My new way to rate trading systems

For those who don't know me, I feel my trading style is rather unique.

I trade with 37 different systems, 34 of those systems are with EAs, and 32 of those EAs can be found for free here on ForexFactory. I will not list the EAs here, I will purposely make it difficult--but not impossible--to recreate exactly how I trade.

Given my nature to release free EAs for various systems here on ForexFactory, I receive scores of requests from people to look at their systems (Read: They want a free EA). I generally try to entertain every possibility, and as I move through these requests, I have further improved my methods of evaluating systems in a fairly simple formula. I call it the Success Quotient

The Success Quotient is roughly similar to the Intelligence Quotient used to rate a person's intellectual ability. In this case, 100 is par. This simply means that using the law of large numbers, the EA is expected to break even. If your system's Success Quotient is less than 100, your system will not make money.

Success Quotient

The formula is simple:

(Average Win) / (Average Loss) * (Percent Win) / (Percent Loss) * 100 = Success Quotient

Examples

System 1:

Let's say a system wins on average 10 pips, and loses on average 5 pips, and has a 60% chance of winning and subsequently a 40% chance of losing.

(10) / (5) * (0.60) / (0.40) * 100 = 300

This system has a success score of 300, and I would definitely code an EA for this system.

System 2:

Let's say a system wins on average 100 pips, loses on average 95 pips, has a 51% chance of winning, and a 49% chance of losing.

(100) / (95) * (0.51) / (0.49) = 109.5

I would be less inclined to code an EA for this system.


Using the FRWC robots as an example:

LMD-MultiCurrency

(156.00) / (123.11) * (0.4948) / (0.5052) = 124.1

HiRider

(3.54) / (21.41) * (0.9819) / (0.0181) = 896.9

SuperVolcano

(8.23) / (3.53) * (0.5411) / (0.4589) = 274.9

(Average Win) / (Average Loss) * (Percent Win) / (Percent Loss)

This can be rearranged as:
((Average Win) * (Percent Win)) / ((Average Loss) * (Percent Loss))

which simplifies to:
(Dollars Won) / (Dollars Lost)

i.e. (in MT4 parlance)
Gross Profit / Gross Loss

........which (if I understand correctly) is also known as "Profit Factor" (as shown in a MT4 statement/performance report). I've also heard it called "expectancy" or "edge"

In other words, multiplying Profit Factor by 100 gives your Success Quotient

Haha. Oops

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