The median income for a conventional casino in magnitude is comparable only with a yield of transactions on Wall Street.Smart people have long understood that one can not always rely on your luck and started to use statistical methods to obtain the stability of its earnings.
Casino gets a huge amount because the "probability" or, in other words, the expectation of the game is on the side of the gambling house.And regardless of which game to participate, sooner or later the casino wins.Casinos Earnings grow even faster if the range of games are those that end up in a relatively quick period of time - roulette, craps or more cards.
I think any trader to succeed in their work is necessary to solve the three most important objectives:
1. Ensure that the number of successful transactions exceed inevitable mistakes and miscalculations.
2. Customize your trading system so that the possibility of earnings were as often as possible.
3. To reach stable positive results of its operations.
And here we working traders, good help can be the expectation.The term in the theory of probability is one of the key.It can help you to estimate the average value of some random.The expectation of a random variable, like the center of gravity, if we imagine all possible points to the likelihood of different mass.
regard to trading strategy to assess its effectiveness often use the expectation of profit (or loss).This parameter is determined as the sum of specified levels of profits and losses and the probability of their occurrence.For example, developed trading strategy suggests that 37% of all transactions bring profit, and the rest - 63% - will be unprofitable.At the same time, the average income of a successful transaction is $ 7, and the average loss is equal to 1.4 dollars.Calculate the expectation of trading on such a system:
MO = 0.37 x + 7 (0.63 x (-1,4)) = 2,59 - 0,882 = 1,708
What is this number?It says that, following the rules of the system, on average, we will obtain 1,708 dollars from each closing.
Since the resulting assessment of the effectiveness greater than zero, such a system may well be used for real work.If as a result of calculating the expectation of receiving a negative, it's been said, and the average loss of such trade will lead to ruin.
amount of profit per trade can be expressed as a relative value and as%.For example:
- percentage of income for 1 deal - 5%;
- percentage of successful trading - 62%;
- percentage loss per transaction 1 - 3%;
- percentage of losing trades - 38%;
In this case, the expectation is (5% x 62% - 3% x 38%) / 100 = (310% - 114%) / 100 = 1.96%.That is, the average deal will bring 1.96%.
can develop a system that despite the prevalence of losing trades will give a positive result, because its Defense & gt; 0.
However, a few expectations.It is difficult to make if the system provides very little trading signals.In this case, it would yield comparable to bank interest.Let each operation gives an average of only $ 0.5, but what if the system requires 1000 operations per year?It will be a very serious amount of money in a relatively short time.It follows logically that another hallmark of a good trading system can be considered as short-term retention positions.
If you want deeper insight into the mathematics of chance, to learn what the conditional expectation, confidence intervals, and other interesting tools, we suggest reading the book "Statistics for the trader" (author S.Bulashev).Who knows, maybe the chaos of currency movements after reading the book will show you just the highest form of order ...