[R-SIG-Finance] Mathematical Expectation for a trading system

[Patrick Burns]

Mark Knecht wrote:
> Hi Mark,
> 
> On Thu, Oct 15, 2009 at 1:28 AM, Mark Breman <breman.mark at gmail.com> wrote:

[...]

> 
>> Ralph Vince warns the reader that the trade system to start with should have
>> a positive Mathematical expectation to start with, because the optimal f can
>> not turn a losing system into a winning system.
> 
> Independent of the calculations did your system make money
> historically? If it did then it has a positive expectation.
> 

The truth of that assertion depends on at
least two assumptions:

* Selection bias is not very strong.

* The market will behave in the future like
it did over the historical period.




Patrick Burns
patrick at burns-stat.com
+44 (0)20 8525 0696
http://www.burns-stat.com
(home of "The R Inferno" and "A Guide for the Unwilling S User")