Grey1
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Found this link in my library.. is a bit basic but could be useful to those new to probability issues..
http://www.cormactech.com/neunet/mars1.html
http://www.cormactech.com/neunet/mars1.html
TheBramble
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Good article. Thanks for the post Grey1.
I've attached an Excel spreadsheet below which codifies the equations - may be of interest or just for fun.
The most important things which jump out of this article at me in relation to our trading endeavours are:-
1. 'Probability of winning' is not going to be that easy to determine. You could use your historical winning trades/losing trades ratio I guess.
2. 'Return Rates on Win/Loss' ditto. Using risk/reward and target price could provide an estimate on Win Return Rate. Stop Loss could be used to estimate a Loss Return Rate.
But probably the most important issue is that the MARS equations are based upon a 'single instance event'. If you're only ever in one trade at any one time - fine. Otherwise, as McCormack states, "the mathematics becomes explosively complex...".
He does suggest in the bibliography some titles on 'portfolio optimisation', but I suspect the math would interest mainly the abstract/pure mathematician rather than the risk-focused day-trader.
I've attached an Excel spreadsheet below which codifies the equations - may be of interest or just for fun.
The most important things which jump out of this article at me in relation to our trading endeavours are:-
1. 'Probability of winning' is not going to be that easy to determine. You could use your historical winning trades/losing trades ratio I guess.
2. 'Return Rates on Win/Loss' ditto. Using risk/reward and target price could provide an estimate on Win Return Rate. Stop Loss could be used to estimate a Loss Return Rate.
But probably the most important issue is that the MARS equations are based upon a 'single instance event'. If you're only ever in one trade at any one time - fine. Otherwise, as McCormack states, "the mathematics becomes explosively complex...".
He does suggest in the bibliography some titles on 'portfolio optimisation', but I suspect the math would interest mainly the abstract/pure mathematician rather than the risk-focused day-trader.
