Tag Archives: expectancy

Never Pull the Trigger Unless You Know the RIsk and Reward

Everyone can use a fancy stock screener with dozens of technical and/or fundamental criteria and find a few charts that look good. It is quite possible that one will find charts that satisfy specific criteria every day due to the large number of … Continue reading

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Consistent Losers in the Markets Are as Rare as Consistent Winners – The Paradox

I will name this the “Fortune Reversal Paradox” or the “Trading System Reversal Paradox”. The paradox says that being a consistent loser in the markets is as hard as being a consistent winner. The proof of this paradox is very easy and requires high school … Continue reading

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The Secret to Profitable Trading

Regardless of your market and timeframe, profitable trading requires that the profit expectation is greater than zero. However, this is a requirement of profitable trading and not the secret as some book authors and academic types argue. The secret is finding … Continue reading

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The Many Faces of Trading Expectancy

Some authors define trading profitability using the expected value or expectation, a.k.a expectancy. However, it would only suffice for them to say that a trading system, trading method, or even investment program, is profitable if the net profit/loss is positive, i.e. if it … Continue reading

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Optimal Position Size Methods and Other Misconceptions

Optimality usually refers to a solution to a problem derived with respect to some objective function. A solution that is optimal with respect to a given objective function can be non-optimal with respect to another objective function. In trading, for example,  there is the well-known %Kelly method for calculating position … Continue reading

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Trading Probabilities and Common Sense

A man appears from nowhere and tell you that he knows your total worth is X amount of money. He proposes to you a game of tossing a fair coin (independently confirmed to be fair) just twice and he will pay … Continue reading

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Time to Hire a Monkey? Not Really

Recently I have noticed a renewed interest in a few blogs and forums about “monkey style trading”. This type of trading usually involves coin tosses, percent stop-losses for risk management and trailing stops for profit taking. This is how it works in principle, according to its proponents … Continue reading

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What is a trading “edge”? – Part II

In my last post I made a reference to a popular definition of a trading edge that can be found in the trading literature and dicussed in various forums. This definition of a trading edge corresponds to what is usually referred to as  expected gain, … Continue reading

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