Mathematical expectation of gain/loss on the exchange
What is the expectation of gain/loss?
Mathematical expectation of win/loss - one of the indicators of a trader's trading efficiency and trading strategy on , which is calculated as the sum of the products of each possible profit and loss and the probability of getting that gain and loss.
How is the mathematical expectation calculated on ?
For example, if we are able to win 40% trades of $3 and lose 60% trades of $1, then our mathematical expectation would be calculated as follows:
Mathematical expectation = (0,4 * 3) + (0,6 * (-1)) =1,2+(-0.6) =0,6.
We obtain that our expectation of winning on each trade is 60 cents. In other words, this is the effectiveness of the trader's work, expressed in money. If the mathematical expectation is negative, we are not talking about winning, but about losing.
How do I use the expectation matrix?
The mathematical expectation of winning is an effective way to reveal the profitability of the chosen trading system.
By collecting statistics on your trade, you can calculate the expectation, which can be positive or negative.
If the mathematical expectation value is positive, it means that the trade is stably profitable and the deposit will increase. At the same time, the higher the mathematical expectation value, the faster the deposit will grow.
If the mathematical expectation value is negative, it means that in case of continuation of such trading, the deposit will be lost. Accordingly, it is necessary to make adjustments to your trading strategy and reconsider money management rules.