Average coefficient is the average value of the coefficients on the algorithm’s signals for the selected period. Together with the hit rate it helps to assess whether the strategy wins often enough to obtain a positive result.
Relation between coefficient and hit rate
The lower the coefficient, the more often the bet must win to come out ahead. At a coefficient of 1.3 the break-even point is about 76.9%, and at a coefficient of 2.5 — about 40%. This is a simplified calculation for identical stakes and coefficients.
How to determine an approximate threshold
To get an approximate break-even point, divide 100% by the average coefficient. If the actual hit rate is higher than the obtained value, the strategy may be profitable. For an accurate assessment it is also necessary to take into account voids and differences between the coefficients of individual bets.
Risk of high coefficients
Bets with high coefficients usually win less often, therefore such a strategy may have longer losing series. For its evaluation a sufficient number of signals is required, and with real bets — a bankroll size calculated taking into account the possible drawdown.