Mathematics of trading

[akhan789]

Hi everyone, i've been reading the forums a lot and have been studying various different trading set ups and strategies. I come across a lot of different maths that people use to work out various different things i.e. Expectancy per trade = bla bla etc.

Was just wondering if anyone knows a good resource that has compiled all of these little mathematical algorithms like a glossary for trading maths.

I hope to have a look at some charts and work out trading strategies based on pure probabilities in order to stick to a 100% disciplined approach when I actually decide to execute a live trade on the futures markets.

Thanks in advance for any help.

 

[alexander]

There is nothing into those formulas. One can be derived from the other quite easily as it is shown here:

http://www.priceactionlab.com/Blog/2010/12/what-is-a-trading-edge-part-ii/

Also, check out some of the other posts of Michael Harris, including his free articles on position size and kelly:

http://www.priceactionlab.com/Literature/literature.html

Trader MIke has also good information:

http://www.tradermike.net/2004/05/trading_101_expectancy/

http://www.tradermike.net/2005/07/position_sizing/

I think these are enough to get you started.

 

[akhan789]

Thanks alexander.

 

[timsk]

Hi akhan787,
You can make it as simple or as complicated as you like. With the former in mind, most traders agree that there are only two ratios that really matter. Get both of those working in your favour and you'll be richer than a very rich rich thing. What are the ratios? Both are outlined here:
3. Risk & Money Management
Enjoy!
TIm.

 

[Hoggums]

If you are interesting in indicators - full equations and descriptions here...

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators

 

[timsk]

If you are interesting in indicators - full equations and descriptions here...

Whoooa!
Risking life and limb there Hogs' - mentioning the dreaded 'I' word. Brave, brave man.

Tim.

 

[DashRiprock]

Hi akhan787,
You can make it as simple or as complicated as you like. With the former in mind, most traders agree that there are only two ratios that really matter. Get both of those working in your favour and you'll be richer than a very rich rich thing. What are the ratios? Both are outlined here:
3. Risk & Money Management
Enjoy!
TIm.

sorry timsk but u being bit of plonker here.

what he need to do is compare equity curve and its volatility, because like a 51% win ratio with 1.01 reword to 0.99 risk has got numbers on right side (exp of +0.03) but needs like bazillion trades to know not just luck.

so need

Equity Balance
Volatility
Sample size
base interest rate

at minumum

 

[timsk]

Dash,
I may be a plonker (thanks for that!) but, equally, I don't see how your post helps - or that it contradicts mine? This is the 1st steps forum after all, and the ratios mentioned in the link I've provided are pretty much universally accepted as being the most important for new traders to grasp - at least in the initial stages. So, if I'm wrong, then so's just about every other trader out there! If you'd care to enlighten the OP and myself what's wrong and why, and then set us on the 'right' path, I'll be in a position to amend the Sticky accordingly.

Tim.

 

[DashRiprock]

Dash,
I may be a plonker (thanks for that!) but, equally, I don't see how your post helps - or that it contradicts mine? This is the 1st steps forum after all, and the ratios mentioned in the link I've provided are pretty much universally accepted as being the most important for new traders to grasp - at least in the initial stages. So, if I'm wrong, then so's just about every other trader out there! If you'd care to enlighten the OP and myself what's wrong and why, and then set us on the 'right' path, I'll be in a position to amend the Sticky accordingly.

Tim.

pmsl

so hang on just to make sure, you are saying all trader needs to know is "success ratio" (like how many winnres vs how many losers" and "Profit Ratio" (like how much a winner vs how much a loser is).

really is that what ur saying?

 

[timsk]

Dash,
I'm glad you're amused.

Your comments suggest to me that you're trying to read a great deal more in my posts than is actually there. I may be wrong but, as this is the First Steps forum, I'm assuming the OP has limited knowledge of trading, and I thought he might be interested in the Essentials Of First Steps Sticky if he hadn't seen it already. Given the nature of his post, I thought the section on risk and money management might be of particular interest. Now, if there are mistakes or inaccuracies in the Sticky - please point them out so that I can correct them. It's as simple and as straightforward as that!
Tim.