The Remek! Expectancy Calculator
As the chart below demonstrates, using two hypothetical trading systems, how the trading edge (the statistical advantage of our trading methodology) is made up of two factors. It must be clear to all market participants that the outcome of any one trade is probabilistic, meaning, it is impossible to know in advance, the future being unknown. Any trading edge will only manifest itself over a large number of trades. A trader must have enough capital to withstand drawdowns (losing periods or a streak of losing trades) that are a natural part of any trading system. See our other calculators for further study.
Our trading expectency formula has two inputs:
The accuracy of our trades, meaning, what percentage of our trades are winners and what percentage are losers.
The payout ratio: the average of our winners divided by the average of our losers.
These input values should be based on a large sample size, at least several hundred trades, preferably in various market environments (trending, non-trending), and a variety of instruments and asset classes to verify robustness.
Combing the two metrics, we can now calculate our edge . As you can see below, a system with a higher accuracy (percentage of winners) is not necessarily better. The calculation formula of the edge takes both the accuracy and the payout ratio into consideration. Feel free to experiment with various input data. (Enter all data in the yellow fields, the other fields will be calculated automatically. Refresh page to start again.)