@bdixon619 Guess yourself... I assume we are talking of more than hundred real trades and not backtested stuff: $300 average and a standard dev of $36 then essentailly means no losing trades, (nearly)always winning, (nearly) always gaining $300. The coefficient of variation would be 12%, some hundred percent are common in the markets. regards Bernd Kuerbs
I was really looking for your suggestion...I like Swing's name. As to my hypothetical report of his performance, maybe Mr. Efficiency would suit him...I'm only guessing because you asked though. Using ES as a vehicle and playing for 1 pt. is might be possible with multiple contracts and tight stops. But i was just grabbing at numbers to illustrate the use of Chebyshev's inequality, not make a statement about what Swing might actually be capable of doing. Bruce
Copied from Numerical Recipes in C, which is probably not the ultimate authority in statistics, but maybe interesting nevertheless: It was these line that made me think, if it would be always the best to use STDEV, but it seems everybody uses it. Why is this so? Some synapses got connected today reminding me of the years, when just everybody "knew", that spinachi contained lots and lots of iron. Are we copying here again, non-reflecting if STDEV is the best choice? To me, it seems there are different deviations, each having their specific properties and pros/cons. If I am right with this assumption, would it be far-fetched to try to take the most useful use of these properties, i.e. depending on what one is looking at, taking one or the other. Andreas
You may have been right about your source - the mean depending on the first moment of variance?! Hardly. This doesn't, however, diminish the explanation of average deviation which follows. Thanks for that. How large is the difference between the different deviations? For trading systems in general, and risk of ruin and position sizing calculations in particular, I would strongly advise erring on the side of safety. You have the perfect opportunity
Completely agree with wanting to err on the safe side. For the sake of discussion, let's say there is a trend-following system with good stop-losses. Thus having many small losses and a some large wins. When looking at risk, my interest lays on the left side of the distribution - how bad can it go. Sure, one can pick the Stdev and by this is on the safe side. But knowing the variance around the observed "normal", i.e. removing positive outliers, would be more descriptive. Anybode is free to adjust this deviation by some number to inflate the theoretical risk for money management purposes. My thinking follows one chapter in Taleb's book, where he says that the mean is not the rule. Having an asymetric distribution, the mean is not the average, and he brings skewness into the game. Would be interesting to hear about money management schemes that take the skew into account. Anybody? Best, Andreas
I used Tchebycheff for his name as for myself. As for the formula I use it everyday as illustrated in an old post: http://www.elitetrader.com/vb/showthread.php?s=&postid=261059&highlight=Tcheby*#post261059