Traders have the tendency to confuse the two and generally gravitate towards high probability entry systems, mainly because it intuitively makes you feel better. That is, people have a bias toward systems that show a high percentage of winning trades. What they forget is that these systems are often associated with large losses which leads to negative expectancy. We spend so much time on this topic because it forms the foundation of our trading philosophy. As long as your system has positive expectancy the problem largely shifts to position management.
Average loss Let s use a coin toss as an example to illustrate the point.
Also realize that it makes no difference to the end results if you change the bet sizes. The most fundamental point that you must understand is that in a negative expectation system, there is no money management scheme in the world that will make you a winner. You can determine the expectancy of a system by taking a minimum of 30 consecutive trades. A would select the exact same trades as person B when those two people trade the system. Use the formula above to calculate the expectancy of your system.