Mathematical expectation

Visaria said:
Can expected value be calculated in trading like one can calculate the (negative) expected value of casino games such as blackjack or roulette?
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No. Casino games are technically Closed End Systems. Financial Markets are in theory, Open Ended Systems. Never the twain shall they (theoretically) meet. However, this does not preclude one from calculating the probability of 'price' being at a certain location (level) in the future - that is an entirely different question and a different mathematical model.

I use Density Probabilities for the Location of 'Price' at some future Time in my trading model and I do not consider 'price' to be a singular data point as most do. Just one of the things that gives me an edge in my trading. I consider real price to be somewhat smeared across Time and Space, giving me an ability to view price in way that is quite different than most other Traders and an ability to calculate the arrival of price at a specific location in the future, where Time is constant. You can't do that at Vegas!

This is one of the reasons why I chuckle when I hear someone say that Trading is Gambling. Those threads always crack me up a bit.
 
kut2k2 said:
Just add up your trade returns and divide by the number of trades. That's your expected value aka expectation (no such thing as 'expectancy'). Also no need to calculate variance.
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What he just said.

Just make sure you also run the same analysis across all Five (5) Market Types. This will give you an EV for Market Types I through V. Or, EV1, EV2, EV3, EV4 and EV5. If you want to be slightly technical about the matter. If you don't know what the Five (5) Market Types are already, then we can have that basic discussion as well.
 
HKVP9 said:
If you don't know what the Five (5) Market Types are already, then we can have that basic discussion as well.
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Pls let's do that. I'm trading for as long as I can remember and I've never heard of the "5 market types". I can think of up trending, down trending, mean-reverting, sideways but I may be misisng the fifth type.
 
kut2k2 said:
Just add up your trade returns and divide by the number of trades. That's your expected value aka expectation (no such thing as 'expectancy'). Also no need to calculate variance.
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Maverick74 said:
This is false. That is your mean. Expected value requires you to assign probabilities to all the possible outcomes and sum up those values. To solve for the probabilities you will need to know the variance. Simply take a mean of anything is NOT what you want to do.
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kut2k2, i respect you, but you are wrong and mav is correct. Trade returns divided by no. of trades equals (historical ) average result.
 
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