Trading Metrics for journals/record keeping - Psychology and Money Management | futures io social day trading
futures io futures trading


Trading Metrics for journals/record keeping
Updated: Views / Replies:165,618 / 928
Created: by Big Mike Attachments:253

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 Ė 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 donít 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
 253  
 
Thread Tools Search this Thread
 

Trading Metrics for journals/record keeping

  #881 (permalink)
Trading Apprentice
Frankfurt Germany
 
Futures Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: es
 
Posts: 10 since Sep 2013
Thanks: 1 given, 8 received

R Multiple Implementation

Hi Mike,

My thoughts on Van Tharp's R multiple concept are:
1 - establish or choose your risk tolerance (RT), say 1% of account size (AS)
2- calculate the max risk amount, RT x AS; this will be the 1R value
3 - determine the risk amount for the trade based on your entry target and stop placement
4 - determine the position size for the trade = Max Risk Amt (1R) from (2) / trade risk amt from (3)
5 - after the trade is closed, determine the trade reward to trade risk ratio. This is the R multiple for that trade
6 - average this ratio across your trades to get the expectancy

The expectancy will only be valid if you consistently use the same RT percent for the trades.

Just my thoughts,

Steve

Reply With Quote
The following user says Thank You to steveo107 for this post:
 
  #882 (permalink)
Elite Member
madrid spain
 
Futures Experience: Beginner
Platform: nt
Favorite Futures: None.
 
alejo's Avatar
 
Posts: 1,311 since Apr 2013
Thanks: 16,557 given, 643 received


Fat Tails View Post
One trade

For one trade the expectancy is a theoretical value, as it assumes probabilities for losing and winning. There is only one practical outcome, which is statistically insignificant, and you cannot calculate the expectancy without assuming ex-ante probabilities.

The R-multiple depends a bit on the mechanics of the trade. If you enter long for 2 contracts with a logical stop of -10 ticks, a 1st profit target of + 10 ticks with adjustment to breakeven, and a second profit target of +20 ticks, the outcome for a random market after a larger number of trades would be close to:

-10 ticks = 50%
+10 ticks = 25% (first contract)
+20 ticks = 12.5% (second contract splits between 0 and 20 ticks)
+- 0 ticks = 12.5%

The weighted reward-to-risk is (0.125*20 + 0.125*0 + 0.25*10)/ 0.5*10 = 5:5 = 1:1 Reward-to-risk is needed to calculate the edge of a trading system. The edge is the expectancy.

Expectancy = Average winner * Winning percentage - Average Loser * Losing percentage or by requiring a positive expectancy this equation can be transformed to

(1) R-Multiple > 1/winning percentage - 1

Example: If your winning percentage is 40%, your R-Multiple required to breakeven would be 1/0.4 -1 = 1.5 This example is before transaction cost and slippage. This is the easy part.

Many similar trades

If you have a larger number of similar trades, you can calculate a statistically based expectancy. This is based on an ex post probability which is a result of the trades. Note the difference with one trade.

If you are trading an automated system, always using the same stop and the same profit targets, you can calculate the correct reward-to-risk ratio by empirically counting the number of outcomes for each of the four possible results (I stay with my no-slippage model). The relative frequency of the outcomes is an approximation of the probability, and you can again calculate the reward-to-risk ratio by comparing the added positive outcomes with the added negative outcomes:

(2) R-Multiple = (added $ of winning trades/ number of winning trades)/ (added $ of losing trades/ number of losing trades)

Many different trades

If there are many different trades, you may want to evaluate them. For technical and other reasons your risk will sometimes be 2.3%, sometimes 1.4% of your account. I think that Van Tharp wants to make these trades comparable by not using the $$ outcome, but the outcome measured in multiples of R.

This is a way of normalizing the position sizing of the trades. If an undisciplined trader doubles position size and luckily wins, this for sure affects his account. In this case Van K Tharp - as I understand him - does not want to take into account the unduly increased position size, so he measures the outcome in terms of R achieved.

