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In an earlier post, expectancy was associated with profit factor.
It is more closely related to payoff ratio.
In Van Tharp's book, 2nd edition, "Trade your way...", page 204 et
seq, he calculates
Expectancy = average profit/ # trades
divided by average loss.
Payoff ratio is average profit/average loss,
so
Expectancy = payoff ratio/# trades.
--which can give very low numbers, and makes the concept rather
dubious if you are using it as an absolute value for comparing systems
with different numbers of trades. It might be better to use trades per
annum.
To be fair Van Tharp only gives that way of calculating expectancy as
a default if the risk of a trade isn't able to be calculated taking
into account a pre-determined proportion of equity. For that, you need
to read the whole chapter.
Personally i find CAR/MDD, RRR more relevant, along with the raw
Payoff ratio.
The K-ratio isn't worth the space it takes up: RRR is simpler.
regards
Gerry
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