Jan 27, 2017

Which Of These 2 Strategies You Would Choose?

Your task is to decide which of these two strategies you would choose for your trading and why. For each strategy, I have included the trading results (wins and losses) from a one-week period trading the SPDR S&P 500 ETF Trust (SPY) from two different trading systems that I am testing right now: 

Strategy 1: +35, +60, −25, +120, −75, −60, +35, +22, +120, +85, −60, −55, −20, +75 

Strategy 2: +30, −10, +50, −25, −18, +45, +45, +20, +50 

What strategy would best suit you and why? Study the results and pick your answer (on the related Twitter Poll).

I will share my answer and my thoughts later. Stay tuned!

Here is my solution,

Strategy 1: 

Total gain = 257 (sum of all trades)
Total sum of winning trades = 552
Total Sum of losing trades = 295
Profit Factor = (total wins/ abs(total losses)) = 1.57
% of winning trades = 57%
% of losing trades = 43%
Average trade = 18.35 ticks

Strategy 2: 

Total gain = 187 (sum of all trades)
Total sum of winning trades = 240
Total Sum of losing trades = 53
Profit Factor = (total wins/ abs(total losses)) = 4.53
% of winning trades = 66.67%
% of losing trades = 33.33%
Average trade = 20.78

So, while strategy 1 showed a larger total gain (257 against 187), the Profit Factor is much larger on Strategy 2 (4.53 against 1.57). This means that Strategy 2 is a lot easier to trade than Strategy 1, as you earn 4.53 dollars for every dollar that you lose trading that strategy.

Note that the average per trade on Strategy 2 is also a little bit higher.

While both strategies are very good, I would choose Strategy 2 and I would leverage it a little bit to obtain or surpass the total gain of Strategy 1. Strategy 2 is smooth, robust so it can be leveraged to bigger gains. My next step would be to draw a equity curve of both trading strategies to analyze the size and duration of the drawdowns (the sample is too small for this).

(Note: this is a simplification of a decision making process. The samples on both trades are very small to make a real trading decision. What I am trying to explain here is how to decide between two or more good performing systems)

You will follow practical steps and acquire the essential skills a successful trader must have in order to consistently win, and you'll also learn:

- how to develop a trading system
- how to utilize the best trading techniques within a trading methodology
- how to think about the psychological aspects of trading and the markets
- how vital it is to treat trading like a business

As you master this breakthrough program, you'll build yourself a distinctive trading signature, hitting win after win, and you'll be well on your way to financial independence!

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