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I am curious: what is you typical trading system like, short term
(days) or long term (months)?
Rick, Van Tharp talks about Expectancy as if it were a stable
parameter which is certainly not the case for short term trading
systems (if my formula is correct). The Expectancy trends vary
very similar to my Equity charts - as expected, so perhaps both
can be used for equal purposes. Van Tharp does not seem to
consider that many systems fade in and out of performance and
that a good trading composite system would dynamically switch
systems (at best people only seem to switch stocks) to take
advantage of high performance periods for the different systems.
Expectation = ( 1 + AveWinTrade/abs(AveLosTrade)) *
PercentWinners - 1;
Best regards,
Herman
-----Original Message-----
From: Rick Parsons [mailto:RickParsons@x...]
Sent: 30 October, 2002 7:43 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: RE: [amibroker] Re: Dynamic Money Management
>>long enough to earn your EXPECTANCY returns<<
I am in the middle of Tharp's book, Trade Your Way to Financial
Freedom, and just finished the chapter 6 on Expectancy. The idea
of expectancy is an excellent way to pick the "best" system.
However if one wants to calculate Expectancy the way Tharp
does, it appears to be VERY cumbersome when one has to group
trades into profit ranges then calculate each group separately to
get the overall expectancy number. (See pages 149 - 158)
So I would imagine if one wants all the MM and Dynamic
Portfolio features, Amibroker should first calculate expectancy
on each system to make sure we have a positive expectancy system.
Comments?
Rick
-----Original Message-----
From: tchan95014 [mailto:tchan95014@x...]
Sent: Wednesday, October 30, 2002 5:02 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: Dynamic Money Management
I completely agree with the quoted message.
TR is flexible enough to allow for almost any (risk) ideas
you can
think of to do the position sizing: newrisk, volatility,
margin,
market activities, group risk, group heat, portfolio risk /
heat...
and yes, the portfolio level position sizing is the best
feature. You
can even combine different systems each with different
portfolio. It
is a DOS software but it is powerful.
Money management (or rather more accurately, position sizing
or bet
sizing) is an area not very often discussed and not often
appreciated.
I have posted some time ago, you can get some very detailed
info from
TradingRecipes.com as well as traderclub.com by searching on
"Mark
Johnson"
This gentleman was kind enough to post many of the ACTUAL
works he
put in using TR.
1) He offered right there a very simple long term trend
following
system that works for FREE.
2) He tested it using 1-contract with the worst possible
fills you
can get
3) He test it using regular 1-contract test
4) He then tested it using TR with position sizing with a
portfolio of more than 10 or 15 futures contracts (You even
get the
TR code for FREE too, it is so easy you can learn by reading
it and
understand the logic behind it.)
5) He tested them over 10 or 20 years of history data.
It is an eye opening experience you do not want to miss.
He also listed his own trading results from actually
following a
vendor system for 3 or 4 years, most people would agree it
was
excellent results.
Go to both sites mentioned above and read as much as you can.
If you
are interested in this subject, I have not found a better
place for
education. All others only talk (including Tharp, although I
have to
admit his book is OK), but you see hard numbers here.
While we are searching for a Holy grail system spending
endless time
there, position sizing might offer a much easier path because
it
optimizes the profit while controls the risk of your choice,
you know
you can live long enough to earn your EXPECTANCY returns.
Wealth Lab is another software that claimed to have this
capability
but again is never actually verified to be correct. (There
was a long
debate, discussion and even tests on the trader club board
about this
but was never actually confirmed whether it is working
correctly.)
TR will cost you > $2000 while Athena, last heard, will cost
you >
$40000 (that is right!) They were originated from the same
idea and
might even be from the same group of persons (NOT Tharp
though)
I think, AB even with its current capability is very close to
be able
to do the portfolio level position sizing already. (with this
AddToComposit() for now. Do not quote me, it just came out of
my
head.) I think Tomasz can do it in a very short time, the
only issue
is to test it. It takes time to provide all the flexibility
and iron
out all the bugs, it is a big challenge.
With current AB structure,I think it has paved ways for much
more
flexibility than TR can ever provide. Monte Carlo, 2/3D
surface chart
built in, any taker? ;-)
Bob from TR has promised a window version for years, but
nothing has
come out yet.
Thomas
--- In amibroker@xxxx, "Al Venosa" <avcinci@xxxx> wrote:
> Tomasz:
>
> Yesterday, I posted a message on Van Tharp's forum about
your plans
> to incorporate innovative money management and pyramiding
techniques
> in a future version of AB. Below is a response from a user
of
Trading
> Recipes, who claims that TR is the only software that
handles MM
> corrrectly. Here is what he said:
>
> "It DOES position sizing. the RIGHT way. I own the program
and it
is
> GREAT. It took me about 5 minutes to get over the fact that
it is
> still a DOS based app. But it's really the ONLY tool that
does it
the
> correct way.
>
> I talked to AmiBroker about 6 months ago, and they told me
the same
> thing. Plus once they do release the program with position
sizing,
it
> still has to be proven that they have done it right.
>
> There are three other companies that I know have that have
tried to
> do position sizing. Two of them got it wrong.
www.rinasystems.com
and
> www.bhld.com
>
> The third is the athena program that is mentioned in Van's
book. I
> haven't ever had the privilege of playing with that
program, but I
> believe I read somewhere that it used output files from
trade
> station. So, it would also fall into the category of a
program that
> isn't truely implementing position sizing at the portfolio
level
like
> Trading Recipes does."
>
> To explain what he meant by doing it 'the right way', here
is what
he
> said:
>
> "TRADING RECIPES' approach lets you combine trading signals
and
trade
> sizing strategies into simulations which exactly mimic the
way you
> would trade in real time. A core feature, which sets it
apart from
> all other "money management" (or backtesting) software, is
its
> ability to perform dynamic money management (DMM) and risk
control
at
> the portfolio level. With DMM, position sizes are
determined with
> full knowledge of what's going on at the portfolio level at
the
> moment the sizing decision is made. Just like you do in
reality.
> Other software packages simply sum individual
pre-calculated equity
> curves. This way, position sizes are calculated with no
knowledge
of
> what the current portfolio conditions are at the crucial
moment
when
> a position sizing decision is to be made. This is not how
you would
> make decisions in reality and therefore such simulations
offer no
> useful information to the trader. DMM avoids this pitfall."
>
> TJ, will your approach be able to do DMM as described
above?
> Personally, I have no desire to use any program based on
DOS. I
think
> the position sizing algorithm now included in AB does
almost what
> this guy describes except for scaling in and out of trades
and
basing
> one's decisions on the value of the entire portfolio of
multiple
> stocks rather than a portfolio of one stock.
>
> Al V.
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<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN class=3D490412115-31=
102002>Hi=20
Rick, glad to see somebody else struggle through this :-) we should co=
mpare=20
notes someday.</SPAN></FONT></DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN=20
class=3D490412115-31102002></SPAN></FONT> </DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN class=3D490412115-31=
102002>I am=20
curious: what is you typical trading system like, short term (days) or long=
term=20
(months)? </SPAN></FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=3D#0000ff><FONT face=3DArial size=3D2><SPAN=20
class=3D490412115-31102002>Rick, Van Tharp talks about Expectancy as if it =
were=20
a stable parameter which is certainly not the case for short term trad=
ing=20
systems (if my formula is correct). </SPAN></FONT><FONT face=3DArial=20
size=3D2><SPAN class=3D490412115-31102002>The Expectancy trends vary very s=
imilar to=20
my Equity charts - as expected, so perhaps both can be used for equal=
=20
purposes. Van Tharp does not seem to consider that many systems fade in and=
out=20
of performance and that a good trading composite system would dynamically s=
witch=20
systems (at best people only seem to switch stocks) to take advantage of hi=
gh=20
performance periods for the different systems.<BR></SPAN></FONT></FONT></DI=
V>
<DIV><FONT face=3DArial><SPAN class=3D490412115-31102002><FONT size=3D2><IM=
G=20
align=3Dbaseline alt=3D"" border=3D0 hspace=3D0=20
src=3D"cid:490412115@xxxx";><BR><FONT color=3D#009300=20
face=3D"Courier New"></FONT><FONT size=3D1>Expectation =3D ( </FONT></FONT>=
<FONT=20
size=3D1><FONT color=3D#ff00ff face=3D"Courier New">1</FONT><FONT color=3D#=
009300=20
face=3D"Courier New"> + AveWinTrade/</FONT><B><FONT color=3D#0000ff=20
face=3D"Courier New">abs</B></FONT></FONT><FONT size=3D1><FONT color=3D#009=
300=20
face=3D"Courier New">(AveLosTrade)) * PercentWinners - </FONT><FONT color=
=3D#ff00ff=20
face=3D"Courier New">1</FONT><FONT color=3D#009300=20
face=3D"Courier New">;</FONT></FONT></SPAN></FONT></DIV>
<DIV><FONT face=3DArial><SPAN class=3D490412115-31102002></SPAN></FONT>&nbs=
p;</DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2>B<SPAN class=3D490412115-3=
1102002>est=20
regards,</SPAN></FONT></DIV>
<DIV><SPAN class=3D490412115-31102002></SPAN><SPAN=20
class=3D490412115-31102002></SPAN><FONT color=3D#0000ff face=3DArial size=
=3D2>H<SPAN=20
class=3D490412115-31102002>erman</SPAN></FONT></DIV>
<DIV><FONT color=3D#0000ff face=3DArial size=3D2><SPAN=20
class=3D490412115-31102002></SPAN><BR></FONT><FONT face=3DTahoma><FONT size=
=3D2><SPAN=20
class=3D490412115-31102002> </SPAN>-----Original Message-----<BR><B>Fr=
om:</B>=20
Rick Parsons [mailto:RickParsons@x...]<BR><B>Sent:</B> 30 Octobe=
r,=20
2002 7:43 PM<BR><B>To:</B> amibroker@xxxxxxxxxxxxxxx<BR><B>Subject:</B> RE:=
=20
[amibroker] Re: Dynamic Money Management<BR><BR></DIV></FONT>
<BLOCKQUOTE=20
style=3D"BORDER-LEFT: #0000ff 2px solid; MARGIN-LEFT: 5px; PADDING-LEFT: 5p=
x"></FONT>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080 size=3D2>>=
><FONT=20
color=3D#000000 size=3D3>long enough to earn your EXPECTANCY=20
returns<<</FONT></FONT></SPAN></DIV>
<DIV><SPAN class=3D720543400-31102002></SPAN> </DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080 size=3D2>I am=
in the=20
middle of Tharp's book, <U>Trade Your Way to Financial=20
Freedom</U>, and just finished the chapter 6 on Expectancy.&nbs=
p;=20
The idea of expectancy is an excellent way to pick the "best"=20
system.</FONT></SPAN></DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080=20
size=3D2></FONT></SPAN> </DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080 size=3D2>Howe=
ver if one=20
wants to calculate Expectancy the way Tharp does, it appears to be VERY=20
cumbersome when one has to group trades into profit ranges then calculate=
each=20
group separately to get the overall expectancy number. (See pages 1=
49 -=20
158)</FONT></SPAN></DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080=20
size=3D2></FONT></SPAN> </DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080 size=3D2>So I=
would=20
imagine if one wants all the MM and Dynamic Portfolio features, Amibroker=
=20
should first calculate expectancy on each system to make sure we have a=20
positive expectancy system.</FONT></SPAN></DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080=20
size=3D2></FONT></SPAN> </DIV>
<DIV><SPAN class=3D720543400-31102002><FONT color=3D#000080=20
size=3D2>Comments?</FONT></SPAN></DIV>
<DIV> </DIV>
<DIV><STRONG><FONT color=3D#000080 face=3D"Vladimir Script"=20
size=3D5>Rick</FONT></STRONG></DIV>
<BLOCKQUOTE>
<DIV align=3Dleft class=3DOutlookMessageHeader dir=3Dltr><FONT face=3DT=
ahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B> tchan95014=20
[mailto:tchan95014@x...]<BR><B>Sent:</B> Wednesday, October 30, 20=
02=20
5:02 PM<BR><B>To:</B> amibroker@xxxxxxxxxxxxxxx<BR><B>Subject:</B>=20
[amibroker] Re: Dynamic Money Management<BR><BR></FONT></DIV><TT>I=20
completely agree with the quoted message. <BR><BR>TR is flexible enough=
to=20
allow for almost any (risk) ideas you can <BR>think of to do the positi=
on=20
sizing: newrisk, volatility, margin, <BR>market activities, group risk,=
=20
group heat, portfolio risk / heat... <BR>and yes, the portfolio level=20
position sizing is the best feature. You <BR>can even combine different=
=20
systems each with different portfolio. It <BR>is a DOS software but it =
is=20
powerful.<BR><BR>Money management (or rather more accurately, position=
=20
sizing or bet <BR>sizing) is an area not very often discussed and not o=
ften=20
appreciated.<BR><BR>I have posted some time ago, you can get some very=
=20
detailed info from <BR>TradingRecipes.com as well as traderclub.com by=
=20
searching on "Mark <BR>Johnson"<BR><BR>This gentleman was kind enough t=
o=20
post many of the ACTUAL works he <BR>put in using TR.<BR> 1=
) He=20
offered right there a very simple long term trend following <BR>system =
that=20
works for FREE.<BR> 2) He tested it using 1-contract with t=
he=20
worst possible fills you <BR>can get<BR> 3) He test it usin=
g=20
regular 1-contract test<BR> 4) He then tested it using TR w=
ith=20
position sizing with a <BR>portfolio of more than 10 or 15 futures cont=
racts=20
(You even get the <BR>TR code for FREE too, it is so easy you can learn=
by=20
reading it and <BR>understand the logic behind it.)<BR> 5) =
He=20
tested them over 10 or 20 years of history data.<BR><BR> It=
is=20
an eye opening experience you do not want to miss.<BR><BR>He also liste=
d his=20
own trading results from actually following a <BR>vendor system for 3 o=
r 4=20
years, most people would agree it was <BR>excellent results.<BR><BR>Go =
to=20
both sites mentioned above and read as much as you can. If you <BR>are=
=20
interested in this subject, I have not found a better place for=20
<BR>education. All others only talk (including Tharp, although I have t=
o=20
<BR>admit his book is OK), but you see hard numbers here.<BR><BR>While =
we=20
are searching for a Holy grail system spending endless time <BR>there,=
=20
position sizing might offer a much easier path because it <BR>optimizes=
the=20
profit while controls the risk of your choice, you know <BR>you can liv=
e=20
long enough to earn your EXPECTANCY returns.<BR><BR>Wealth Lab is anoth=
er=20
software that claimed to have this capability <BR>but again is never=20
actually verified to be correct. (There was a long <BR>debate, discussi=
on=20
and even tests on the trader club board about this <BR>but was never=20
actually confirmed whether it is working correctly.)<BR><BR>TR will cos=
t you=20
> $2000 while Athena, last heard, will cost you > <BR>$40000 (tha=
t is=20
right!) They were originated from the same idea and <BR>might even be f=
rom=20
the same group of persons (NOT Tharp though)<BR><BR>I think, AB even wi=
th=20
its current capability is very close to be able <BR>to do the portfolio=
=20
level position sizing already. (with this <BR>AddToComposit() for now. =
Do=20
not quote me, it just came out of my <BR>head.) I think Tomasz can do i=
t in=20
a very short time, the only issue <BR>is to test it. It takes time to=20
provide all the flexibility and iron <BR>out all the bugs, it is a big=
=20
challenge.<BR><BR>With current AB structure,I think it has paved ways f=
or=20
much more <BR>flexibility than TR can ever provide. Monte Carlo, 2/3D=20
surface chart <BR>built in, any taker? ;-)<BR><BR>Bob from TR has promi=
sed a=20
window version for years, but nothing has <BR>come out=20
yet.<BR><BR><BR>Thomas<BR><BR><BR><BR>--- In amibroker@xxxx, "Al Venosa=
"=20
<avcinci@xxxx> wrote:<BR>> Tomasz:<BR>> <BR>> Yesterday,=
I=20
posted a message on Van Tharp's forum about your plans <BR>> to=20
incorporate innovative money management and pyramiding <BR>techniques=20
<BR>> in a future version of AB. Below is a response from a user of=
=20
<BR>Trading <BR>> Recipes, who claims that TR is the only software t=
