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    using theoretical probability




    I read an article recently where the author generates randomized profit data based on a %Win and Profit Factor.

    Based on this data's standard deviation and mean he then creates a theoretical probability distribution.

    I created an actual distribution (in red) using Excel's FREQUENCY function to determine if this is approach is feasible?

    Based on limited stats knowledge the two do not compare well at all (see attachment) and I'd like to determine if I have made an error or if this article is incorrect in assuming the theoretical distribution could approximate reality?
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    Last edited by dalai; 10-10-2014 at 09:20 AM.

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    Re: using theoretical probability

    Bumping this thread would be better than posting a new thread that just links here. I would also suggest checking out this thread for some guidelines on smart posting behavior that can help you get answers that are better much more quickly.
    I don't have emotions and sometimes that makes me very sad.

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    Re: using theoretical probability

    Quote Originally Posted by Dason View Post
    Bumping this thread would be better than posting a new thread that just links here. I would also suggest checking out this thread for some guidelines on smart posting behavior that can help you get answers that are better much more quickly.
    ok thanks. not sure what "bumping" is but will take your advise.

    are you able to offer any advise re. my question?

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    Re: using theoretical probability


    Two things:

    Maybe you did make an error: I'm not sure of your way of generating random profits using the rand() function. At the least, do your random profits agree with the Profit Factor = 1.5? This lingo is unfamiliar to me, so I don't know.

    Maybe the article makes a leap from reality to theory and then back to reality, but maybe it's ok (for you to decide): One thing about modelling, is sometimes it's not close to reality but we go with it anyway. The old saying, "all models are wrong, but some are useful". I'm guessing in the paper, the author(s) assume a normal distribution, because then they can apply some theory and then make further conclusions.
    All things are known because we want to believe in them.

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