A day-trading plan takes 5 independent trades a day; each loses 1R with probability 0.6 or gains 2R with probability 0.4. (a) What is the expectancy per trade and per day? (b) What is the probability the day ends at or below −2R? At or below −3R? (c) Recommend a daily loss limit and justify it with these probabilities.
M14 · Problem 15 ★★ Check
Calibrating a daily loss limit
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