PMKing Trading LLC
Trading System Expectancy Explained
***** OMG *****

The ability to effectively compare, measure, and monitor the performance of your trading systems is a key factor in the long-term success of your trading.  In any trading system, simply looking at the amount of profit or loss generated in relation to the amount of capital allocated is not a good measure of the effectiveness of the trading system.


This eBook describes a method of measuring trading system performance that takes into account profits as a ratio of risk, the volatility of profit and loss, and the number of trading opportunities generated by your systems.  All these factors, when combined in a formulaic way, give us a measure of system effectiveness that can be compared across systems even when capital allocation, timeframe, and position sizing is different.


Concepts that are explained, along with their practical application to trading, include:


  • Profit and loss as a ratio of initial risk per trade
  • Expectancy, the average expected amount of profit per unit of risk
  • The components of a trading system in terms of Expectancy
  • System Value, a number that allows us to compare the real value of a system


Once you have read and understood the concepts in this eBook you will be able to easily assess the effectiveness of each of your trading systems, compare them, and have an effective way to identify losing systems before you risk money trading them.


Expectancy is a core concept in trading and if you are not using it, you are at a disadvantage to anyone who is.

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