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If you know which trades to load up on, then you should reprogram the system
to take those trades and skip the rest. And then you should be able to
demonstrate a "positive" expectation w/o regard to size..
fwiw, phil
----- Original Message -----
From: Paul Altman <paulha@xxxxxxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Friday, May 19, 2000 11:55 AM
Subject: Tharp's Expectancy
> Would one of you mathematicians kindly take a moment and explain to me why
> we'd require that a system demonstrate positive expected return
> historically, before we'd put any money on it?
>
> I'm specifically looking at Tharp's definition of expectancy, where he
> states: (p.148) "Expectancy is a way of comparing trading systems while
> factoring out the effects of time, position sizing, and the fact that one
> is trading various instruments that have different prices."
>
> Using _his_ definition, I think I can imagine a negative expectancy game
> that would make money, since you could conceivably have a position sizing
> algorithm that would "know" when to enormously increase your bet size on
> winning trades, even if those winning %'s were very small.
>
> Obviously, all things being equal, I guess you'd want a higher expectancy
> rather than a lower one. But why would you insist it be positive? If I'm
> reading him correctly, he's saying that you don't want to play a negative
> expectancy at all. With his definition removing position sizing as an
> input to the expectancy formula, I don't fully understand his reasoning.
>
> Paul
>
>
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