Comparing systems

...cont'd from yesterday...

Size of Average Winner and Size of Average Loser. This tells you how much you win when you win. You’ll need to have huge gigantic winning trades if the percentage of winning trades in your method is low. For example, if your method of trading usually results in 30% wins, then you’ll need larger wins to get the same net profits as another method that usually results in 60% wins.

A combination of %Win, %Loss, Average Winner, Average Loser and Number of Trades produces a number that you can use to compare different Trading Methods in a valid way. That is, in a way where you are comparing apples with apples instead of apples with bananas.

Sometimes, that information is called “Expectancy”. Be aware that there are different ways of calculating “Expectancy”, all with differing results. The following is the one I like to use.

[(Average Winner x %Win) – (Average Loser x %Loss)] / [Number of Trades in sample]
= Expectancy

...cont'd tomorrow...

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