Now, there is a catch.

Expectancy

The idea of calculating an average R-Multiple is mathematical nonsense. But it can be a valid educational concept. The expectancy can only be calculated by taking into account both winning percentage and R-Multiple. A scalper with a high winning percentage does not need high R-multiples, as he relies on a hihg winning percentage. The high winning percentage will even allow him to increase his position sizing, because the probability of a larger drawdown is reduced. The scalper may actually tolerate a higher risk per trade, without increasing the risk of ruin*).

So why does Van Tharp calculate R-multiples?

Psychological Barriers

Most beginning traders do not let their profits run, and achieve bad R-Multiples. You will find some journals here that show R-multiples < 1. It is psychologically easy to take a quick profit, and have a large loss every 5 trades. You are emotionally rewarded with 4 successes and only 1 failure! Van Tharp uses this method as a way to monitor the trader's performance to cope with loss aversion and not letting profits run.

It is an educational tool

And there is another reason to use this method. To complete evaluate a trader's edge you would need to know the winning percentage and the R-multiple. To get a good approximation for the winning percentage, you would need something like 100 trades if you search for statistical significance. So you cannot give the trader immediate feedback on his performance. The R-Mulitple can be used even after 1 trade and is significant. So it is a concept that can be used to train traders.

Why does he choose the median?

He could choose the arithmetic average, the geometric average, the median, the mode, etc. No importance, the median can be observed without calculating anything.

And the mathematics?

There is little valid mathematics in the books of Van K Tharp. If you are really intested in the subject you should start with "The Mathematics of Money Management" by Ralph Vince. Not an easy read though, but very important. I am slowly digging through this, interrupted again and again by other priorities.

*) not known by many traders: Let us assume two trading systems:

system 1: winning percentage 70%, R-Multiple = 2
system 2: winning percentage 42%, R-Multiple = 4

Both systems have the same expectancy of 1.1R (which is excellent, 0R stands for break-even). However, the first system has a better Sharpe Ratio, so you can actually trade it with a larger position sizing, without increasing your actual risk (measured in terms of max. drawdown).

Note that mathematics is in contradiction with the methods of Van Tharp.

Who is able to calculate the position sizing for the 1st system relative to the 2nd, so that the risk of ruin becomes equal?

fat tail
how do you calculate exp, based on w% and r-m?

"And the mathematics?

There is little valid mathematics in the books of Van K Tharp. If you are really intested in the subject you should start with "The Mathematics of Money Management" by Ralph Vince. Not an easy read though, but very important. I am slowly digging through this, interrupted again and again by other priorities.

*) not known by many traders: Let us assume two trading systems:

system 1: winning percentage 70%, R-Multiple = 2
system 2: winning percentage 42%, R-Multiple = 4

Both systems have the same expectancy of 1.1R (which is excellent, 0R stands for break-even). However, the first system has a better Sharpe Ratio, so you can actually trade it with a larger position sizing, without increasing your actual risk (measured in terms of max. drawdown). "

thanks

alejo

Reply With Quote
The following 2 users say Thank You to alejo for this post:
 
  #883 (permalink)
Trading Apprentice
Frankfurt Germany
 
Futures Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: es
 
Posts: 10 since Sep 2013
Thanks: 1 given, 8 received

Expectancy in terms of R Multples


The form of expectancy that I believe that most people are familiar with seems to be:
Classic Exp = [Pr W ] x [Avg W] - [Pr L] x [Avg L], where Pr L = 1 - Pr W

To get expectancy in terms of R Multiples my thoughts are:
1 - you must have a consistent (constant) risk tolerance, RT
2 - The 1R value = RT x AS, where AS = account size
3 - You must establish a position size consistent with your 1R value. First determine your trade risk, TR = ABS[Entry level - Protective Stop Level]. So the position size, PS = 1R / TR
4 - After the trade is closed, determine the reward (RWD) and compute the R Multiple (RM) for that trade, RM = RWD / 1R. Obviously, if the trade was a loss, the RM value will be negative value.
5 - Finally the expectancy in terms of RM is simply the average of the RM values.

