I'd like to start a thread for the mathematicians, physicists, and skilled traders and coders who have such a background. This is not to exclude others less educated in that austere language of science, but rather to offer this subgroup of futures.io (formerly BMT) the opportunity to communicate in a language that can often express thoughts that may not be expressible otherwise without a great deal of difficulty.
Just as a start, here is a little introduction to a conversation that could lead somewhere interesting, at least to a mathematician or physicist:
An ES trade with a target of k ticks and a stop loss of s ticks, with probability p of gaining k ticks before losing s ticks and a strategy of entering the trade and exiting only by stopping out or hitting the target, gives
- E{profit} = p*k (1-p)*s = p*(k+s) s, and
- sd{profit} = (k+s) √ (p*(1-p))
E{profit} is positive iff p>s/(k+s). This is trivial probability theory but it has interesting consequences. Trading n contracts, each such trade has E{profit} = n*( p*(k+s) s). Suppose you make this bet a number of times, starting with fortune F0 (F measured as a number of ticks) and achieving fortunes F1, F2, . . . by betting the fraction α of your fortune at each trade; that is, ni*si