Discussion of article "Applying the probability theory to trading gaps"
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New article Applying the probability theory to trading gaps has been published:
In this article, we will apply the probability theory and mathematical statistics methods to creating and testing trading strategies. We will also look for optimal trading risk using the differences between the price and the random walk. It is proved that if prices behave like a zero-drift random walk (with no directional trend), then profitable trading is impossible.
Let's test the EA on the year of 2017 and define the risk value for trading in 2018 based on its results. The balance/equity graph based on test results of 2017 is provided below.
I have to make a few clarifications before proceeding to the risk calculation. First, we need to justify the need to determine the correct level of risk. Second, it is necessary to explain the advantage of applying our theory for this purpose.
Speculative trading is always associated with uncertainty. Any trading system sometimes makes losing trades. For this reason, the risk should not be too large. Otherwise, the drawdown will be excessive. On the other hand, the market may change at any time turning a profitable system into a losing one. Therefore, the system's "lifetime" is finite and is not known precisely. For this reason, the risk should not be too small. Otherwise, you will not be able to obtain all possible profit from your trading system.
Author: Aleksey Nikolayev