Notice that the RM expectancy determination does not involve using any of the values from the Classic expectancy form above. Also, for the RM expectancy to be valid, you must use the same RT for all trades. If you vary RT for your trades, then you must use some other form of expectancy determination to judge the effectiveness of your trading strategy. One nice aspect of using RM expectancy to judge the effectiveness of your trading strategy is that it is independent of the account size.

Just my thought on R Multiples,

Steve

Reply With Quote
The following user says Thank You to steveo107 for this post:
 
  #884 (permalink)
Elite Member
madrid spain
 
Futures Experience: Beginner
Platform: nt
Favorite Futures: None.
 
alejo's Avatar
 
Posts: 1,311 since Apr 2013
Thanks: 16,557 given, 643 received

exp


alejo View Post
fat tail
how do you calculate exp, based on w% and r-m?

"And the mathematics?

There is little valid mathematics in the books of Van K Tharp. If you are really intested in the subject you should start with "The Mathematics of Money Management" by Ralph Vince. Not an easy read though, but very important. I am slowly digging through this, interrupted again and again by other priorities.

*) not known by many traders: Let us assume two trading systems:

system 1: winning percentage 70%, R-Multiple = 2
system 2: winning percentage 42%, R-Multiple = 4

Both systems have the same expectancy of 1.1R (which is excellent, 0R stands for break-even). However, the first system has a better Sharpe Ratio, so you can actually trade it with a larger position sizing, without increasing your actual risk (measured in terms of max. drawdown). "

thanks

alejo

then the formula is :
Exp=R*W%-(1-W%)
??

Reply With Quote
 
  #885 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,651 since Mar 2010
Thanks: 4,226 given, 25,597 received
Forum Reputation: Legendary


alejo View Post
fat tail
how do you calculate exp, based on w% and r-m?

The expectancy is the average outcome per trade. Let us take the system 1 with a winning percentage of 70% and a R-Multiple of 2. Out of 100 trades you would expect 70 trades with a winning amount of 2R and 30 trades with a losing amount of R. Therefore the expectancy can be calculated as

E = (70 * 2 * R - 30 * R)/100 = 0.7 * 2 * R - 0.3 * R = 1.1 * R

This is the raw expectancy.

The real results are also affected by commission and slippage, therefore the net expectancy is lower than this amount.

The impact of commissions and slippage can be dramatic for scalpers, but barely affects swing traders or investors.

Reply With Quote
The following user says Thank You to Fat Tails for this post:
 
  #886 (permalink)
Elite Member
madrid spain
 
Futures Experience: Beginner
Platform: nt
Favorite Futures: None.
 
alejo's Avatar
 
Posts: 1,311 since Apr 2013
Thanks: 16,557 given, 643 received

expect question


Fat Tails View Post
The expectancy is the average outcome per trade. Let us take the system 1 with a winning percentage of 70% and a R-Multiple of 2. Out of 100 trades you would expect 70 trades with a winning amount of 2R and 30 trades with a losing amount of R. Therefore the expectancy can be calculated as

E = (70 * 2 * R - 30 * R)/100 = 0.7 * 2 * R - 0.3 * R = 1.1 * R

This is the raw expectancy.

The real results are also affected by commission and slippage, therefore the net expectancy is lower than this amount.

