Why high expectancy trading is so important

This is a discussion on Why high expectancy trading is so important within the First Steps forums, part of the Reception category; Originally Posted by jpadventure I love hearing the word "Expectancy", game changer for me. Really simple... Win ratio's, risk reward, ...

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Old Jun 18, 2011, 4:51pm   #9
Joined Jan 2008
Re: Why high expectancy trading is so important

Quote:
Originally Posted by jpadventure View Post
I love hearing the word "Expectancy", game changer for me.

Really simple...
Win ratio's, risk reward, tight stops, doesn't matter what you do, is your method profitable?
+1

Truly silly buzzword. The bottom line is: are you making money?
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Old Jun 18, 2011, 5:08pm   #10
Joined May 2011
Re: Why high expectancy trading is so important

Formula of expectancy:

Click the image to open in full size.

Expectancy is made up of accuracy and payoff. Improving the accuracy and the average win-to-average loss payoff are important tools to reduce our risk of ruin.

If your probability of winning is 35%, your average winning trade profits $10, and your average losing trade loses -$3, this trading system has a positive expectancy because over the long-term, it should yield an average profit of $1.55 per trade.

In contrast, consider a trading system that wins 90% of the time gaining $1 on average but loses $20 on average on the 10% of losing trades, this trading system is worthless despite its 90% success rate because it has a negative expectancy (-$1.10).
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Old Jun 22, 2011, 6:00pm   #11
Joined Jan 2008
Re: Why high expectancy trading is so important

Quote:
Originally Posted by lcchong76 View Post
Formula of expectancy:

Click the image to open in full size.

Expectancy is made up of accuracy and payoff. Improving the accuracy and the average win-to-average loss payoff are important tools to reduce our risk of ruin.
As i said before this term is just a buzzword IMO. It has been shown in this blog to be mathematically equivalent to the simpler statement that the net profit is greater than zero.

If at the end of a given period you have made money, by definition the expectancy is greater than zero for the period. So what? What was the drawdown? The Sharpe ratio? The rate of return? Expectancy tells nothing really other than the fact that money was made. No serious trader should rely in a simplistic and naive formula like that.
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Old Jun 23, 2011, 1:22pm   #12
Joined Nov 2007
Re: Why high expectancy trading is so important

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Originally Posted by fibonelli View Post

Expectancy = (Avg win * Win rate) minus (Avg Loss * Loss rate)
Er

No.
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Old Jun 23, 2011, 1:23pm   #13
Joined Nov 2007
Re: Why high expectancy trading is so important

Quote:
Originally Posted by intradaybill View Post
As i said before this term is just a buzzword IMO. It has been shown in this blog to be mathematically equivalent to the simpler statement that the net profit is greater than zero.

If at the end of a given period you have made money, by definition the expectancy is greater than zero for the period. So what? What was the drawdown? The Sharpe ratio? The rate of return? Expectancy tells nothing really other than the fact that money was made. No serious trader should rely in a simplistic and naive formula like that.
This is also wrong. All of it. Sorry.

Edit: Actually no, I missed your 'for the period'. But your formula is wrong in this context. Also the idea that you should use expectancy for a discrete period is wrong in this context.
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Old Jun 24, 2011, 4:43pm   #14
Joined Jun 2011
Re: Why high expectancy trading is so important

Expectancy is the realization that if you follow a definite plan which has been tested and is profitable, then you will become a consistently profitable trader. Anything less, is your mental problems getting in the way.
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Old Jun 26, 2011, 8:13pm   #15
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Re: Why high expectancy trading is so important

no.
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Old Mar 21, 2012, 9:39pm   #16
 
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Joined Dec 2008
Re: Why high expectancy trading is so important

Watch this video : Tutorial Movies
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