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Sebastian,
looks to me like in both cases your trader DOES have an edge (50/50
win/loss and win % are > loss%), it will show also in dollar amounts
if you take a longer (statistically valid) run of trades, you can't
just artificially build a series of trades and draw conclusions. Try
to compute the average profit after all permutaions of trades in your
example and you should see for yourself.
n.
On 9/2/05, Fred <ftonetti@xxxxxxxxxxxxx> wrote:
> One can "look at it" any way one wants.
>
> Over a short period of time almost statistics are meaningless ...
>
> Let's look at a trader who over a longer period of time has a 75/25
> win/loss ratio and starts w/$1000. Let's assume he has 3 winning
> trades of 10% each followed by a losing trade of 10% and then the
> cycle repeats.
>
> After 100 trades he has $117,391 w/the average win being 2446.55
> (10%) average loss being 2682.53 (10%) ...
>
> You prefer an expectancy calc of:
>
> 0.75 * 2446.55 - 0.25 * 2682.53 = 1163.90 i.e. < 1% of his equity
>
> or:
>
> 0.75 * 10 - 0.25 * 10 = 5% i.e. ~ $5869
>
> If we take the same example over 500 trades then we have an
> expectancy that's around 0.1% using $ to the same 5% using %.
>
> The longer the example, the more out of whack this gets ...
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "sebastiandanconia"
> <sebastiandanconia@xxxx> wrote:
> > Is it? I'm not sure.
> >
> > Example:
> >
> > A trader has a system with a 50/50 win/loss ratio. Starting with
> > $10,000, he has three losing trades in a row with each costing him
> > 10% of his existing equity. Three losses, each 10%, $1,000, $900,
> > $810. Average loss -10%, or (1000+900+810)/3 = $903.33.
> >
> > From his current equity of $7290, he has three winning trades that
> > bring him back even to $10,000 (it's $9999.87, to be precise).
> Each
> > trade is a win of 11.111% of his existing equity,
> > (809.99+899.99+999.90)/3 = $903.29.
> >
> > Using an expectancy formula calculated with percentage profit of
> > winning and losing trades would lead him to believe he had an edge
> of
> > 1.111%, but he obviously doesn't since the average dollar amount of
> > his wins and losses are virtually the same.
> >
> > Or if he took a larger hit of 30% on his first trade, bringing his
> > equity down from $10,000 to $7,000 and then had a big win of 42.85%
> > bringing him back even, he'd think he had a REALLY big edge when in
> > reality the dollar amount of both trades were the same.
> >
> > Or am I looking at this the wrong way? I'm not exactly a
> bookie.:)
> >
> >
> > Luck,
> >
> > Sebastian
> >
> >
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@xxxx> wrote:
> > > Using $ as opposed to % in formulas like this is really only good
> > for
> > > the futures traders who tend to trade the same number of
> contracts
> > or
> > > dollar amounts for awhile ...
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "sebastiandanconia"
> > > <sebastiandanconia@xxxx> wrote:
> > > > Sorry, I had to edit my first reply. Let's try this again.:)
> > > >
> > > > In your expectancy formula, are you calculating Avg Profit and
> Avg
> > > > Loss as % (as it appears in your formula)? Because expectancy
> > > > formulas quote the profits and losses in dollar amounts, like
> > this:
> > > >
> > > > (%Wins x Avg Profit $) - (%Losses x Avg Loss $)
> > > >
> > > > Could this account for the difference of opinion that you and
> > Tomasz
> > > > have? Expectancy tells you what dollar amount you can expect to
> > win
> > > > or lose per dollar amount risked. However, the dollar amount
> > > risked
> > > > doesn't vary with leverage. Buying $10,000 worth of a mutual
> > fund
> >
> >
> >
> > > in
> > > > a cash account puts $10,000 at risk, but so does buying $10,000
> > of
> > > > that fund on margin with $5,000, it's just that you're
> borrowing
> > > the
> > > > other $5K. Same thing when buying $10,000 worth of a mutual
> fund
> > > > that uses 2X leverage, still the same $10K at risk. The amount
> > of
> > > > money risked is always the same, so the expectancy has to be
> the
> > > > same.
> > > >
> > > >
> > > > Luck,
> > > >
> > > > Sebastian
> > > >
> > > >
> > > >
>
>
>
>
>
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