Pips Expectancy formula:
18pips x .72 - 28pips x .28 /100
12.96 - 7.84 == 5.12
Pips Expectancy == 19.5 pips
1.47 Expectancy ratio
Once these numbers are crunched, what can we determine and how are these figures useful? Compare , discuss, improve..
Thanks Will for your info, and especially for doing the number crunching I asked for. You are the 8th person to reply to my inquiry for account managers, and so far no one cared to even attempt to calculate the Pips Expectancy or the Ratio.
I'll calculate the numbers again for your system (your first calculation is off a bit due to rounding), and then use your system as example for what I'm looking for. I'll also explain how I use those numbers.
As of Aug 31, 22:00, you have 309 trades with 222 winners.
Myfxbook already calculated average winning trade as 17.71 and average losing trade as -28.20.
As a result, the numbers I am looking for are
<b>Pips Expectancy</b> = ( Average Pips Win * Winning Trades % + Average Pips Loss * Losing Trades % ) / 100
= 17.71 * 222 / 309 - 28.20 * 87 / 309 (used the average pip loss with the negative value, as it is, here)
~= 12.72 - 7.94
<b>Expectancy Ratio</b> = Pips Expectancy / Average Pips Loss
= 4.78 / 28.20 (used the average pip loss in absolute value here)
Looking at these values I can compare your result with tons of other than I'm tracking and have an as-good-as-possible apples-to-apples comparison. One reason for using these two formulas is because they strip away the leverage factor. I'm often presented with a system that makes huge gains each month; but when I look closely, that's only because the trader uses very high levels of leverage to achieve that. I'm certainly ok with using leverage, it's just that I want to be the one who decides how much the maximum leverage is.
If Pips Expectancy is too low, let's say 2 pips, then any extra slippage and/or commission I could incur in my account, versus your 'master' account, could have significant negative effects to the performance I'll get.
If the Expectancy Ratio is too low (0.15 is the lowest I'm comfortable with, but that's only for my watch list; 0.17 is the lowest I'm ok to be traded in my real accounts), it means the risk taken to make the pips is higher than for a similar system, that had the same net end result in terms of pips, but a higher Ratio.
So looking at results through the above two formulas allows me to see through the leverage and analyze only the ability to generate profits and contain losses.
In closing, I want to say that your results look good, and meet the thresholds I set for a system to be included in my portfolio, so we'll be in touch!