Zafar Shaikh Profile picture
Sep 22, 2018 12 tweets 3 min read Twitter logo Read on Twitter
#New Traders, Understand #Mathematics Of #Profit In Market Before You Put Hard #Earned Money On Risk.

Expectancy = Success Rate x Reward Risk Ratio

Lets Talk About Expectancy Of Short Term Directional Trading System.

Read On (1/n)
Success Rate = No Of Profitable Tades/ No Of Loss Making Trades

Reward Risk Ratio = Average Profit Per Trade / Average Loss Per Trade

If Success Rate is 0.5 and Reward Risk 2, Then

Expectancy = 2 x 0.5 =1

For Making Profit, Expectancy Should Be Positive Number (2/n)
To Calculate Expectancy, You Need Defined System With Rules To Get Success Rate and Reward Risk. If You Have No System To Take Decisions, You Are Hanging In Thin Air and Will Never No Whether You Will Keep Making Or Loosing Money In Future (3/n)
Success Rate Depends Upon Whether Trade Reverses Beyond Certain Limit After Entering In Trade. Success Rate Depends On
1. Stock Selection
2. Entry Point
3. Initial Stop Loss

1. Stock Selection- Understand Trend Based On Higher Timeframe Buy Strongest Stock, Sell Weakest. (4/n)
2. Entry Point - Buying When Stock Is Falling Reduces Success Rate. Wait Till Price Stabilises and Resumes In Direction Of Original Trend. Success Rate Will Improve.

3. Stop Loss - Too Tight Stop Loss Reduces Success Rate. Too Loose Will Lower Reward Risk. Balancing Act.(5/n)
Reward Risk Depends On:
1. Intital Stop Loss
2. Trailing Stop Loss
3. Profit Booking Exit

1. Initial Stop Loss - As Discussed
2. Trailing Stop Loss - Stop Loss Should Move In Favour Gradually, To Lockin Partial Profits In Case Of Sudden Reversal
3. Profit Booking Exit- Just Trailing Stop Loss Causes Significant Giving Back Of Profits When Trend Eventually Reverses. Have System to Capture As Much Profit as Possible Before Reversal

System Needs To Be BackTested and Put In Live Trading To Arrive at It's Expectancy (7/n)
Negative Expectancy System Will Lose Money No Matter What. Before You Put Money On System, Taste It Out With Small Risk Covering At Least 100 Trades. Once You Are Satisfied With System Performance & Expectancy, Then Only Put Full Capital To Use. (8/n)
Till Then , Put Your Capital In FD, Mutual Fund, Index Fund, Where ever You Feel Comfortable. It Takes Time To Have Positive Expectancy System and Execute It With Confidence. Be Willing To Give Yourself That Time. (9/n)
Remember The Old Stock Market Adage:

People Come To Market With Lot Of Capital and No Experience.
When They Leave, Most Have Lot Of Experience But No Capital (n/n)
Success Rate = No Of Profitable Tades/ Total Trades

Expectancy = (Success Rate x Reward Risk )- (1 - Success Rate)

If Success Rate is 0.5 and Reward Risk 2, Then

Expectancy = (0.5x2)-(1-0.5)
Losses Can't Be Avoided. They Are Part Of The Game. Depending On You Style, Success Rate and Reward Risk Will Vary. Make Sure, Irrespective Of Losses, You Have Positive Expectancy System.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Zafar Shaikh

Zafar Shaikh Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @InvesysCapital

Oct 5, 2018
Pulling Out Two Slides At #DECMA Presentation In March This Year Detailing #Cycles Of Stock Market and Where We Are At Current Juncture! The #BennerFibonacci Time Cycles Point That Major Stock Market Cycles Happen With 8-10 Year Difference Between Consecutive Tops & Bottom (1/n)
We Had Major Market Tops In SENSEX at 1992, Followed By 2000 (8Yr), Followed By 2008(8Yr).. Now We are in 2018 (10 yrs). There Are Intermediate Corrections Also In-Between. The Difference -Correction After Benner Time Cycle is Complete Are Severe With Index Dropping 40-50% (2/n)
Had This Hypothesis Since Last Year That Sometime We Are Going To Face This TimeCycle in 2018. Jan-Feb Correction Looked Like Beginning, But That Was Not To Be,. Now We Have Some Kind Of Confirmation Of Beginning Of Correction On Monthly Charts. We Are In Initial Stage (3/n)
Read 7 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!