Advantage triangle in trading

In photography, one of my newly discovered passions, three essential variables are ISO ("film speed" or sensitivity to light), and f-stop (camera lens size) light in), and shutter speed (the speed at which the curtain opens). The elements that compose this triangle determine the exposure of the photo. These three numbers (the sides of the triangle) determine whether an image becomes too bright or too dark, and is essentially beautiful or bad. You will need to adjust them according to the correlation to get the final result is the optimal exposure for the visual effect you need.


In trading, we can think of the Advantage Triangle trading in a similar way. Instead, ISO, the f-stop and shutter speed, the three sides in the Advantage Triangle in trading include:
  • A number of winning positions: when you have winning positions, how much do you earn, as a percentage? For example, when you win, you earn on average 4% of the capital.
  • The volume of losing positions: when you have losing positions, how much money will you lose, as a percentage of your capital? For example, when losing, it loses an average of 2% of the capital.
  • Win rate: the ratio of the number of winning orders to the total number of orders, also known as wine.
By finding the equilibrium numbers for these 3 parameters in the trading triangle, you will get 1 point of positive advantage and make sure profits in the long term.

You need to start with the FACT of your trading results in order to keep an edge or get a strong point in probabilities in each of your trades. Each aspect of the trading advantage triangle gives you an aspect for you to focus on improving and balancing to get that advantage. For example, if your win rate is 50% (half win half lose) and your average losing position is 6%, that's not too bad. But if the average size of your winning position is only 5%, to get profits you must either try to make more money per position or win more orders; or reduce the size of the losing order.

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