You need to know 3 things to determine if your strategy has a chance to be profitable:
- Win rate the percentage of trades that are profitable
- Risk-reward ratio (RRR) the ratio of the average potential profit to the average potential loss on a trade
- Transaction costs commissions, fees, and other expenses associated with executing a trade
EXAMPLE:Trades: 100
Win rate: 50%
RRR: 1:2
Transaction costs in total: 5% of balance for the 100 trades
Expectancy = (Win rate x Win Size) (Loss rate x Loss size) TC = Expectancy per trade
Expectancy = (0,5 x 2) (0,5 x 1) 0,05 = 0,45 R per trade
Considering the outcome, you shouldn't forget the
Stop-loss as your plan B or exit plan.
Don't stick to one strategy, quickly switch to another one if you have consistent losses because that's not a good strategy.
The strategies that you're talking about are just a tool in trading but don't give a guarantee that you'll have an accurate win rate, there's no assurance for that in how good you are in trading.
The more data you have in hand the better the prediction can be, but these three data points should be enough to tell if the trading strategy is likely to be profitable over the long term or not.
No, it made you confused, stick to one strategy and switch if it isn't working.
The confidence gained from knowing your trading strategy has a positive expectancy is why youre spending hours building and testing it. You dont have to decide on the spot, you just mechanically execute what your system tells you.
You have positive expectancy but don't expect to have an accurate results.