Link: Position Sizing and Expectancy

Jun 28, 2007: 11:43 AM CST

Chris Perruna recently posted on the topic of Position Sizing and Expectancy (as discussed in great detail by Dr. Van Tharp – book reference included in post).

Attached are a few quotes from the post:

Most traders look for three major factors when developing a system:

  • How much to trade on each position
  • The right odds or positive expectancy
  • Number of trades or how much opportunity the system presents

Expectancy tells you what you can expect to make (win or lose) for every dollar risked.

It is your profit percentage per win multiplied by your win rate minus your loss percentage per loss multiplied by your loss rate.

Chris gives some mathematical examples for you to study and also lists Dr. Tharp’s formula for calculating expecancy.

He also generously offers three Excel spreadsheets, including an Interactive Portfolio management sheet.  Be sure to thank him for being so generous in this regard.

Check out the post and also Dr. Tharp’s book Trade Your Way to Financial Freedom.

Comments Off on Link: Position Sizing and Expectancy

Comments are closed.