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Barry:
>Perhaps the confusion may lie in what Tharp factors into his concept of
>"expectancy." When YOU use the words "... I can imagine a negative
>expectancy game that would make money ...", I assume you mean percentage of
>winners versus percentage of losers.
Nope. I mean that you could have a highly profitable game, over long
periods of time, with many more losers than winners, and with winning
trades that have returns vastly smaller the negative returns of the losing
trades, with any cost of trading you like, and with any level of
opportunity you like, and it could still be very profitable, although
fitting within his definition of negative expectancy.
>However, this is not what Tharp is considering when he says "expectancey."
>Tharp's expectancey consists of 4 pieces. Only one of the pieces is
>Percentage of winners. The other 3 factors are:
>1- relative size of profits versus loses.
>2- cost of making trade and
>3- how often you get the opportunity to trade.
Yes, I see those on p.131, and his mentioning all 4 of as the components of
expectancy, on p.133, which is precisely what led to my confusion. This
list of measurements, in it's simplest form, would allow for high-profit,
negative-expectancy games.
>Tharp is certainly agreeing with you when you say "position sizing is
>important," as he says it is the most important aspect of sytem design.(page
>306).
Yes, I'm aware of his emphasis on position sizing, later in the book. I
was struggling to understand his expectancy calculations, which he
explicitly defines as being separate from position sizing.
Page 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." He then goes
on to Table 6-2 where he shows the trades produced by a Sample System, (p.
148) "using only the effect of trading one unit per trade (i.e., minimal
position sizing)."
Please see my prior post to Bill, which goes into more detail about some of
the possible sources of the confusion. Thanks, Barry.
Paul
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