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Hi
Rob,
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Your
calculation of expectency is not correct. Hereafter are a few considerations
that may help you :
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1) You
cannot calculate expentency after applying position sizing. If you do so, just
imagine your first trade is made with 100 shares, and your last with 300 shares
(the system is good and your equity si growing :-)), with an identical result in
term of percentage (let's say a gain of 15%), the last trade will "weight" 3
times as much as the first one. So calculate your expentency BEFORE applying
position sizing, or express every trade on a one share basis by dividing every
single trade by the number of shares you risked in it.
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2) The
expectency can be expressed in different unit of risk. If you apply the formula
: "average gain * perc gain - average loss * perc loss", you express the
expectency in dollars for one share invested if the basis of your test is one
share (once again, it works only if your test is made before applying position
sizing). You can also calculate : "win/loss ratio * perc gain - perc loss".
Here, you express your expectency for one unit of average loss. You can also
express your expectency for $ 100 invested by expressing the results of your
trades in term of percentage (a 15% gain is $ 15 for $ 100 invested).And
you can also express your results in term of stop if you consider your riskis
determined by your stop (by dividing the result of each of your trades in
dollars by the amount of your stop). There, the expectency is expressed for
one dollar risked (but of course, if you change the amount of your stop, the
expectency is different and must be recalculated).
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As you
can see, you can have different value of expectency for one system according to
the unit in which you express it. It up to you to choose the one that you
understand best. One thing that doesn't change nevertheless, is that a system
that shows a positive expectency will remain positive whatever unit you
choose.
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Well,
I could have given you a formula "ready to use", but I think it wouldn't have
been a good solution, as a figure that is not understood is useless. Or so is my
belief. The final point is : you must be able to say, after having calculated
your expectency : "if I invest/risk 1 unit on one trade, I get 1 unit+
gain as a result on the long term".
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Best
regards, Jerome ULRICH
<FONT face=Tahoma
size=2>-----Message d'origine-----De : bowbie89
[mailto:robm@xxxx]Envoyé : vendredi 21 juin 2002
15:01À : amibroker@xxxxxxxxxxxxxxxObjet :
[amibroker] Re: Tharp's Expectancy CalculationHello
Jerome,This was a test just on one stock(MSFT). I'm still not
seeing this clearly. My overall system expectancy is $937 by taking
my net profit and dividing it by the # of trades(31). I am risking
1% of my equity as you can see in the code below
-Capital=100000;risk=.01*Capital;shares=risk/Max(2*ATR(10),2*ATR(3)
);PositionSize=shares*Ep;Total profits on winning trades(13) =
44,366Total losses on losing trades(18) = 15,322From the
statistics printout my Avg Win/Avg Loss = 3.86So Avg Win X Pct. Win- Avg.
Loss X Pct. Loss = 1.04Yet it seems when I try to eliminate the
position sizing effect to get down to a per share basis, it seems to give
me a negative expectancy. It just seems like I should setup my
probability matrix and leave my gains & losses as is.Any more
thoughts on this?Rob --- In amibroker@xxxx,
"Silvarius" <silvarius@xxxx> wrote:> Hello Rob,> >
The method to divide your results by the number of shares is the right
one> only if you test a system on a single security. If you test it on
multiple> securities, you must make it on a basis that is commun to
every securities> (money, percentage, indices etc ...).>
> Best regards, Jerome ULRICH> -----Message
d'origine-----> De : bowbie89
[mailto:robm@xxxx]> Envoye : vendredi 21 juin 2002
05:15> A : amibroker@xxxx> Objet :
[amibroker] Tharp's Expectancy Calculation> >
> Hello All,> > I was wondering
if someone could help me out. I'm having trouble>
calculating expectancy based upon Tharp's book. I
know> I can calculate the expectancy from the statistic
report using avg> win/avg loss but I wanted to follow
Tharp's procedure.> I just did a simple backtest on
Microsoft and was trying to figure> out the expectancy
based upon Tharp's "Trade Your> Way To Financial Freedom"
book. On page 158, his second step is to>
eliminate the effect of position sizing by only>
considering single units or 100 share blocks. I think this is
where> I'm having my problems. Am I supposedto
divide my> gains and losses by the number of shares and
then times it by 100? I> did this but it just
doesn't seem right. I wanted to> attach my excelfile
but I don't think I have the rights to upload it> or
I'm not seeing how to do it.> > Thanks for any
help,> > Rob> >
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