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Negative Mathematical Expectancy
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Negative Mathematical Expectancy

  #1 (permalink)
Trading Apprentice
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Negative Mathematical Expectancy

Hello - I've developed several systems, none with a positive mathematical expectancy - here' some stats:

ME AW AL ACCY
-0.651419914 768.23 590.85 0.7168
-0.502214072 177.37 276.15 0.6942
-0.914534489 488.16 437.42 0.5678
-0.876955622 430.017 395.24 0.58
-1.634389136 1102.2 664.96 0.385
-0.70833224 162.93 195.78 0.6134
-0.982367949 807.88 725.81 0.5351

These are all un-optimized results. My question is should you optimize at this point to "create" positive ME? If it's not positive to begin with, shouldn't we continue development, not optimization?

Thanks for your input.

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  #3 (permalink)
Live Your Bliss
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dgresens View Post
Hello - I've developed several systems, none with a positive mathematical expectancy - here' some stats:

ME AW AL ACCY
-0.651419914 768.23 590.85 0.7168
-0.502214072 177.37 276.15 0.6942
-0.914534489 488.16 437.42 0.5678
-0.876955622 430.017 395.24 0.58
-1.634389136 1102.2 664.96 0.385
-0.70833224 162.93 195.78 0.6134
-0.982367949 807.88 725.81 0.5351

These are all un-optimized results. My question is should you optimize at this point to "create" positive ME? If it's not positive to begin with, shouldn't we continue development, not optimization?

Thanks for your input.

Why don't you reverse your worst system?

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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Fortitudo et Honor
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Anagami View Post
Why don't you reverse your worst system?

Call me an amateur, but in my research and hunting for an edge, some of my better prospects and systems came by discovering an idea was bad....but really bad.

Backtesting on something, when you see a negative performance (which includes slippage and commission) and you say..."man, not only is that bad, it's spectacularly bad." Then as you suggested, you reverse the polarity and suddenly, you have a viable edge....it's not the one you were looking for, but not all discoveries are intentional.

The phenomenon has to be bad enough to overcome slippage/commission, as that works against you both ways....so many times, a higher frequency system, will appear to have a significant negative edge, but really, when you look at the slippage and commission, the slip/comiss independent edge wasn't that large (negative).

In essence, if you have a strat that trades 3000 times over a sample, and has -$150k performance isn't anything noteworthy, as when you flip it, you'll find the results are close to zero (not $150k positive).

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #5 (permalink)
Live Your Bliss
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Yes, has to be extremely bad in order to overcome slippage / commissions.

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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dgresens View Post
Hello - I've developed several systems, none with a positive mathematical expectancy - here' some stats:

MEAWALACCY
-0.651419914768.23590.850.7168
-0.502214072177.37276.150.6942
-0.914534489488.16437.420.5678
-0.876955622430.017395.240.58
-1.6343891361102.2664.960.385
-0.70833224162.93195.780.6134
-0.982367949807.88725.810.5351

These are all un-optimized results. My question is should you optimize at this point to "create" positive ME? If it's not positive to begin with, shouldn't we continue development, not optimization?

Thanks for your input.

Can you describe your stats?

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ddnut View Post
Can you describe your stats?

ACCY = Win %
AL = Average Loss
AW = Average Win
ME = Expectancy

Just guessing

Math. A gateway drug to reality.
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traderwerks View Post
ACCY = Win %
AL = Average Loss
AW = Average Win
ME = Expectancy

Just guessing

Yes, that is correct.

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dgresens View Post
Yes, that is correct.

Humm....

Can you describe why the first one fails to make a profit? Is this because you have some significant outliers as your %win seems over 50% and you average more profit than loss per trade, I would expect your sample would be profitable. I am having trouble envisioning the data-set that would give you a negative expectancy.

I assume from Expectancy you are talking about the expected value based upon the weight sum * probability of that event?

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