formulas markdown style

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misagh 2018-11-07 18:27:10 +01:00
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@ -24,20 +24,20 @@ The answer comes to two factors:
Means over X trades what is the percentage of winning trades to total number of trades (note that we don't consider how much you gained but only If you won or not).
W = (Number of winning trades) / (Number of losing trades)
`W = (Number of winning trades) / (Number of losing trades)`
### Risk Reward Ratio
Risk Reward Ratio is a formula used to measure the expected gains of a given investment against the risk of loss. It is basically what you potentially win divided by what you potentially lose:
R = Profit / Loss
`R = Profit / Loss`
Over time, on many trades, you can calculate your risk reward by dividing your average profit on winning trades by your average loss on losing trades:
average profit = (Sum of profits) / (Number of winning trades)
`Average profit = (Sum of profits) / (Number of winning trades)`
average loss = (Sum of losses) / (Number of losing trades)
`Average loss = (Sum of losses) / (Number of losing trades)`
R = (average profit) / (average loss)
`R = (Average profit) / (Average loss)`
### Expectancy
@ -47,7 +47,7 @@ Expectancy Ratio = (Risk Reward Ratio x Win Rate) Loss Rate
So lets say your Win rate is 28% and your Risk Reward Ratio is 5:
Expectancy = (5 * 0.28) - 0.72 = 0.68
`Expectancy = (5 * 0.28) - 0.72 = 0.68`
Superficially, this means that on average you expect this strategys trades to return .68 times the size of your losers. This is important for two reasons: First, it may seem obvious, but you know right away that you have a positive return. Second, you now have a number you can compare to other candidate systems to make decisions about which ones you employ.