Expectancy is a great way to valuate a trading system.
Expectancy = (Average Profit x Win Rate) - (Average Loss x Loss Rate)
The reason it works is because it takes both profit / loss and win / loss into consideration.
I am looking for a formula similar to this that takes Return on Equity into consideration as well.
ROE = (profit or loss) / initial account equity at trade entry
The problem is that ROE (at least in my definition above) is specific to a single trade.
I would like an equation that utilizes the ROE of a series of trades as well as the W/L
Are there any equations like that? Thank you in advance...
Expectancy = (Average Profit x Win Rate) - (Average Loss x Loss Rate)
The reason it works is because it takes both profit / loss and win / loss into consideration.
I am looking for a formula similar to this that takes Return on Equity into consideration as well.
ROE = (profit or loss) / initial account equity at trade entry
The problem is that ROE (at least in my definition above) is specific to a single trade.
I would like an equation that utilizes the ROE of a series of trades as well as the W/L
Are there any equations like that? Thank you in advance...