|
PureBytes Links
Trading Reference Links
|
-----Original Message-----
From: Lincoln Fiske <lincolnf@xxxxxxxxxxxxx>
To: omega-list@xxxxxxxxxx <omega-list@xxxxxxxxxx>
Date: Saturday, October 17, 1998 7:57 PM
Subject: Calculating Risk of Ruin
>Does anyone know how to calculate the risk of ruin? I have Kaufman's
Smarter
>Trading, but I'm unsure how to do his calculation. There seem to be some
>notation errors in his description, and I'm also not sure how to do one of
the
>calculations (.8198^4.132, for example).
>
>Thanks,
>Lincoln
>
Lincoln: As I recall ROR is as follows:
ROR=(1-expected advantage/1+expected advantage)raised to the number of units
to be traded. For example assume a system that has 55% winners. The
expected advantage (sometimes called the mathematical advantage) is .10
(.55-.45). Assume also that your account equals $10,000 and that you can
risk $1,000 each time. This means that you have 10 units. Plugging this
into the equation would give you 1-.10/1+.10 which is .818. Raise .818 to
the 10th power (10 units) gives you a probable ROR of 13.4% (if my math is
right!). Hope this helps.
Regards, Jack.
|