Required Strike Rate Formula

[thomsch]

Would anyone be able to help me figure out the formula to calculate the required strike rate for a trading strategy i.e. what strike rate would be required to break even for a given strategy? There's plenty on the web for straight betting strategies but I cannot find much for trading.

As an example, for an average win of £5 and average loss of £2 a strike rate of 28.6 works out about break even. I did this through trial and error but could not figure out the formula to calculate it quickly. Does anyone have any ideas?

[Euler]

If you win 5 and 2 it's a ratio of 5/2 or .40 so if you win 5 40% of the time you can afford to lose 2 60% and break even.

[thomsch]

Thank you. This is what I initially thought but it's not working out for me.

Over 100 trades win £5 lose £2 that would be more than break even
win 40 x £5 = £200
lose 60 x £2 = £120

whereas over 100 trades the following would be more break even?
28.6 x £5 = £143
71.4 x £2 = £142.8

I think I'm missing something here, I'm not quite getting this.

[MemphisFlash]

are you factoring into the equation the commission on winng trades?

[ShaunWhite]

When....
AvgUp is +ve
AvgDn is -ve
and SR = 0 -> 1

PL gross = (AvgUp * SR ) + (AvgDn * (1 - SR))

So rearrange the equation for where (AvgUp * SR ) + (AvgDn * (1 - SR)) = 0 to find SR.
This might be a long way round but....

1. (AvgUp * SR ) + (AvgDn * (1 - SR)) = 0

Take away (AvgUp * SR ) from both sides...

2. AvgDn * (1 - SR) = - AvgUp * SR

Divide each side by (1 - SR)....

3. AvgDn = - (AvgUp * SR) / (1 - SR)

Divide each side by AvgUp...

4. AvgDn / AvgUp = - SR / (1 - SR)

Well I've got SR on one side of the equation but now I'm stuck too

I think that's right because 2/5 = .286/.714 from your example.....so your 28.6% is correct. I just don't have the time now to remember my maths about how to rearrange #4 to have only SR on one side

SURELY someone on here has got o-level maths they can remember! If we can't go that extra step then Excel's Goal Seek is my default option.

[ShaunWhite]

hang on ... 5/7 is 0.714
so
2/7 = 0.286

SrRqd = AvgDn / (AvgUp + abs(AvgDn)) ??

[ShaunWhite]

I think that's it

Dn Up SR PL
1 5 0.167 0
2 5 0.286 0
3 5 0.375 0
4 5 0.444 0
5 5 0.500 0
6 5 0.545 0
7 5 0.583 0
8 5 0.615 0
9 5 0.643 0
10 5 0.667 0
5 1 0.833 0
5 2 0.714 0
5 3 0.625 0
5 4 0.556 0
5 5 0.500 0
5 6 0.455 0
5 7 0.417 0
5 8 0.385 0
5 9 0.357 0
5 10 0.333 0

[eightbo]

As an example, for an average win of £5 and average loss of £2 a strike rate of 28.6 works out about break even. I did this through trial and error but could not figure out the formula to calculate it quickly. Does anyone have any ideas?

Avg Loss / (Avg Win + Avg Loss)
  2  / (  5   +  2   ) = 28.6% Required Strike Rate

[Euler]

2019-03-18_17-06-08.jpg

[spreadbetting]

Thank you. This is what I initially thought but it's not working out for me.

Over 100 trades win £5 lose £2 that would be more than break even
win 40 x £5 = £200
lose 60 x £2 = £120

whereas over 100 trades the following would be more break even?
28.6 x £5 = £143
71.4 x £2 = £142.8

I think I'm missing something here, I'm not quite getting this.

Remember you're simply looking for a balanced equation where you know most of the variables, If we call x your strike rate then your losing percentage is simply 100-x

so x * 5 = (100-x) * 2

5x=200-2x
7x=200
x=200/7
x=28.57

If we call average win W and average loss L our equation simply becomes

x * W = (100-x) * L

xW=100L -xL

xW + xL =100L

x(W+L)=100L

x = 100L/(W+L)

[ruthlessimon]

Would anyone be able to help me figure out the formula to calculate the required strike rate for a trading strategy

Out of interest, how are you planning to utilise this figure?

I'd rather know if the strategy was +ve expectancy in the 1st place; rather than what strikerate I need to make it >0

[thomsch]

Thank you everyone for your help, this is very useful.

I've begun trading football and the few strategies that I have rely on a goal for profit. I've been recording my results wins, losses, total trades, p/l, strike rate, average win/loss and been calculating the Average Profitability Per Trade ( for anyone who's interested the formula for this is: APPT = (Win Probability x Avg Win) - (Loss Probability x Avg Loss) there's a nice article on the web that I could post a link for anyone who's interested)

My p/l obviously shows me whether I'm in profit or not for a given strategy and the APPT gives me an expectancy for each trade that I make. I thought the Required Strike Rate (RST) would be an excellent figure to record as I can compare it with my Actual Strike Rate (ASR) to see how well the strategy is performing but more importantly, how well I'm performing when reading a football match for a goal. If my ASR is a lot lower than the RST I could consider abandoning the strategy. However, if the two figures are close I can look for areas to tweak to push a strategy in to profit.

[ruthlessimon]

I thought the Required Strike Rate (RST) would be an excellent figure to record as I can compare it with my Actual Strike Rate (ASR) to see how well the strategy is performing but more importantly, how well I'm performing when reading a football match for a goal. If my ASR is a lot lower than the RST I could consider abandoning the strategy. However, if the two figures are close I can look for areas to tweak to push a strategy in to profit.

I can see the logic in that; but the bit that troubles me, is over what period the strikerate gets measured.

I might add RST to my sheets; but the metrics I'm looking at atm are:

1. Max drawdown (over the yr) - as a last resort circuit breaker (simple metric)

2. Expected expectancy Basically the idea being, we assume the expectancy of strategy remains constant, & plot the equity curve into the future. We then add 2 boundaries to this line (upper & lower i.e. +/-5%); & if the real p&l breaks the lower bound - the strategy gets turned off. I think that's faster than max drawdown; but I haven't done it yet

[CallumPerry]

^ This is what I've started to do with my equity curves! Completely agree this makes a lot of sense to detect whether something is below average quickly and needs turning off.

[ShaunWhite]

Basically the idea being, we assume the expectancy of strategy remains constant, & plot the equity curve into the future. We then add 2 boundaries to this line (upper & lower i.e. +/-5%); & if the real p&l breaks the lower bound - the strategy gets turned off. I think that's faster than max drawdown; but I haven't done it yet

Plot your trend (TREND) and then plot the trend plus and minus the StdErr (STEYX)

StdErr is a bit tight imo so you might want to tweak it a bit.
btw chart below is a coin toss, it took a few F9's to get a decent looking trend line example

I agree drawdown isn't a great measure, it doesn't take into account how far ahead you might have been. It just tells you how much bank you might expect to hand back. See below...a £14 DD at run#450 would kick you out while still above trend, but the same -£14 later at run#575 is more significant.