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AriaS
Well-known member
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Update: I constantly keep working on the strategy and improving it.
The main latest development is 2 new back testing algorithms. One is testing 3 months back and the other one also takes into account around 3 problematic time segments in the past.
Need 3.2% this month for the first 30k allocation
The main latest development is 2 new back testing algorithms. One is testing 3 months back and the other one also takes into account around 3 problematic time segments in the past.
Need 3.2% this month for the first 30k allocation
Last edited:
AriaS
Well-known member
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- 101
Random win probability
I often like to calculate the random win probability of my strategies to see whether it's luck or an edge:
First, we need to calculate the probability of a trade to become a winner.
Here's the formula: (average loss - average spread) / (avrg loss + avrg win)
My strategy: (42.45 - 1.5) / (42.45 + 22.3) = 0.632
This means that a trade has a random probability of 63.2% to become a winner. That's very reasonable: an average winning trade of my strategy is smaller than an average losing trade, so a TP has a higher probability to happen than an SL
Now we must calculate the binomial distribution. I like this online calculator .
I have 71 winning trades out of 84, so "number of flips" = 84, and we need to have "at least" 71 heads, at "probability of heads" = 0.632.
The result is 0.000014375 or 1 in 69,566 chance of success.
This indicates that the outcome is a result of an edge, rather than luck.
Why is this calculation important? For example, if I had only 60 winners out of 84 trades, the strategy would still be in profit, but then the probability of that to happen would be 1 in 14 . Such high probability could suggest luck, rather than an edge. We would not be confident in such a strategy's success in the future.
I often like to calculate the random win probability of my strategies to see whether it's luck or an edge:
First, we need to calculate the probability of a trade to become a winner.
Here's the formula: (average loss - average spread) / (avrg loss + avrg win)
My strategy: (42.45 - 1.5) / (42.45 + 22.3) = 0.632
This means that a trade has a random probability of 63.2% to become a winner. That's very reasonable: an average winning trade of my strategy is smaller than an average losing trade, so a TP has a higher probability to happen than an SL
Now we must calculate the binomial distribution. I like this online calculator .
I have 71 winning trades out of 84, so "number of flips" = 84, and we need to have "at least" 71 heads, at "probability of heads" = 0.632.
The result is 0.000014375 or 1 in 69,566 chance of success.
This indicates that the outcome is a result of an edge, rather than luck.
Why is this calculation important? For example, if I had only 60 winners out of 84 trades, the strategy would still be in profit, but then the probability of that to happen would be 1 in 14 . Such high probability could suggest luck, rather than an edge. We would not be confident in such a strategy's success in the future.
Last edited:
Rufus_Leakey
Established member
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Shouldn't the spread be added to the numerator instead of subtracted?
