Van Tharp's Max Expectancy - Psychology and Money Management | futures io social day trading
futures io futures trading


Van Tharp's Max Expectancy
Updated: Views / Replies:16,481 / 31
Created: by caprica Attachments:1

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 1  
 
Thread Tools Search this Thread
 

Van Tharp's Max Expectancy

  #1 (permalink)
Elite Member
USA
 
Futures Experience: Master
Platform: NinjaTrader
 
caprica's Avatar
 
Posts: 155 since Jul 2009
Thanks: 45 given, 109 received

Van Tharp's Max Expectancy

I just uploaded another NinjaTrader optimizer type max expectancy. The credit goes to Elliott Wave. Anagoge also helped.

It is here:
https://futures.io/free_downloads/ninjatrader/strategies/101-download.html?view

If you are not familiar with expectancy, here are few articles to whet your appetite:
Market Talk with Piranha: What is Expectancy?

Advance Your Finance: The Art of Expectancy

Trading 101: Expectancy - Trader Mike

Amazon.com: Trade Your Way to Financial Freedom (0639785305590): Van K. Tharp: Books

To quote a few key pieces of information:


Quoting 
So what is expectancy?

Expectancy is your profit percentage per win multiplied by your win rate minus your loss percentage per loss multiplied by your loss rate.

Expectancy tells you what you can expect to make (win or lose) for every dollar risked. Casinos make money because the expectancy of every one of their games is in their favor. Play long enough and you are expected to lose and they are expected to win because the “odds” are in their favor.


Quoting 
Example, you could have 99 losing trades, each costing you a dollar. Thus, you would be down $99. However, if you had one winning trade of $500, then you would have a net payoff of $401 ($500 less $99)—despite the fact that only one of your trades was a winner and 99% of your trades were losers.

It is my hope you will find this info valuable and can use it to further explore some better trade management, risk management and overall money management systems.

"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain


Last edited by caprica; July 27th, 2009 at 10:29 AM.
Reply With Quote
The following 8 users say Thank You to caprica for this post:
 
  #2 (permalink)
Elite Member
USA
 
Futures Experience: Master
Platform: NinjaTrader
 
caprica's Avatar
 
Posts: 155 since Jul 2009
Thanks: 45 given, 109 received

Here is a spreadsheet that can be used to calculate expectancy if you like to use Excel instead of Ninja.

Attached Files
Register to download File Type: xls expectancy.xls (21.0 KB, 467 views)
Reply With Quote
The following 6 users say Thank You to caprica for this post:
 
  #3 (permalink)
Just starting out...
Missouri, USA
 
Futures Experience: Intermediate
Platform: NinjaTrader, AmiBroker
 
Posts: 2 since Jun 2009
Thanks: 3 given, 1 received


I mentioned this in the NT forum thread concerning this, but it might be worth repeating here. In my opinion, expectancy is a useful bit of data to know about your trading system and evaluate risk/reward, but it is not a very good way to optimize a trading system. The reason is that the expectancy number ignores the number of trades. Expectancy will be higher for a system that averages $100 per trade but only trades once a week compared to a system that earns $50 per trade and trades every hour. For this reason, I'd definitely recommend SQN over expectancy for optimizing. An exception to this might be if you are optimizing a strategy that you only want to trade occasionally, and you are willing to invest your money in alternative strategies when this one isn't issuing signals. In that case, having a system with limited signals (but high expectancy) may not be a problem.

Reply With Quote
The following 4 users say Thank You to Anagoge for this post:
 
  #4 (permalink)
Elite Member
USA
 
Futures Experience: Master
Platform: NinjaTrader
 
caprica's Avatar
 
Posts: 155 since Jul 2009
Thanks: 45 given, 109 received


Anagoge View Post
I mentioned this in the NT forum thread concerning this, but it might be worth repeating here. In my opinion, expectancy is a useful bit of data to know about your trading system and evaluate risk/reward, but it is not a very good way to optimize a trading system. The reason is that the expectancy number ignores the number of trades. Expectancy will be higher for a system that averages $100 per trade but only trades once a week compared to a system that earns $50 per trade and trades every hour. For this reason, I'd definitely recommend SQN over expectancy for optimizing. An exception to this might be if you are optimizing a strategy that you only want to trade occasionally, and you are willing to invest your money in alternative strategies when this one isn't issuing signals. In that case, having a system with limited signals (but high expectancy) may not be a problem.

i wrote a custom formula that weighs the net profit, expectancy, and number of trades per day. it throws out (return double.NegativeInfinity) values that also have fewer than a certain number of trades per set/job.

i am really finding it quite useful. i like SQN as well but like expectancy better with my custom weighted formula.

still what you've said is absolutely true.

