NexusFi: Find Your Edge


Home Menu

 





Expectancy custom fitness


Discussion in EasyLanguage Programming

Updated
      Top Posters
    1. looks_one Big Mike with 7 posts (0 thanks)
    2. looks_two sam028 with 4 posts (4 thanks)
    3. looks_3 Quick Summary with 1 posts (0 thanks)
    4. looks_4 aslan with 1 posts (0 thanks)
    1. trending_up 8,510 views
    2. thumb_up 6 thanks given
    3. group 4 followers
    1. forum 13 posts
    2. attach_file 1 attachments




 
Search this Thread

Expectancy custom fitness

(login for full post details)
  #11 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Posts: 50,234 since Jun 2009
Thanks Given: 33,106
Thanks Received: 101,351


sam028 View Post
Hmm, for me it's:
Expectancy = (Probability of Win * Average Win) - (Probability of Loss * Average Loss)
, and the higher the better.
But I'll check this, I'm maybe wrong.

There is a post on this here.

Sam,

Using the same example above where I got 0.28 score, your formula yields 58.81. I'm not sure how to interpret the results, more research is needed here it seems. Is 58.81 saying there is a 58% chance of positive performing results?

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor


For the best trading education, watch our webinars
Searching for trading reviews? Review this list


Lifetime Elite Membership: Sign-up for only $149 USD
Receive exclusive offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote

Can you help answer these questions
from other members on NexusFi?
Trader Dale [email protected] or Scammer Dale
Trading Reviews and Vendors
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
The space time continuum and the dynamics of a financial …
Emini and Emicro Index
Request for MACD with option to use different MAs for fa …
NinjaTrader
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Tao te Trade: way of the WLD
30 thanks
Supertradersams Thread Journal on NQ/MNQ
25 thanks
Deaddogs Stock Trading
23 thanks
GFIs1 1 DAX trade per day journal
22 thanks
Daytrading ES & NQ
13 thanks

(login for full post details)
  #12 (permalink)
 
sam028's Avatar
 sam028 
Site Moderator
 
Posts: 3,761 since Jun 2009
Thanks Given: 3,823
Thanks Received: 4,629


Big Mike View Post
Sam,

Using the same example above where I got 0.28 score, your formula yields 58.81. I'm not sure how to interpret the results, more research is needed here it seems. Is 58.81 saying there is a 58% chance of positive performing results?

Mike

The 58.81 means something like:
- if you keep the same win/loss ratio, and the same average winners/losers, you'll win $58.81 per trade.

Your formula make sense, but why not dividing by the the average winner, for example.
Anyway, the thing is to compare in using the same criteria, and understand the meaning of used criteria.

Success requires no deodorant! (Sun Tzu)
Follow me on Twitter Started this thread Reply With Quote
(login for full post details)
  #13 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Posts: 50,234 since Jun 2009
Thanks Given: 33,106
Thanks Received: 101,351



sam028 View Post
The 58.81 means something like:
- if you keep the same win/loss ratio, and the same average winners/losers, you'll win $58.81 per trade.

Your formula make sense, but why not dividing by the the average winner, for example.
Anyway, the thing is to compare in using the same criteria, and understand the meaning of used criteria.

Yes I agree with you on both counts. And because of this, I see no real advantage of having it divide out that last part. So I removed it from the version I am using now in my MC.

Thx
Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor


For the best trading education, watch our webinars
Searching for trading reviews? Review this list


Lifetime Elite Membership: Sign-up for only $149 USD
Receive exclusive offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
(login for full post details)
  #14 (permalink)
zerobot007
Zagreb
 
Posts: 1 since Feb 2010
Thanks Given: 0
Thanks Received: 1

Thanks for raising the question of expectancy optimisation / custom fitness functions for MC.

My interpretation of expectancy is closer to Mike's original. It is a measure of risk adjusted returns when you include the average losing trade in the denominator.
As such the 0.28 reflects an expectation of 28c return for every dollar risked, where risk is defined as the average losing trade size.
Van Tharp amends the risk denominator to be his 'R' being the actual dollar amount risked per trade (assuming it is predefined), but this usually requires an array to capture the risk per individual trade, and so it is often expressed as average losing trade as the risk denominator. As such, when using the array approach, I usually find it ends up being dumped to excel for comparison, whereas the average trade denominator makes it possible to use it as an optimisation fitness function in MC. So thanks for putting the optimisation code together.

The interpretation of the 0.28 is such that the system is expected to return 28c per dollar risked. A negative number reflects a negative expectancy, ie a truly losing system. Anything greater than 0 has a positive expectancy, even if it is only 0.01. How much more than 0 you will accept as reasonable is a judgement call.

Yes there are systems that have expectancies > 1 as calculated originally by BM, but they are few and far between, and they are surprisingly not always the most tradeable systems psychologically, as I have found that the highest expectancy systems are often in the 20-40% win percentage range.

The reason for including the risk denominator is so that it is a normalised fitness function that allows comparisons across systems. From the perspective of optimising one system at a time, you can argue that removing the denominator doesn't make much difference, but by taking it away you are essentially optimising of average trade value (or average trade net profit / ATNP), which is what the formula usually reduces to. This is the classic definition of expectation: Netprofit / no trades. How much does your system make per trade. If positive, you have a winning system / backtest. If negative a losing system / backtest. I prefer the risk adjusted version with average losing trade as the denominator.

The utility of expectancy as a custom fitness function depends upon its predictive value in a walk forward sense, and my research suggests that it is a pretty reasonable fitness function, and I do tend to incorporate some weighting for expectancy in my fitness functions, but it is not the only component.

Cheers

zerobot

Reply With Quote
The following 2 users say Thank You to zerobot007 for this post:





Last Updated on September 29, 2010


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts