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<SPAN
>A
personal review by Herman van den Bergen.
<SPAN
>October
– 2002
A sincere thank
you to all who participated!
This thread took place on <SPAN
>17 October, 2002 <SPAN
class=890574215-25102002>and started with my post “<SPAN
>Once again: Money Management”. I
collected all the posts in a word file (27 pages!) and read it several times.
Some of the examples were very convincing however in the end they<SPAN
class=890574215-25102002>, except for some "personalized versions<SPAN
class=890574215-25102002>", lacked practical substance<SPAN
class=890574215-25102002>. Most were based on or were similar to van
Tharp’s examples. I have not read van Tharp’s books and reports(but will in a
few weeks) so consider my words in that context.
Whenever
somebody tells me this or that works fantastic I turn skeptical, so it wentwith
MM. If you want limited risk: go with it! If you have developed a high
performance trading system, don’t use it: find a better way! Van Tharp’s style
of MM has great appeal to traders because it promises limited risk. Many readers
are excited that van Tharp can make a random system profitable – personally I
think he wishes he had never voiced that example.
For van
Tharp, Ralph Vince and others to perform experiments with basically market-naïve
people is deceiving. Nobody onthis
list (I hope) is suggesting that you trade without planning, without research,
and without many hours of system development. If you do so you will loose money,
no doubt about it.
Ihave
been investigating MM only for a couple of weeks and while I agree it may have
lots of merit when trading margin or futures I am still not convinced that van
Tharp’s style of money management is the way to go for high performance
mechanical trading systems. I don’t think his style of MM was designed for those
systems, we are in a new era of
system design, his ways are the old ways. Markets and technology
change.
I am saddened by the fact that quite a few system developers
are satisfied with low performance systems; perhaps they are more traders than
system designers. I am not looking for the HG and I am not chasing a mirage;
however two years of testing have convinced me that it is possible to design
many different styles of high performance trading systems – if you work hard at
it.
Let me share with you what I learned/concluded from the
thread:
<LI class=MsoNormal
>Even if one doesn’t
strictly adhere to MM one should know about it.
The
need for MM increases with the amount of leveraging you use.
MM
Will suck the life out of any high performance mechanical trading system
<LI class=MsoNormal
>Don’t believe that if
you have a marginal trading system using MM will make you rich.
<LI class=MsoNormal
>Probability of profits
and risks should be factored into
trading systems.
<LI class=MsoNormal
>Most of the protection
provided by MM can be duplicated through good system design and common sense
portfolio management, and so
without the disastrous effect on profits due to the application of
universal statistical rules.
The
greatest risk to traders is emotional trading, use a mechanical trading system
if you can, invest small amounts you can afford to loose, <SPAN
class=890574215-25102002>trade multiple systems, perhaps use AT or
have somebody else trade for you.
<LI class=MsoNormal
>Nobody has embedded MM
into a mechanical trading system, however
it should.
<LI class=MsoNormal
><SPAN
class=890574215-25102002>I still do not know how to apply MM to groups or
stocks or to TTM systems
Do
not use MM to compensate for weak system design
<LI class=MsoNormal
>Even when using MM
profits will increase when system performance goes up, <SPAN
class=890574215-25102002>do not use MM as an excuse to stop work on your
trading systems
<LI class=MsoNormal
><SPAN
class=890574215-25102002>I still know of no way to evaluate or backtest
MM techniques
<LI class=MsoNormal
>Many MM examplesuse
simplistic conditions to exaggerate the effects of MM.
<LI class=MsoNormal
>Parameters like
Expectancy may have a place in stock and system screens
One
can Optimize trading systems for probability based parameters, like
probability of profits, winners/losers, DDs, etc<SPAN
class=890574215-25102002>. <?xml:namespace prefix = o ns =
"urn:schemas-microsoft-com:office:office" />
Here are some of the URLs and other sources of information
that were mentioned:
<DIV class=MsoNormal
>Van Tharp’s book “<SPAN
>Trade Your Way to Financial
Freedom”
<DIV class=MsoNormal
>Van Tharp’s “<SPAN
>Money Management
Report”<SPAN
>
<DIV class=MsoNormal
><SPAN
><SPAN
> <SPAN
><A
href=""><SPAN
>http://www.turtletrader.com/money.html
for a good discussion on MM<SPAN
><FONT
size=3><SPAN
class=890574215-25102002>. <SPAN
><A
href="">http://www.turtletrader.com/money5.html
<SPAN
>another
good MM article
<DIV class=MsoNormal
><SPAN
><A
href="">http://keplerweb.oeh.uni-linz.ac.at/trading/moneyMan.htm
10 Free MM lessons
<DIV class=MsoNormal
><SPAN
><A
href="">http://www.streetstories.com/vt_futures96.html
Interview With Van Tharp:
<DIV class=MsoNormal
><SPAN
><A
href="">www.iitm.com <SPAN
>to learn more about
MM
<DIV class=MsoNormal
><SPAN
><A
href="">http://www.travismorien.com/FAQ/gfallacy.htm<SPAN
> On the gambler's
fallacy
<DIV class=MsoNormal
><SPAN
>Fundamentals of Money Management Part
I<A
href=""><SPAN
>http://www.tsresearchgroup.com/print.php?lang=en&page=public&article=public_20020402010830
<DIV class=MsoNormal
><SPAN
>Fundamentals of Money Management Part
II<A
href=""><SPAN
>http://www.tsresearchgroup.com/print.php?lang=en&page=public&article=public_20020402010739
<DIV class=MsoNormal
><SPAN
>Fundamentals of Money Management Part
III<A
href=""><SPAN
>http://www.tsresearchgroup.com/print.php?lang=en&page=public&article=public_20020402010706
There were many excellent posts, I have a Word file ifyou
would like a copy send me an email with “Please email MMSummary.doc” and I’ll
send you a copy.
Thank
you all for you marvelous participation!<FONT face=Arial
size=2>Best regards,<FONT
face=Arial size=2><SPAN
class=890574215-25102002>Herman
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