The Expectancy Ratio - for measuring system performance - Anyideas??

[mark.keenan@xxxxxxxxxxxxxx]

      What do people think of the following extract taken from the
      following website - Following on from my previous email on
      optimization  I have been using to assess optimal parameters and the
      results seem good


      Has anyone had experience of the "expectancy ratio" and do you think
      it looks sound??



            http://unicorn.us.com/trading/expectancy.html





      Expectancy is how much you expect each trade to earn for every dollar
      you risk. Opportunity is how often your strategy trades. You want to
      maximize the product of both.


      Expectancy = (AW * PW + AL * PL) / |AL|
            (expected profit per dollar risked)

      Expectancy score = Expectancy * Opportunity

      where
            Opportunity = NST * (365 / studydays)
                  (opportunities to trade in a year)
            AW = average winning trade (excluding maximum win)
            PW = probability of winning (total wins / opportunities)
            AL = average losing trade (negative, excluding scratch losses)
            |AL| = absolute value of AL
            PL = probability of losing (nonscratch losses/opportunities)
            NST = number of non-scratch trades during the period under test
            (a scratch trade loses commission+slippage or less)
            studydays = calendar days of history being tested


      It is important to have the |AL| in the denominator of expectancy
      because this converts the expectancy to "risk units" -- earnings per
      dollar risked.





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