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Every Trader Should Know This Formula [Premium Articles]

Posted by Michael Harris on February 23, 2015

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There is a formula that every trader should know and understand. It relates the win fraction to the profit factor and payoff ratio. An understanding of this formula can provide useful guidance about the risks  in different trading timeframes.

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Michael Harris

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Quantitative trading

The Three Types Of Backtests According to Clifford Asness

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Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated performance results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Hypothetical trading results are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

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