The impact of commissions and slippage can be dramatic for scalpers, but barely affects swing traders or investors.

thanks fat tails

i was wondering how calculate the expectancy of this 2 possiblities:

1)
3lot
risk -3t
t1+1t 2lot
t2 +2t 1lot

2)

4lot
risk -3t
t1+1t 2lot
t2 +2t 1lot
t3 +3t 1 lot

probabilidad de 3 lots.xlsx

is it ok that i have done?the first system 3lot exp is 2.8 and the second
2.75?

thanks

Reply With Quote
 
  #887 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,651 since Mar 2010
Thanks: 4,226 given, 25,597 received
Forum Reputation: Legendary


alejo View Post
thanks fat tails

i was wondering how calculate the expectancy of this 2 possiblities:

1)
3lot
risk -3t
t1+1t 2lot
t2 +2t 1lot

2)

4lot
risk -3t
t1+1t 2lot
t2 +2t 1lot
t3 +3t 1 lot

Attachment 127519

is it ok that i have done?the first system 3lot exp is 2.8 and the second
2.75?

thanks

You cannot calculate an expectancy without a winning percentage.

Reply With Quote
The following user says Thank You to Fat Tails for this post:
 
  #888 (permalink)
Elite Member
madrid spain
 
Futures Experience: Beginner
Platform: nt
Favorite Futures: None.
 
alejo's Avatar
 
Posts: 1,311 since Apr 2013
Thanks: 16,557 given, 643 received

expectancy with win%


alejo View Post
then the formula is :
Exp=R*W%-(1-W%)
??


Fat Tails View Post
You cannot calculate an expectancy without a winning percentage.

thanks, i have calculated first with random at 50% and then with my measures of %80

i have enclosed the new excell v2 with a yellow shadow area, where i have added the rewor, risk, and expectancy exp2, but i do not know if i did it right and why there s a difference between exp, and exp2
to clarify a little, in both strategy 3L and 4L, i split in two: fix and trail, in fix i let the stop loss at -3 always and the other i close it before when it become a loser trail it the stop to -2,-1 and be

thanks again for your time and your help

alejo

probabilidad de 3 lots_v2.xls

Reply With Quote
 
  #889 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,651 since Mar 2010
Thanks: 4,226 given, 25,597 received
Forum Reputation: Legendary


alejo View Post
thanks, i have calculated first with random at 50% and then with my measures of %80

i have enclosed the new excell v2 with a yellow shadow area, where i have added the rewor, risk, and expectancy exp2, but i do not know if i did it right and why there s a difference between exp, and exp2
to clarify a little, in both strategy 3L and 4L, i split in two: fix and trail, in fix i let the stop loss at -3 always and the other i close it before when it become a loser trail it the stop to -2,-1 and be

thanks again for your time and your help

alejo

Attachment 127520

I do not understand your table, as I do not speak Spanish, maybe you can post it in the Spanish part of the forum.

Reply With Quote
The following user says Thank You to Fat Tails for this post:
 
  #890 (permalink)
Elite Member
madrid spain
 
Futures Experience: Beginner
Platform: nt
Favorite Futures: None.
 
alejo's Avatar
 
Posts: 1,311 since Apr 2013
Thanks: 16,557 given, 643 received

calculation expectancy in english



Fat Tails View Post
I do not understand your table, as I do not speak Spanish, maybe you can post it in the Spanish part of the forum.

Sorry, Fat Tails, here you have the excell in english

thanks again

alejo

probabilidad de 3 lots_v2_eng.xls

Reply With Quote

Reply



futures io > > > Trading Metrics for journals/record keeping

Thread Tools Search this Thread
Search this Thread:

Advanced Search



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

Linda Bradford Raschke: Reading The Tape

Elite only

Adam Grimes: TBA

Elite only

NinjaTrader: TBA

January

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Keeping it Simple Silver Dragon Trading Journals 26 September 19th, 2011 06:00 PM
Are there any journals that define a completely OBJECTIVE method? forrestang Psychology and Money Management 46 July 31st, 2011 02:07 AM
ZH0001YE'S Trading Journals zh0001ye Trading Journals 6 March 3rd, 2011 09:23 PM
reading journals rtrade Trading Journals 9 December 2nd, 2010 12:16 PM


All times are GMT -4. The time now is 10:28 PM.

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 2017-12-10 in 0.18 seconds with 20 queries on phoenix via your IP 54.221.73.186