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Definition of terms?

  • #1
  • First Post: Jul 19, 2006 8:32am Jul 19, 2006 8:32am
I'm looking at my trading summary over the last two months and I see an expected profit number but I'm not sure exactly what it means. Also, what precisely is the profit factor? I understand the terms in general but not how they're measured so I don't know how to interpret the numbers I see. Is there a number to shoot for?

<TABLE cellSpacing=1 cellPadding=3 border=0><TBODY><TR align=right><TD colSpan=2>Profit Factor:</TD><TD colSpan=2>2.60</TD><TD colSpan=4>Expected Payoff:</TD><TD>30.03</TD></TR></TBODY></TABLE>

Squid
  • #2
  • Jul 19, 2006 8:35am Jul 19, 2006 8:35am
Quoting Squid
I'm looking at my trading summary over the last two months and I see an expected profit number but I'm not sure exactly what it means. Also, what precisely is the profit factor? I understand the terms in general but not how they're measured so I don't know how to interpret the numbers I see. Is there a number to shoot for?

<table border="0" cellpadding="3" cellspacing="1"><tbody><tr align="right"><td colspan="2">Profit Factor:</td><td colspan="2">2.60</td><td colspan="4">Expected Payoff:</td><td>30.03</td></tr></tbody></table>

Squid

  1. Profit factor — the ratio between the gross profit and the gross loss in per cents. One means that these sums are equal;
  2. Expected payoff — mathematical expectation of win. This parameter to be calculated statistically represents average profit/loss factor of one trade. It can also be considered as showing the expected profitability/unprofitability of the next trade;

I'm not insane; my mother had me tested.
  • #3
  • Jul 19, 2006 7:25pm Jul 19, 2006 7:25pm
Quoting RoBiK

  1. Profit factor — the ratio between the gross profit and the gross loss in per cents. One means that these sums are equal;
  2. Expected payoff — mathematical expectation of win. This parameter to be calculated statistically represents average profit/loss factor of one trade. It can also be considered as showing the expected profitability/unprofitability of the next trade;

So the profit factor tells me that on average I will get 2.60 per dollar entered in a trade? I still don't understand what the expected payoff means - how is the expected profitability / unprofitability different than the profit factor?
  • #4
  • Jul 20, 2006 6:04am Jul 20, 2006 6:04am
Quoting Squid
So the profit factor tells me that on average I will get 2.60 per dollar entered in a trade?
nope i says that satistically your gross profit over certain time will be 2.6 times bigger than the gross loss in that time. in another words if for examle in one month on all trades you lose (summed) 1000$ and won (summed) 2600$ (making 1600$ net proffit for the month), then your profit factor was 2.6 (2600/1000).

Quoting Squid
I still don't understand what the expected payoff means - how is the expected profitability / unprofitability different than the profit factor?
Expected payoff means, what your average Profit on every single trade was in absolute value. Take the previous example: you made 100 trades in one month and made 1600$ net profit. That means your (expected) payoff is 16$ (1600/100) per trade.
I'm not insane; my mother had me tested.
  • #5
  • Last Post: Jul 20, 2006 10:14am Jul 20, 2006 10:14am
Thanks RoBiK I think I got it now!


Squid
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