Probability Definition
The Probability section of my backtesting report breaks down into two mathematical constructs: expectancy and standard deviation. The intent is to give insight into the relative performance of a trading strategy over a large number of trades, and to help traders select profitable strategies (positive expectancy).
Extra Insight:
The most desirable case is a high expectancy with a low standard deviation.
Like the toss of a coin, a strategy may vary considerably from the reported results for a small sample of trades.
For a full definition of probability theory, get a textbook
(Backtesting Blog is an Amazon Associate
Updated on 11/12/08.
October 21st, 2008 Filed under GlossaryTags: expectancy, probability, standard deviation
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