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How advanced mathematics and gaming theory can help you as a trader

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How advanced mathematics and gaming theory can help you as a trader

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  #201 (permalink)
 Fat Tails 
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jonc View Post
Hi guys,

Is there a single factor/ratio which take into account of both Risk/Reward and probability?

Yes, the expectancy takes into account the R-Multiple (ratio winning to losing trade) and the winning probability.

So does the Kelly Formula.

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  #202 (permalink)
Spartanburg, SC, US
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I'm interested in your initial idea, but there has also been lots of thought provoking commentary. Perhaps this is a naive question, but why has no one made a strategy to test the initial theory? It seems like it could settle some of the disagreements if you run it on multiple instruments/years. I tried to make one myself, but got stumped on a few aspects (beginner to NT7).

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  #203 (permalink)
beijing china
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no right judge no money, all the money you get is from those parallel worlds where you lose

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  #204 (permalink)
sydney + NSW/australia
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if we could have less on the losers and more on the winners we would have more money to spend at Christmas.

How are you going to make this happen?

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  #205 (permalink)
New York, New York, USA
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In my experience, advanced mathematics does help in trading if "advanced" means robust and careful, not super-complex. Some of the relatively recent advances in data mining deal with various forms of regularization. It allows one to reduce the chance of missing structural change in the market at the expense of a fraction of Sharpe ratio. Examples of useful methods are LAR, lasso, nonparametric association measures, etc. But this is a long journey. To understand the methods on the level of their inner workings, to be able to combine them efficiently, one has to invest much time. Something along the lines of this statistics study plan (page bottom, skip the beginning) or a similar kind. Well, 25% of that should do as a start... Advanced mathematics is not binomial distribution or pure Monte Carlo.

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