|
PureBytes Links
Trading Reference Links
|
At 10:17 PM -0500 12/15/98, Andy Dunn wrote:
>Can anyone write me a formula for the following.
>
>I have a system and the average WIN is 2X the average LOSS
>The system WINS exactly 50% of the time
>Let's say I start with $1M
>Each time I trade, I risk 1% of the bankroll (starts at 1M then goes up
>with each trade)
>
>Can anyone write an algebraic formula that will determine the yearly
>Rate-Of-Return depending on HOW MANY trades this system does each year?
You don't say what the loss percentage is. Assume you lose L (as a
fraction) of your capital on each losing trade and win 2*L (as a fraction)
of your capital on each winning trade. Assume trades occur in pairs - one
win followed by a loss. Then:
End = Start*((1-L)*(1+2*L))^(n/2)
For example, if the loss on a losing trade ("L") is 0.5% of your capital (L
= 0.005)
and the number of trades in the year ("n") is 400
End = Start * ((0.995)*(1.01))^(400/2)
= Start * 2.68
So the ending value would be 2.68 times the starting value or a profit of
168% in the year.
This assumes you adjust the trade size as you capital increases/decreases.
Hope this is what you meant.
Bob Fulks
|