Fix calculation to not show losses > initial investment
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docs/edge.md
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docs/edge.md
@ -82,14 +82,14 @@ Risk Reward Ratio ($R$) is a formula used to measure the expected gains of a giv
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$$ R = \frac{\text{potential_profit}}{\text{potential_loss}} $$
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???+ Example "Worked example of $R$ calculation"
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Let's say that you think that the price of *stonecoin* today is $10.0. You believe that, because they will start mining stonecoin, it will go up to $15.0 tomorrow. There is the risk that the stone is too hard, and the GPUs can't mine it, so the price might go to $0 tomorrow. You are planning to invest $100.
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Let's say that you think that the price of *stonecoin* today is $10.0. You believe that, because they will start mining stonecoin, it will go up to $15.0 tomorrow. There is the risk that the stone is too hard, and the GPUs can't mine it, so the price might go to $0 tomorrow. You are planning to invest $100, which will give you 10 shares (100 / 10).
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Your potential profit is calculated as:
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$\begin{aligned}
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\text{potential_profit} &= (\text{potential_price} - \text{entry_price}) * \text{investment} \\
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&= (15 - 10) * 100\\
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&= 500
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\text{potential_profit} &= (\text{potential_price} - \text{entry_price}) * \frac{\text{investment}}{\text{entry_price}} \\
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&= (15 - 10) * (100 / 10) \\
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&= 50
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\end{aligned}$
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Since the price might go to $0, the $100 dollars invested could turn into 0.
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@ -97,15 +97,16 @@ $$ R = \frac{\text{potential_profit}}{\text{potential_loss}} $$
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We do however use a stoploss of 15% - so in the worst case, we'll sell 15% below entry price (or at 8.5$).
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$\begin{aligned}
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\text{potential_loss} &= (\text{entry_price} - \text{stoploss}) * \text{investment} \\
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&= (10 - 8.5) * 100\\
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&= 150
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\text{potential_loss} &= (\text{entry_price} - \text{stoploss}) * \frac{\text{investment}}{\text{entry_price}} \\
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&= (10 - 8.5) * (100 / 10)\\
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&= 15
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\end{aligned}$
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We can compute the Risk Reward Ratio as follows:<br>
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We can compute the Risk Reward Ratio as follows:
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$\begin{aligned}
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R &= \frac{\text{potential_profit}}{\text{potential_loss}}\\
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&= \frac{500}{150}\\
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&= \frac{50}{15}\\
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&= 3.33
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\end{aligned}$<br>
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What it effectively means is that the strategy have the potential to make 3.33$ for each $1 invested.
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