I've been studying the Forex Market for over 5 years and have recently run into a concept I was completely unaware of. That of positive expectancy. Does anyone here use this concept when designing their trading strategies?
For those that don't know, it is a mathematical formula used to determine whether your trading system will win over the long term. It uses the probability factor and average wins/losses to determine this number. This is what large casinos use to determine their profitability when hosting games of chance. While the concept to me seems fairly obvious, the determination of position sizing and risk management seems to me to be counter intuitive.
Also from what I've read thus far this theory has one abiding flaw. It assumes a constant probability score, and win/loss ratio. Which we all know will change from month to month, year to year.
So I would truly apreciate a few minutes of your time in responding. Specifically, I am wondering if you used this concept when you designed your system, and if so how do you manage your risk, and/or position sizing based on the concept of positive expectancy.
Anyone?
For those that don't know, it is a mathematical formula used to determine whether your trading system will win over the long term. It uses the probability factor and average wins/losses to determine this number. This is what large casinos use to determine their profitability when hosting games of chance. While the concept to me seems fairly obvious, the determination of position sizing and risk management seems to me to be counter intuitive.
Also from what I've read thus far this theory has one abiding flaw. It assumes a constant probability score, and win/loss ratio. Which we all know will change from month to month, year to year.
So I would truly apreciate a few minutes of your time in responding. Specifically, I am wondering if you used this concept when you designed your system, and if so how do you manage your risk, and/or position sizing based on the concept of positive expectancy.
Anyone?