New answers tagged prediction
Turns out you can make money where you lose most of the time with Parrondo's paradox! https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=parrondo's%20paradox
Expected = win rate * avg winner + (1 - win rate) * avg loser - trading costs. if win rate = 1/2; avg winner = 10; avg loser = -5; trading cost = 1 E = 5 - 2.5 - 1 = 1.5
A prediction model that is correct $50\%$ of the time can be profitable if the model gains more when it is right than it loses when it is wrong. You could simplify it like this: A trading strategy is profitable if your trades have positive expected value. Now suppose that your gains when your model is right equals the losses when your model is wrong. If ...
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