.php?O=8000000000000000000_19_0&QPFH25=1&MinCount=4&MinRV=2&MinVol=500000&WN=Buying+Points+for+Strong+Stocks+

    This set up buys pullbacks. Make sure to read the rules again. We trade the first alert one time per symbol.

    Here is what the results should look like.

    94 / 168 = 55.95% up $0.01 in 30 minutes; Average winner = $0.5219, Average loser = $-0.2473, Net winnings = $31.50, Best = $3.28, Worst = $-0.76; Casino Factor = 99.99%

    Run all the defaults for Odds Maker but start 30 minutes after the open. Let me know if you come up with the same results.

    nysetrader said...

    thx, not in front of that computer right now, but will try it in the morning. do the opposite rules test out well for the short side. i actually like those that just establish persitent trends in the first 15 minutes, and keep going all day. the often have news and above average volume.

    D TradeIdeas said...

    "i actually like those that just establish persitent trends in the first 15 minutes, and keep going all day. the often have news and above average volume."

    If that is the case you may find this previous post in our Strategy Session series very useful:

    http://marketmovers.blogspot.com/2006/03/strategy-session-objects-in-motion.html

    nysetrader said...

    yeah, i have used the above, but that goes back to not being able to get the results to test out well.

    D TradeIdeas said...

    We are happy to provide settings that take full advantage of The Odds Maker. You can always email us at info@trade-ideas.com with this kind of request and we'll show you how easy it is to use The Odds Maker!