Money Management Risk and money management related topics.

02-23-2013, 12:33 AM   #1

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Expectancy? (NT7 Acct Performance)

Ive been reading van k tharp's books lately and I need to know the expectancy of my system..or at least a better idea of it than I currently have.

I see in his books that he states to determine avg profit or loss per trade and dividing it by by avg loss (for existing systems that did not previously calcuate R multiple distribution for each trade).

however Im having trouble figuring this out on NT7 acct performance spreadsheet.

here are the important numbers for one month (intraday) 47 trades (sim) from 1-22-13 to 2-22-13:

Percent profitable: 53.19%
Profit factor: 2.23
Drawdown: -0.43

Avg win/loss ratio: 1.86

can anyone here please figure out the expectancy of my system with the above figures based on Tharpe's teachings? for some reason I cannot figure it out, however, I do know all of my losses are 1R or less.. and most of my winning trades (on avg) are between 2R-3R gain.

is my expectancy 1.86?

is the avg win/loss ratio the same thing as Tharpe's expectancy rating?

03-03-2013, 05:54 PM   #2

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Re: Expectancy? (NT7 Acct Performance)

Quote:
 Originally Posted by shooly76 » can anyone here please figure out the expectancy of my system with the above figures based on Tharpe's teachings? for some reason I cannot figure it out, however, I do know all of my losses are 1R or less.. and most of my winning trades (on avg) are between 2R-3R gain. is my expectancy 1.86? is the avg win/loss ratio the same thing as Tharpe's expectancy rating?
Hello,

It's while since I have read Tharp's books but, at a glance, I think you might not have the information that you need above.

The avg win/loss is not the same, as it relates the average win to the average amount lost, rather than the average outcome to the average amount risked.

Forgetting about the R Multiple stuff for a minute . . . Here's what you need to know:

1) The average dollar amount you risk per trade. If you always use a \$200 stop-loss, say, then this is simple. If you vary your stop (based on something like ATR for instance) then you need to add all the different dollar stop sizes together and divide by the total number of trades. This is the average amount you risk on all your trades (not just those that become losers).

2) Your average dollar outcome. This is the summation of the outcome of all your trades (winners and losers) divided by the total number of trades.

To calculate your expectancy (expressed as a dollar ratio) you simply divide number 2 above by number 1 above.

For example, if your average trade outcome is \$150 and on average you risk \$30 per trade, then your expectancy is to make (\$150 / \$30 = \$5) . . . \$5 for every \$1 that you risk.

I hope that makes sense and you are able to get the necessary information from your charting package in order to calculate this. If you need any more help then just ask.

Regards,

BlueHorseshoe

03-04-2013, 10:37 PM   #3

Join Date: Jun 2011
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Re: Expectancy? (NT7 Acct Performance)

thanks

based on your post..and w out really crunching any numbers on my spreadsheet, I quickly came up w a 'round about' expectancy of 2.00

I always risk \$100 per trade. 100/47= 2.12

avg winner \$200 per trade. 200/47= 4.25

expectancy 4.25/2.12=2.00

seems close to my actual profit factor number of 2.23 on NT7 spreadsheet

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