"Let us be thankful for the fools. But for them the rest of us could not succeed." - Mark Twain

Reply With Quote
The following user says Thank You to caprica for this post:
 
  #5 (permalink)
Just starting out...
ma
 
Futures Experience: Advanced
Platform: etrade
 
Posts: 9 since Oct 2009
Thanks: 0 given, 4 received

I think that I like 'expectancy score' better because it also takes into account time. I found it at URC Trading - Expectancy Score vs Sharpe Ratio and is expectancy * opportunity where expectancy = (aw*pw+al*pl)/|al| and opportunity = # trades * 365/studydays. A good explanation is provided at the link I gave.

Reply With Quote
 
  #6 (permalink)
Elite Member
CO
 
Futures Experience: Intermediate
Platform: NinjaTrader
 
Posts: 29 since Sep 2009
Thanks: 228 given, 45 received

rickt

Since Trade Your Way to Financial Freedom, Tharp has expanded on the concept of system quality by creating a variation of the Student's T-Test called System Quality Number (SQN).
SQN = SquareRoot(N) * (Avg Trade Result/Standard Deviation(Avg Trade Result))
Where:
N = # of Trades (Truncated at 100 -- this is Tharp's variation)
Avg Trade = another way to determine expectancy
This formula takes frequency (N), reliability (Standard Deviation of avg trade), and expectancy (Avg Trade) and produces an objective score of any system.

Tharp goes into more detail in his book, The Definitive Guide to Position Sizing.

I find SQN to be a much better measure of a system's overall performance than expectancy alone.

-Samurai

Reply With Quote
The following 2 users say Thank You to samurai for this post:
 
  #7 (permalink)
Just starting out...
ma
 
Futures Experience: Advanced
Platform: etrade
 
Posts: 9 since Oct 2009
Thanks: 0 given, 4 received

I understand about SQN, but I think it is lacking because it does not take time into account. An investment that returns 10% in 2 days is better than an investment that returns 10% in more than 2 days.

Expectancy score is NOT the same as expectancy. It uses expectancy and then multiplies by opportunity, which is where time is factored in.

To my way of thinking, time is a critical element in any trading or investing strategy.

Reply With Quote
The following user says Thank You to rickt for this post:
 
  #8 (permalink)
Elite Member
Cape Town, South Africa
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: Zen-fire
Favorite Futures: EUR/USD
 
Posts: 40 since Aug 2009
Thanks: 22 given, 11 received


rickt View Post
I think that I like 'expectancy score' better because it also takes into account time. I found it at URC Trading - Expectancy Score vs Sharpe Ratio and is expectancy * opportunity where expectancy = (aw*pw+al*pl)/|al| and opportunity = # trades * 365/studydays. A good explanation is provided at the link I gave.


rickt

I agree with you - after reading the article at the link you posted.

Do you have code for the "expectancy score" that you can share?

Verge

Reply With Quote
 
  #9 (permalink)
Just starting out...
ma
 
Futures Experience: Advanced
Platform: etrade
 
Posts: 9 since Oct 2009
Thanks: 0 given, 4 received

Sorry - the only 'code' that I have it in is EXCEL. Maybe one of these days I will learn what it is you guys here use.

Reply With Quote
 
  #10 (permalink)
Elite Member
Cape Town, South Africa
 
Futures Experience: Beginner
Platform: NinjaTrader
Broker/Data: Zen-fire
Favorite Futures: EUR/USD
 
Posts: 40 since Aug 2009
Thanks: 22 given, 11 received

What is the real Van K Tharp formula?



rickt View Post
Sorry - the only 'code' that I have it in is EXCEL. Maybe one of these days I will learn what it is you guys here use.


I had a look at the original thread started by Ellio Wave here :

Optimizer Type: Max. Expectancy - NinjaTrader Support Forum

He mentions early in the thread that he only got the "expectancy score" version working.

I now had a look in the Expectancy optimizer type. The following formula is used:
expectancyTemp = (aveWin * percentWin + aveLose * percentLose)/ Math.Abs(aveLose)

Note the devision by the absolute value of the losing trades - which may not be what everyone thinks it should be.



Reply With Quote
The following user says Thank You to verge for this post:

Reply



futures io > > > Van Tharp's Max Expectancy

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Van Tharp Books Dusty909 Psychology and Money Management 22 August 15th, 2016 12:57 PM
Van Tharp's Secrets of Trading Game caprica The Elite Circle 2 March 8th, 2012 11:26 AM
Position Sizing by Van Tharp Laserdan Psychology and Money Management 21 July 8th, 2011 11:37 AM
What Type Trader Are You? - more from Van Tharp Trader.Jon Psychology and Money Management 0 November 12th, 2009 09:47 AM


All times are GMT -4. The time now is 10:30 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-15 in 0.15 seconds with 20 queries on phoenix via your IP 54.221.76.68