« $GLD – $GDX Not Too Late to Short | Main | Cockroach Theory Applied to SuperValu (Update) »
Friday
Jul222011

Thoughts on Bracket Asymmetry

  • bracket asymmetry does not change the expected reward of a trade, it only changes the frequency of your wins & losses. In a random process a symmetric bracket will produce 50/50 loss/win with equal amounts. Asymmetric bracket 80/20 will give you wins 80% of the time and losses the other 20%, but your average loss will be 4x larger than your average win, giving you the same expected reward of 0.
  • At this moment I keep brackets symmetric to reduce complexity.
  • bracket width is very important: set it too low and you only get 'market noise', set it too high and neither level will be hit. I generally use a vol estimation to adjust for bracket width.
Written by Jev Kuznetsov. Jev is a physicist who trades and develops trading algorithms.
 

PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>