Any trade is defined by 3 dimensions: entry price + duration + exit price. The duration is the risk management aspect i.e if after it elapsed we exit regardless the exit price. And try again.
Any trade a trader enters is based on the assumption the trade will yield a profit =, say of x. No one enters a trade to hope losing money after all 🙂
Assuming a probability of x above, the trader will realize a number of trades hoping the majority will result in a PROFIT.
BUT whether we have a single trade or many, all of them can be quantified by a single meta-trade consolidating an entry price, a duration and an exit price.
Basically if we call t1… tn a series of trades… then all of them can be summarized by a single triple of (entry price, exit price) which averages all of them.(t1,…,tn) = (entry, duration, exit)
Get it? Regardless of anything everything a trader or algo trader does can ultimately be summarized by the entry price, a duration and exit price.
In fact all of Warren Buffets’ career can be summarized by those 3 variable. Of course the average of the entry price is consolidated over decades as is duration and exit price and the capital involved massive.
But per the reduction above, and mathematically, the critical value becomes exit price which is after a duration in the future. Hence predicting it accurately is the only way to ever trade successfully.
Any trading system will need to predict that future value. There is no escaping it.
ANY STRATEGY, ANY METHOD, ANYTHING can ultimately be converted to the 3 values that define a trade. There is a 1-1 conversion ratio.
