MFMAWITH BROCK PIVEC
LESSON 12 / 6 MIN READ

A payoff ratio is not proof

In a simplified model with only wins and losses and no additional costs, break-even win fraction is average loss divided by average win plus average loss. This follows by setting weighted average result to zero. Keep the average loss positive in the formula and label whether your inputs are hypothetical targets or observed results.

A target written before entry is not an achieved average payoff. Changing an exit rule could change the number of winners, their size and the amount of time in each position. You cannot keep every favorable part of an old sample, replace its losses with smaller hypothetical losses and present the difference as money the revised rule would actually have earned.

A small positive sample is a starting point for questions, not proof of a durable edge. There is no universal count of 30, 100 or 200 examples that establishes future performance. Review the sample period, selection process, missing data, costs and changing conditions. Keep revised rules versioned and evaluate later observations separately from the examples used to invent them. More precise arithmetic does not remove uncertainty in the inputs.

WORKED EXAMPLE / HYPOTHETICAL

If a hypothetical model wins $40 or loses $20, break-even before costs is 20 ÷ (40+20), about 33.3%. That does not show the model will win that often or that actual fills will deliver those fixed amounts.

PUT IT TO WORK

Your next useful step.

Calculate break-even for an invented $25 average win and $25 average loss. List two reasons an observed sample could differ from this simplified model.

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CHECK YOUR UNDERSTANDING

What does the 33.3% figure establish?

FURTHER READING

    Educational examples, not trade recommendations. Completing a lesson does not establish investment suitability or predict results.