WY-06-29 / 12
Win Rate, Profit/Loss Distribution, Expectancy, and Drawdown
Decisions, Execution & Validation
Lesson / WY-06-29
Win rate is profitable trades divided by all completed trades, with explicit rules for zero results, partly open trades, and multiple fills under one plan. Average gains and losses should be after costs, with medians, quantiles, and tails because a few extreme wins can lift the mean. Normalize each trade by its own fixed initial R₀; sample mean R is an empirical estimate of expectancy per completed trade: E[R]＝p_win×average winning R＋p_loss×average losing R＋p_breakeven×0. All three proportions use all completed trades as denominator, and average loss retains its negative sign. Every completed trade belongs to one category, so weight by actual frequencies in the full sample. Removing zero-PnL trades or merely taking within-category means changes frequencies and no longer gives the sample average per completed trade. If a category is absent, mark its mean not applicable and its contribution directly 0, avoiding multiplication of zero by an undefined mean. Summing all final R values and dividing by trade count gives the same empirical mean with consistent classification. Its ability to represent the future remains constrained by selection, dependence, and market changes in 29.11.
Course content is for learning and research only. It is not investment advice.
Read the Chapter ↗Timestamps
13 lessons · Chapter contents
01Price and Time Expectations After Entry↗02Meeting Expectations, Underperforming, and Contrary Evidence↗03Changes in Holdings, Cost, and Risk After Scaling In or Out↗04Structural Exits, Time Exits, and Moving Stops↗05Improvised Plan Changes Versus Evidence-Based Rule Revisions↗06Execution Deviations and Their Technical Consequences↗07Four-Layer Review: Observation, Interpretation, Decision, and Execution↗08Initial Risk Amount R₀ and After-Cost R↗09MAE, MFE, and the Entire Trade's Continuous Net PnL Curve↗10Operational Definitions of Trading Rules↗11Samples, Future Information, Out-of-Sample Testing, and Costs↗12Win Rate, Profit/Loss Distribution, Expectancy, and Drawdown↗13Rule Changes and Version Control↗Observe the market: start with context and place price within its structure.
Understand structure: compare supply and demand, and let evidence support or revise your hypothesis.
Form a view: define risk limits and know when to reassess.
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Relative Strength and Opportunity Screening
Point-and-Figure Charts and Price Target Estimation
