Expected Return and R Multiplier - Cryptocurrency Exchange Platform Technology

When you participate in market trading,

you do not know the exact probability of winning or losing.

In addition,

you also do not know exactly how much you will win or lose.

However,

you can perform historical testing to estimate the expected return.

You can also obtain a large number of data samples from actual trading or investing,

using these samples to understand the approximate expected return of the system.

R multiplier,

the risk-reward ratio of a single trade.

R is simply a symbol representing the initial risk,

to calculate the R multiplier of a trade,

just divide the captured points at the time of opening the position by the initial risk.

You can easily use the dollar value per contract or per 100 shares,

for example, if you risk $500 and gain $1500,

then your R multiplier is 3.

For example, the entry point is August 4, 1997, at 2511 points,

the system uses a stop loss equal to 3 times the average true range (3ATR),

which equals 2407 points.

The system finally exited the market on September 29, 1997, at 3069 points,

and gained a profit of 558 points.

So, the profit is a 5.37 R multiplier.

The intrinsic characteristics of these R multipliers will fully determine the total expected return of your method.

You need to develop a position adjustment algorithm that helps you utilize the expected return.

It is also desirable for this algorithm to have a certain correlation with the initial risk of each trade and the ongoing account capital.

For beginners,

consider a risk percentage trading rule,

based on which to continuously trade a fixed percentage of the current account capital.

This position adjustment algorithm essentially indicates that this 1R risk remains the same,

regardless of when it is used or on which stock or market.

This is because your position size is always a fixed percentage of your capital,

no matter how large the initial risk R is.

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