My top 7 favourite trading movies, how to calculate the win rate and what should my risk to reward be to stay profitable?

by , 20 September 2018
My top 7 favourite trading movies, how to calculate the win rate and what should my risk to reward be to stay profitable?
Q. “I really want to learn how to trade but I hate reading. Instead I watch YouTube videos, which I find more helpful. I also would like to watch a number of trading movies. What are the best trading movies to watch in your opinion?”
A. I have every one of these trading movies on DVD. Here are seven of my favourite trading movies I watch for inspiration. 
 
Rogue Trader
Wolf of Wall street
Margin call
Boiler Room
Wall Street
The Big Short
Arbitrage
 
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“Hi Timon, I have just joined Red Hot Storm Trader and have a few questions relating to your Bidvest example.
 
(1) Is the entry level R262.00 the cost per share or the cost of the CFD?
(2) How was your stop loss of R247.51 calculated?
(3) If a loss occurs, must I assume I will lose R600.00?
(4) How much does each contract cost?”
 
A. Great questions….
 
1. The R262 is the price of the underlying share which you look at when you trade CFDs.
 
The CFD price will always be less than the share price, as it is the derivative. This means if the underlying share price of Bidvest is at R262, the CFD may be priced at 10% of that price at R26.20 per CFD.
 
2. The stop loss was placed directly under the right shoulder of the cup. This is one of the criteria I use in this particular breakout pattern.
 
If the price moves below the handle level, the market will have a higher chance of reversing the direction.
 
Please note: This is all explained in the free Secrets to Successful Trading Guide you’ve received when you signed up.
 
3. This purely depends on how much money you’re prepared to risk per trade. If you follow my 2% risk per trade and your portfolio is at R10,000, this means you shouldn’t risk more than R200 per trade.
 
If your portfolio is at R30,000, then yes you should only lose around R600 per trade (R30,000 X 2% risk).
 
4. Each broker has their own margin deposits for the costs of a stock CFD.
 
Some might be 10% where the contract will only cost R26.20 (10% X R262.00).
 
Another broker might have a margin requirement of 6.66%. This means each Bidvest CFD will only cost R17.44 (6.66% X R262.00).
 
Q.“Timon in this week’s article, “Can you really make money with a 20% win rate?”, how do you calculate the win rate of a trading system and how many trades should I take to know it’s reliable for the future?
 
A. Let’s first discuss the second part of the question, to explain it more easily.
 
When you’re back-testing a trading system, you’ll need to have at least 20 trades tested to see whether you’d end up with a positive or negative portfolio.
 
Next we’ll identify the win rate. The win rate is a percentage of how many trades out of the total trades taken were winners.
 
Let’s say out of those total 20 trades 8 were winners and 12 were losers, here’s the calculation for the win/rate.
 
Win/rate = (Number of winners ÷ Total number of trades) X 100
                 = (8 ÷ 20) X 100
                 = 40%
 
This means your back-tested system would show you a win rate of 40%.
 
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Q. “My win rate averages at around 40%, what risk to reward ratio should I follow to remain profitable according to the minimum win rate formula article you sent this week?”
 
A. In this case, you have your win/rate and so we’ll need to use the Minimum Win-rate formula to calculate the Risk to Reward.
 
This will require a little bit of maths.
 
Minimum win rate =               1       
                                        (1+ R:R)
 
                      1+ R:R =          1       
                                             0.4
                           R:R =          1        - 1
                                            0.4
                          R:R = 1.5
 
Your risk to reward will need to be at least a 1.5 to keep your portfolio at breakeven. 
 
This means, with a 40% win rate you’ll need to keep your trades with a risk to reward of at least 1.8 to curb any trading costs and for your portfolio to stay profitable.
 
“Wisdom yields Wealth”
Timon Rossolimos
Head of trading, FSPInvest.co.za


My top 7 favourite trading movies, how to calculate the win rate and what should my risk to reward be to stay profitable?
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