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SW VandeCarr
SW VandeCarr is offline
Jan28-12, 05:38 PM
P: 2,490
Quote Quote by qwirky64 View Post
I'm stuck on what I'm sure is a very simple problem.

I'm trying to calculate predicted output for my share trading model.

For example, for a strategy the probability of it winning on each trade may be 0.4 and hence a loss is 0.6.

But for each trade it wins, my account balance is increased by 5% and each loss it loses 2%.

How do I calculate how much I would have won or lost after n amount of trades?

Can you break it down to on average each trade its a win or loss of x% so I can just use a simple compound interest formula to calculate expected profit after n amount of trades?
Your net gain/loss n trades is [itex] \delta_G np - \delta_L n(1-p)[/itex] so for 10 trades you have: 0.05 (10)0.4 -0.02(10)0.6= 0.08 This is a net gain per trade of 0.008 (0.8%). The formula for compound interest is [itex] N(t)=N_{0}e^{rt}[/itex] where r is the rate and t is the time in units over which the rate is calculated.