Which setups are more attractive?

Discussion in 'Risk Management' started by elitetradesman, Oct 15, 2012.

  1. kut2k2

    kut2k2

    System Performance Score
     
    #31     Apr 9, 2013
  2. Visaria

    Visaria

    Took me a few minutes admittedly to figure out, but this "SPS", lol, is just the expected value per dollar risked!!!!!

    :D
     
    #32     Apr 9, 2013
  3. The problem is that markets are not static, plus on a lower win % system, you lose on commissions.

    So in reality, I would not trade either system since over time both would lose money.
     
    #33     Apr 9, 2013
  4. Visaria

    Visaria

    According to SPS, lol, system C (see above) is even more attractive with a SPS of 1.12.

    But tbh, i wouldn't want to trade a system where the prob of a winner is 0.1%.
     
    #34     Apr 9, 2013
  5. Visaria

    Visaria

    The ideal system for me has the following:

    win rate of at least 30%
    profit factor of at least 2
    expected value per dollar risked (or SPS lol) of $1 or more
     
    #35     Apr 9, 2013
  6. kut2k2

    kut2k2

    That's not the general case, just the special case of exactly two outcomes (only one win amount and only one loss amount). For the general case of multiple outcomes, I prefer the formula I wrote (k*W) using the exact value for k, because the Kelly approximation (= p/|L| - q/W) is always an overestimation, which means you're overtrading. Not good to overtrade.
     
    #36     Apr 10, 2013
  7. kut2k2

    kut2k2

    SPS(C) = 1.221 actually.

    Despite the low winrate, the payoff makes the system best of the three. Would you refuse to play one of the multi-state lotteries even if the jackpot reached a billion dollars? Lol
     
    #37     Apr 10, 2013
  8. kut2k2

    kut2k2

    PF = pW/qL = .3W/.7L >= 2 : W >~ 5L

    SPS >~ .3*5-.7 = .8 < 1

    Looks like SPS is your bottomline factor. Lol
     
    #38     Apr 10, 2013
  9. bustermu

    bustermu

    kut2k2,

    I made an equivalent claim in:

    http://www.elitetrader.com/vb/showthread.php?s=&postid=3028937#post3028937

    Any references to and/or proofs of the claim would be greatly appreciated.

    The proof I have uses Jensen's Inequality for conditional expectations which I believe to be beyond the mathematical level of most traders.

    Thanks,
    Jim Murphy
     
    #39     Apr 10, 2013
  10. kut2k2

    kut2k2

    Great post. Unfortunately I do not have the proof you seek. My conclusion is empirical. :(
     
    #40     Apr 11, 2013