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Math Cheat Sheet

This document from Edgewonk provides information and formulas for traders to evaluate required win rates, trade expectancy, drawdown risks, and the likelihood of consecutive losing trades. It includes a general formula to calculate required win rate based on risk-reward ratio, and an example of how to calculate trade expectancy given win rate, position size, and risk-reward ratio. Tables show the recovery rates needed after various levels of drawdown, as well as the potential losses from streaks of losing trades depending on the win rate and position size risked on each trade.

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Ariol Zere
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0% found this document useful (0 votes)
363 views

Math Cheat Sheet

This document from Edgewonk provides information and formulas for traders to evaluate required win rates, trade expectancy, drawdown risks, and the likelihood of consecutive losing trades. It includes a general formula to calculate required win rate based on risk-reward ratio, and an example of how to calculate trade expectancy given win rate, position size, and risk-reward ratio. Tables show the recovery rates needed after various levels of drawdown, as well as the potential losses from streaks of losing trades depending on the win rate and position size risked on each trade.

Uploaded by

Ariol Zere
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Edgewonks Math Cheat Sheet

R-Multiple

Required Winrate

0.5
1
1.5
2
2.5
3
3.5

67%
50%
40%
33%
29%
25%
22%

General formula

1
(1 + )

Expectancy

Drawdown

Recovery Rate

5%
10%
20%
30%
40%
50%
60%
70%
80%
90%

5.3%
11.1%
25%
43%
67%
100%
150%
233%
400%
900%

Losing Streaks and loss of capital

(Winrate * Position size * R-multiple) ([1-Winrate] * Pos. Size) = Trade Expectancy


Example:
Winrate = 55% | Pos. Size = 2% | R-multiple =
1.5
Trade Expectancy =
(55% * 2% * 1.5) ([1 - 55%] * 2%) = 0.75%
An expectancy of 0.75% indicates that each
trade has a value of 0.75% over the long-term.

Losers in
a row
1
2
3
4
5
6
7
8
9
10

Loss %

Loss %

Loss %

(1% risk)

(3% risk)

(5% risk)

1.0%
2.0%
3.0%
3.9%
4.9%
5.9%
6.8%
7.7%
8.6%
9.6%

3.0%
5.9%
8.7%
11.5%
14.1%
16.7%
19.2%
21.6%
24.0%
26.3%

5.0%
9.8%
14.3%
18.5%
22.6%
26.5%
30.2%
33.7%
37.0%
40.1%

Exponential Growth
Example:
Winrate: 55% | Pos. Size: 2% | R-multiple: 2
Account size : $10,000

Gain per trade


1. trade
10. trade
50. trade
100. trade
200. trade
500. trade

$
$
$
$
$
$

130.00
146.03
241.66
466.96
1,699.12
81,857.14

The professional trading journal


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Consecutive Losses
Winrate

70%

30%

9%

2.7%

0.8%

0.2%

60%

40%

16%

6.4%

2.6%

1.%

50%

50%

25%

13%

6%

3%

40%

60%

36%

22%

13%

8%

30%

70%

49%

34%

24%

17%

Likelihood of consecutive losses based on winrate

Edgewonk.com
[email protected]

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