Trading Systems and Money Management : A Guide to Trading and Profiting in Any Market

Given the assumptions, there is only one reason why the distribution of trades can look as it does in Figure 2.2: System 2 has b ...

Now, pretend the columns in Figures 2.1 to 2.3 represent percentage moves (never mind the scale on the y-axis) on a one-share (o ...

Now, say you plan to trade System 3 (Figure 2.3). Using the equal-dollar position method, you might have decided to always tie u ...

shares bought and the dollar amount invested with the changes in the equity. Only then will your profits per trade grow, as show ...

relationship over a few trades will be lower. To calculate the exact relationship we need to know exactly how many losers are li ...

/ 1], for a risk–reward relationship of 2:1. If the average winning trade is worth $2,000, the number of winning trades needed t ...

the defective units as quickly as possible, but also not letting the high-value units stay on the line for too long. In short, y ...

than necessary losses or smaller than necessary profits. The formula to calculate the standard deviation follows: s Sqrt[(N * S ...

the value of the average trade, or so that the ratio between the average trade and the standard deviation increases and becomes ...

For the longest time, the normal distribution has been the statistical distribu- tion most analysts used to calculate market ret ...

FIGURE 2.5 Random variables and distribution. FIGURE 2.6 S&P 500—April 1982–October 1999. 27 Occurrences Occurrences ...

age trade. If that is the case, the kurtosis should increase with the number of trades from which we can draw any statistical co ...

is a higher likelihood for a sample average to come close to the true population average, the standard error for a set of sample ...

Unbeknown to us, it’s just behaving as it always has and should. We just happened to do our research on a set of markets and a p ...

In this case, whatever you think is best depends on what you expect and how you would like the system to perform in the future. ...

better off you are. (Recall the example in the section “Net Profit,” which produced a higher return than a buy-and-hold strategy ...

get out of a situation that at a first glance only looked like a situation that needed “just a few good trades.” This shows that ...

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CHAPTER 3 Probability and Percent of Profitable Trades One of the most important factors to consider when researching a trading ...

period. For easier interpretation, you also can multiply by 100. For example, if a system has produced a total of 52 winners ove ...