hat=20
handles MM <BR>> corrrectly. Here is what he said:<BR>> <BR>> =
"It=20
DOES position sizing. the RIGHT way. I own the program and it <BR>is=20
<BR>> GREAT. It took me about 5 minutes to get over the fact that it=
is=20
<BR>> still a DOS based app. But it's really the ONLY tool that does=
it=20
<BR>the <BR>> correct way.<BR>> <BR>> I talked to AmiBroker ab=
out 6=20
months ago, and they told me the same <BR>> thing. Plus once they do=
=20
release the program with position sizing, <BR>it <BR>> still has to =
be=20
proven that they have done it right. <BR>> <BR>> There are three =
other=20
companies that I know have that have tried to <BR>> do position sizi=
ng.=20
Two of them got it wrong. www.rinasystems.com <BR>and <BR>>=20
www.bhld.com<BR>> <BR>> The third is the athena program that is=20
mentioned in Van's book. I <BR>> haven't ever had the privilege of=20
playing with that program, but I <BR>> believe I read somewhere that=
it=20
used output files from trade <BR>> station. So, it would also fall i=
nto=20
the category of a program that <BR>> isn't truely implementing posit=
ion=20
sizing at the portfolio level <BR>like <BR>> Trading Recipes=20
does."<BR>> <BR>> To explain what he meant by doing it 'the right=
=20
way', here is what <BR>he <BR>> said: <BR>> <BR>> "TRADING REC=
IPES'=20
approach lets you combine trading signals and <BR>trade <BR>> sizing=
=20
strategies into simulations which exactly mimic the way you <BR>> wo=
uld=20
trade in real time. A core feature, which sets it apart from <BR>> a=
ll=20
other "money management" (or backtesting) software, is its <BR>> abi=
lity=20
to perform dynamic money management (DMM) and risk control <BR>at <BR>&=
gt;=20
the portfolio level. With DMM, position sizes are determined with <BR>&=
gt;=20
full knowledge of what's going on at the portfolio level at the <BR>>=
;=20
moment the sizing decision is made. Just like you do in reality. <BR>&g=
t;=20
Other software packages simply sum individual pre-calculated equity <BR=
>>=20
curves. This way, position sizes are calculated with no knowledge <BR>o=
f=20
<BR>> what the current portfolio conditions are at the crucial momen=
t=20
<BR>when <BR>> a position sizing decision is to be made. This is not=
how=20
you would <BR>> make decisions in reality and therefore such simulat=
ions=20
offer no <BR>> useful information to the trader. DMM avoids this=20
pitfall."<BR>> <BR>> TJ, will your approach be able to do DMM as=
=20
described above? <BR>> Personally, I have no desire to use any progr=
am=20
based on DOS. I <BR>think <BR>> the position sizing algorithm now=20
included in AB does almost what <BR>> this guy describes except for=
=20
scaling in and out of trades and <BR>basing <BR>> one's decisions on=
the=20
value of the entire portfolio of multiple <BR>> stocks rather than a=
=20
portfolio of one stock. <BR>> <BR>> Al V.<BR><BR></TT><BR><BR><TT=
>Post=20
AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx <BR>(Web pa=
ge:=20
<A=20
href=3D"http://groups.yahoo.com/group/amiquote/messages/)">http://group=
s.yahoo.com/group/amiquote/messages/)</A><BR><BR>Check=20
group FAQ at: <A=20
href=3D"http://groups.yahoo.com/group/amibroker/files/groupfaq.html";>ht=
tp://groups.yahoo.com/group/amibroker/files/groupfaq.html</A></TT>=20
<BR><BR><TT>Your use of Yahoo! Groups is subject to the <A=20
href=3D"http://docs.yahoo.com/info/terms/";>Yahoo! Terms of Service</A>.=
</TT>=20
<BR></BLOCKQUOTE><BR><BR><TT>Post=20
AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx <BR>(Web page=
: <A=20
href=3D"http://groups.yahoo.com/group/amiquote/messages/)">http://groups.=
yahoo.com/group/amiquote/messages/)</A><BR><BR>Check=20
group FAQ at: <A=20
href=3D"http://groups.yahoo.com/group/amibroker/files/groupfaq.html";>http=
://groups.yahoo.com/group/amibroker/files/groupfaq.html</A></TT>=20
<BR><BR><TT>Your use of Yahoo! Groups is subject to the <A=20
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