Trading Systems and Money Management : A Guide to Trading and Profiting in Any Market

Of course, a 1:1 risk–reward relationship can only be profitable if the per-

centage of profitable trades is at least 50 percent. With a better risk–reward rela-

tionship we might, however, get by with considerably fewer winning trades than

that. Basically, we can address this in two ways: We could either place the stop loss

closer to the entry or place the profit target further from the entry. In this case, it

turned out the system did best with a 1 percent stop loss and a 3 percent profit tar-

get. The results of this version can be seen in Table 12.8. The average profit is now

144 PART 2 Trading System Development

Short only, no trailing stop PercProf: 16.00

Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio

Average: 37.64 44.11 (32,843.74) (932.72) Market

St. Dev: 31.11 11.15 46,210.94 2,628.95 10,911.51 (0.12)

High: 68.75 55.26 13,367.20 1,696.23 9,978.79 Portfolio

Low: 6.53 32.96 (79,054.68) (3,561.68) (11,844.24) (0.35)

ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength

Average: 0.86 (0.12) 66,756.83 59.82 25.48 23.67

St. Dev: 0.47 0.22 31,145.23 30.73 9.83 12.08

High: 1.33 0.10 97,902.06 90.55 35.30 35.74

Low: 0.39 (0.35) 35,611.60 29.09 15.65 11.59

TABLE 12.7

Removing Trailing Stop for Short-side Trading

Short only, no trailing stop, 1 percent stop,

3 percent target PercProf: 28.00

Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio

Average: 71.36 25.03 (20,038.60) (133.77) Market

St. Dev: 58.74 6.42 32,195.33 1,117.11 6,578.99 (0.06)

High: 130.10 31.45 12,156.73 983.35 6,445.22 Portfolio

Low: 12.62 18.61 (52,233.93) (1,250.88) (6,712.75) (0.12)

ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength

Average: 0.91 (0.09) 49,783.28 44.82 19.46 9.30

St. Dev: 0.35 0.25 23,790.41 22.75 7.75 2.83

High: 1.26 0.16 73,573.68 67.57 27.21 12.13

Low: 0.56 (0.33) 25,992.87 22.07 11.72 6.47

TABLE 12.8

Changing Risk–Reward Relationships