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Pavel wrote:
>Do You trade stocks? You should know how varies the stock price.
>It's almost senseless (or useless) to try to evaluate the system trading
>1 share of stock. Trades must be at least price ajusted.
Or risk adjusted. Or adjusted for some constant dollar amount.
>The first approximation of risk adjusted trades could be:
>
>NumShares [in the trade] = Equity/Close,
>where Equity is Equity assigned to trade the instrument;
For evaluating expectancy on a stock system, I would think the
number of shares should be some constant number of dollars divided
by the price. Even if you have to use some odd fractional number of
shares. That way you're investing a constant amount in each trade.
Because each trade represents the same amount of capital, you can
more easily calculate your average win and average loss. It's
harder to do if you base your number of shares on your equity,
which changes over time. You're trying to evaluate expectancy of a
system, which is different than seeing how it performs in simulated
trading. All you're trying to do is generate a list of trades, all the
same amount, and get their average wins and losses.
When you want to use equity as a basis for calculating position
size, is when you really want to see how the system will do when
it's traded. In real life, you'll be adjusting your shares
according to your equity and how much your system allows you to
risk. And you'll probably trade round lots too.
-Alex
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