expectancy versus average profit/loss.
Aren't they the same thing?
I was calculating my expectancy and found that it was the same as the average profit/loss in AB backtest report.
expectancy versus average profit/loss.
Aren't they the same thing?
I was calculating my expectancy and found that it was the same as the average profit/loss in AB backtest report.
Hi GG, hope this helps,
http://www.aussiestockforums.com/for...ght=Expectancy
Pretty sure they are the same thing...
What's the number you're getting?
No not the same.
Expectancy is return / $ invested.
P/L is Profit returned over X periods.
Thanks both.
Synnergy: 2.4% of position size. Don't read anything into that though.
I don't see why people emphasize expectancy, when there's nothing you can expect (into the future) unless you have a smooth, even equity curve (ie. low std deviation). I guess both together give meaning to the test.
I haven't reviewed these calcs in a while (also suppose to be studying for an exam but thought I would take a break), but I believe both assume a large enough sample size, the bigger the better.
But for simplicity,
if we had 4 trades, +$10, +$10, +$10, -$30,
average P/L ((10+10+10)/3)/((30)/1), which is 10/30, so 1/3.
however Expectancy would be 0.75*10-0.25*30 = 0;
Hmm.
gah, edit my stupid maths....
sorry, best I go back to my stats and do it again. Your example makes perfect sense, thanks.
ok did that... now a new problem. AB has this formula for average P/L.
Avg. Profit/Loss: (Profit of winners + Loss of losers)/(number of trades)
which would work out to zero also, same as expectancy!
So now I'm wondering if your ave P/L formula is correct Phantom? How could the average trade be >0 if by the end of the trading period you end up with 0 balance?
Hi G/B,
Software or people are allowed to have their own definitions (however yes does make things confusing),
my basic definition of Avg P/L , is similar to
http://www.investopedia.com/terms/p/...loss_ratio.asp
However let's look at the formula you have given above.
Avg. Profit/Loss: (Profit of winners + Loss of losers)/(number of trades)
I'll try the maths on a slightly different example,
+10,+10,+10,-35
Expectancy = 0.75*10 - 0.25*35 = 7.5 - 8.75 = -1.25.
using the formula,
Avg. Profit/Loss: (Profit of winners + Loss of losers)/(number of trades)
equals: (30-35)/4 = -1.25
(to be honest I have not seen Avg. Profit/Loss, formulated the above way as you mentioned.)
YES, same values !!!! Using your mentioned calculation in AB.
I also use AB, looking at standard reports the closest I see is Profit Factor.
But reviewing the maths on a simple level,
(3*10/4) - (35/4) = X
((10+10+10)-35)/4 = X
AB, seems to be showing Average P/L as the same as expectancy. So you are not going crazy !
Last edited by the phantom; 7th-December-2010 at 10:40 PM.
The dollar figure that the AB Expectancy formula calculates is the same as Avg. Profit/Loss. It should be as Tharp calculates Expectancy as in R (risk) per trade terms and the resultant profit/loss ratio against the initial R (risk). That is 0.5R, 1R or 2.7R for example. If you know the formula to do this it would be helpful. Thanks.
Never let anyone dictate your life path.
From 176 trades I risk $1400 per trade and the resulting Average Profit/Loss equals $112, then if I divide the Avg. P/L by the dollars risked per trade, i.e. 112 / 1400, this equals 0.08 which is the expectancy. 0.08R per $1400 risked equals Expectancy. Yes???
Never let anyone dictate your life path.
Geez louise.
There is a difference between Avg P/L and Avg P / Avg L.
Which one are you talking about?!
SKC, are you referring to Profit Factor ?
PF = Gross Profit / Gross Loss
What do you mean by Avg P/L, if it does not equal Avg P/Avg L ?
In the above you are working on Average P / Average L. This tell you what is your average win compared to average loss.
Average P/L is the average profit or loss per trade. Which is simply how much you make per trade. Divide that by the position size you get average % return per trade. This is the same as expectancy (which by definition is what you expect per trade).
Profit fact is like you said gross P / gross L, which is how many steps forward you take for each step backwards. Tells you something different entirely again.
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