My little Formula (Against Expected Value)

Discussion in 'Trading' started by K-Pia, Feb 7, 2016.

  1. K-Pia

    K-Pia

    If you want to know if you have an Edge,
    Just throw your numbers in that formula:

    You need the same inputs as for E(x)
    But the problem is that E(x) is static.
    Where mine is dynamic, over time.
    Instead of averaging over worlds.

    The Formula :
    (1-%L)^((1-x)/x)*(1+(%L*R)
    Where :
    %L is the mean Loss in Percent
    Exemple 2% Loss equals 0,98

    x is P(Gain) such that 0<x<1
    Exmple P(G) = 0,5 then (1-x)/x = 1

    R is the R:R ratio
    Exemple Ratio = 1 then %L*R = 2

    In order to have an Edge, the result must be >1
    In this exemple our output is 0.9996.
    Therefore in average, we lose
    0,04% per trade.

    By solving for x, it tells us that for these inputs,
    We would need a probability of gain superior than 0,505.

    WARNING: Don't forget that everything flows.
    Don't forget that there are variations around the mean.
     
    Last edited: Feb 7, 2016
    Caporetto likes this.