The solid black line with the blue dots on it is the breakeven line. That is, not a winning or a losing investment system.
Exploring this further...
The bottom dark blue dot on the breakeven line is where the Profit Ratio of 1 (average winner = average loser) crosses the Win Rate of 50% (0.5).
[(1 + 1) * 0.5] – 1 = 0
This means that a system that produces winning trades 50% of the time, and where the size of the average winning trade is equal to the size of the average losing trade, will produce a break-even result over a large sample of trades.
The upper light blue dot on the breakeven line is where the Profit Ratio crosses 4, that is, each winning trade on average is four times larger than each losing trade, and the Win Rate crosses at 20%, that is, only 20% of trades are winners and 80% are losers.
[(4 + 1) * 0.20] – 1 = 0
Again, a break-even system over a large sample of trades.
How does SPA3 Investor measure up?
Refer to the purple dot. This represents the researched SPA3 Investor Profit Ratio from a single portfolio of 3.4 and Win Rate at 54%, over a large sample of historical trades...
Meaning, on average, the strategy produces ~50% winning trades, but the winning trades are 3.4 times larger than the losing trades.
[(3.4 + 1) * 0.54] – 1 = 1.37
This equation is the crux of what makes SPA3 Investor work..
This is the researched Statistical Edge of the SPA3 Investor strategy, which has also been demonstrated in live trading through 100% transparent, real-money portfolios.*