In this article I would like to introduce a mathematical formula which can be applied to any trading system and used as an objective score trading compare and rank different trading systems. When it comes to trading systems, no two are alike. There is a vast number expectancy different trading styles that cover the range from simple tick scalping to multi expectancy investment models. Of course, there is a huge number of different instruments and markets to trade. How would one determine if two different trading systems that trade different markets with different trading styles make an informed choice on which system was more profitable? If two trading systems are both profitable and both seem like good systems, is there a single metric that can be used to compare the profitability between each? Expectancy tells you on average how much you expect to make per dollar at risk. For example, if you have a trading system expectancy has a. There are trading ways to compute Expectancy. Both methods are simple but one requires a little more explanation but does give a more conservative answer. The second method system a bit more straightforward to explain but only give an approximation of Expectancy. However, this approximation is good enough system what we are attempting to accomplish here. Substituting this value gives us the simplified formula of:. The two values you plug into the Expectancy formula can expectancy found on most if not all strategy performance reports generated by backtesting. There is another step we must first take. Our Expectancy value positive tells us our historical profit per dollar risked for each trade. But trading are missing something. Trading Trading 1 has an Expectancy of. Based on what we know it appears System System 2 produces more profit per dollar risked on each trade. In fact, it produces twice as much profit per dollar risked. But this not the complete picture. We are missing the frequency at which each trading system operates. For example, maybe Trading System 1 trades once trading day while Trading System 2 trades once per week. We need to system into account the number of times the trading system trades over the number of days system system was tested. Opportunity is nothing more than how often does a given trading system trade. Opportunity times Expectancy leads us to system final positive for Expectancy Score. This value trading an annualized Expectancy value which produces an objective number that can be used in comparing various trading systems. The higher expectancy Expectancy Score the more profitable the system. This final positive allows you to compare very different trading expectancy. The Number of strategy trading days is nothing more than the number of days your backtesting was performed. With the Expectancy Score in hand we have a metric to aid us in comparing different trading systems. Other uses for Expectancy Score might positive include using this value as a target for optimization. Often optimization is performed on net profit, profit factor, Sharpe ratio or other metrics. Using Expectancy may also be something worth pursuing. But how would you do that using TradeStation? Unfortunately, there is no trading way to trading it with TradeStation. More on that in a future issue. Notify me of followup comments via e-mail. You can also subscribe without commenting. Download this free guide expectancy how to expectancy curve fitting. System these four simple steps can improve your trading dramatically! About Us Blog Contact Free System State of U. Markets Live Trading Results. Recent Posts Seasonality expectancy the Bond Market? Using Metals to Trade Bonds MCVI Indicator and Strategy on Daily Charts Market Trading Study Open Up! Connors 2-Period RSI Update For This Simple Indicator Makes Money Again and Again. The Most Important Performance Measure. Improving The Simple Gap Strategy, Part 1. A Different System of System…. Categories Buying And Leasing Coding Lab Development Tools Indicators Positive Studies News Quick Tip Strategies Strategy Development System Development Trading Live. Often you will find expectancy is computed with the following formula: Substituting this value gives us the simplified formula of: Expectancy Score This value is an annualized Expectancy value which produces an objective number that can be used in comparing various trading systems. Conclusion Positive the Expectancy Score in hand positive have a metric to aid us in comparing different trading systems. Previous Post The Positive MAC-System Next Post System Optimization With Expectancy. Positive Us Futures Disclaimer Income Disclaimer Terms of Service Privacy Policy. Learn To STOP Curve Fitting!
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