which would you prefer.... double your profit or halve your losses....

which would you prefer

  • double my profits

    Votes: 2 50.0%
  • halve my losses

    Votes: 2 50.0%

  • Total voters
    4

hayseed

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Jul 27, 2010
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two people were discussing a certain signal provider the other day..... one was mildly for it and another strongly against it.... eventually the signal provider himself stepped in to remind everyone there was a minimum account size and a maximum lot size.... turns out the disappointed guy was breaking those rules in order increase his profit.....

percentages have always interested me..... this is especially true in actions like trying to double or triple your profit..... so often that is misleading because it's only really significant for a range of values....
//----

so, which would you rather, to double your profit or halve your losses..... and why......h
 

Enivid

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The answer to this question depends on the following variables:
  • Win size (W)
  • Loss size (L)
  • Winning rate (P)
Or, put differently, it depends on the probability-adjusted size of profit vs. a probability-adjusted size of a loss.

What we all want is to maximize our Expectancy (E):

E = W × P - L × (1 - P)

The effect of doubling the profit is equal to that of halving the loss when:

2 × W × P - L × (1 - P) = W × P - 0.5 × L × (1 - P)

W × P = 0.5 × L × (1 - P)

I.e., it makes sense to double the profit vs. halving the loss when the probability-adjusted profit is at least half the probability-adjusted loss.

For my strategy, considering that the probability-adjusted profit is almost 3 times the probability-adjusted loss, I would definitely prefer to double my profit.
 
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hayseed

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I didn't think it through as well as Enivid did :)
//-----

nor did i...... and actually my thoughts were childish compared to enivids... sometimes by asking a question we might find learn why we think the way we do.......

i was thinking about the complaining guy mentioned in post one..... he was following a signal provider and tried to double his profits and blew his account.... he was using an account too small and a lot size too large..... this appears all too common....

my preference would be to cut my losses in half by cutting my lot size in half.....

suppose someone makes 1$ and someone else makes 2..... is there really a difference.....

suppose we were both to become millionaires.... suppose it took you 1 year and me 2.... is there really much difference.....

maybe my approach is wrong, but i lean towards less losses..... not sure why....h
 

bottomhigh

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Aug 16, 2020
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The answer to this question depends on the following variables:
  • Win size (W)
  • Loss size (L)
  • Winning rate (P)
Or, put differently, it depends on the probability-adjusted size of profit vs. a probability-adjusted size of a loss.

What we all want is to maximize our Expectancy (E):

E = W × P - L × (1 - P)

The effect of doubling the profit is equal to that of halving the loss when:

2 × W × P - L × (1 - P) = W × P - 0.5 × L × (1 - P)

W × P = 0.5 × L × (1 - P)

I.e., it makes sense to double the profit vs. halving the loss when the probability-adjusted profit is at least half the probability-adjusted loss.

For my strategy, considering that the probability-adjusted profit is almost 3 times the probability-adjusted loss, I would definitely prefer to double my profit.
And how do we determine probability on a single trade? It's not a coin toss or game of cards where space of outcomes is known, finite and every outcome is equally probable :)
 
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//-----

nor did i...... and actually my thoughts were childish compared to enivids... sometimes by asking a question we might find learn why we think the way we do.......

i was thinking about the complaining guy mentioned in post one..... he was following a signal provider and tried to double his profits and blew his account.... he was using an account too small and a lot size too large..... this appears all too common....

my preference would be to cut my losses in half by cutting my lot size in half.....

suppose someone makes 1$ and someone else makes 2..... is there really a difference.....

suppose we were both to become millionaires.... suppose it took you 1 year and me 2.... is there really much difference.....

maybe my approach is wrong, but i lean towards less losses..... not sure why....h

I agree with your thought process. I treated this as the hypothetical question it was, while of course knowing there is no way to magically double profits without repercussions. But questioning why we think the way we do is indeed a useful experience. :)
 

Enivid

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And how do we determine probability on a single trade? It's not a coin toss or game of cards where space of outcomes is known, finite and every outcome is equally probable :)
We can calculate it based on the number of winning trades among all the trades we took during some period. It is almost meaningless for any given single trade, but it is informative for a large enough set of trades.
 

Akwin

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Good Day Everyone,

Interactive Topic, I voted to double my profit so that I will have a greater income, I didn't feel like choosing the halve your losses options since both ways I have Loses. Regards.
 
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