Emini Methods- Advice- The Applet FAQ

Emini Methods

HOME

A Word of Advice

Equity Curve Simulation

The Applet FAQ

What does this applet show?
This applet simulates an equity curve of your account over a long term after systematically applying your trading rule with known parameters of Win Probability and Win/Loss ratio. A whole curve consists of about 350 pixels, or trades. A random generator decides (as the market does) with a given probability whether you win or lose in a given trade. That is how the equity curve is generated.

What is a "Win/Loss ratio" parameter?
Divide your average winner by your average loser and you get Win/Loss ratio.

What is a "Win Prob" parameter?
This is the number representing the probability of a winning trade of your trading system. For example, if you traded 100 times and won in 61 trades, then the probability to win is about 61% or 0.61.

What is a "Lines Qty" parameter?
This is abbreviation for "Lines quantity". This is the number of equity curves to be generated and plotted simultaneously. This feature gives you an opportunity to see "what if" scenarios for any 'level of luck'. In other words, even if your system wins 99.9% of the time, there's a non-zero chance that all your trades can lose, for example, 10 times in a raw.

What are the "Kelly Val" and "Math Expect" parameters?
Kelly Value and Mathematical Expectation of the trading system, respectively. The first one determines the percentage of your capital you should put in a single trade in order to maximize the overall account performance in a long run and minimize the risk of ruin. The second one is interpreted this way: if it is positive then historically your system wins on average, if it is negative then you better look for another strategy...

For more information on the Kelly Value, the Expected Value, and similar notions that are of great use in financial markets as well as in casinos, please see a great book Fortune's Formula and a more comprehensive Trade Your Way to Financial Freedom.

Disclaimer: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS UNLIKE AN ACTUAL PERFORMANCE RECORD. SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

HOME A Word of Advice Equity Curve Simulation	The Applet FAQ *What does this applet show?* This applet simulates an equity curve of your account over a long term after systematically applying your trading rule with known parameters of Win Probability and Win/Loss ratio. A whole curve consists of about 350 pixels, or trades. A random generator decides (as the market does) with a given probability whether you win or lose in a given trade. That is how the equity curve is generated. *What is a "Win/Loss ratio" parameter?* Divide your average winner by your average loser and you get Win/Loss ratio. *What is a "Win Prob" parameter?* This is the number representing the probability of a winning trade of your trading system. For example, if you traded 100 times and won in 61 trades, then the probability to win is about 61% or 0.61. *What is a "Lines Qty" parameter?* This is abbreviation for "Lines quantity". This is the number of equity curves to be generated and plotted simultaneously. This feature gives you an opportunity to see "what if" scenarios for any 'level of luck'. In other words, even if your system wins 99.9% of the time, there's a non-zero chance that all your trades can lose, for example, 10 times in a raw. *What are the "Kelly Val" and "Math Expect" parameters?* Kelly Value and Mathematical Expectation of the trading system, respectively. The first one determines the percentage of your capital you should put in a single trade in order to maximize the overall account performance in a long run and minimize the risk of ruin. The second one is interpreted this way: if it is positive then historically your system wins on average, if it is negative then you better look for another strategy... For more information on the Kelly Value, the Expected Value, and similar notions that are of great use in financial markets as well as in casinos, please see a great book Fortune's Formula and a more comprehensive Trade Your Way to Financial Freedom.
	Disclaimer: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS UNLIKE AN ACTUAL PERFORMANCE RECORD. SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.