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Hi Guys –
Remember that there is a limit to the
amount of doubling up that can be done when using Martingale money
management. One of the reasons casinos say $5 minimum $500 maximum is so
that Martingales hit the $500 limit and cannot recover the original $5
bet. Our own limits are our trading accounts. Do the arithmetic and
see how many consecutive losses it takes to hit you own person limit.
Then look at the summary of your trading system and compute the probability
that you will have that many consecutive losses.
Another reason to be wary of Martingale
systems is that they require ever larger bets as successive losing trades
occur. One of the methods many of us use to determine whether a trading
system is broken is by looking at the sequence of trades and / or the equity
curve. We Decrease trade size or stop using a system when it is taking
serious losses. Martingale systems require Increasing the size of the bet
/ trade when losing.
Howard
-----Original Message-----
From: palsanand
[mailto:palsanand@xxxxxxxxx]
Sent: Tuesday, October 28, 2003
9:23 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: Managing
drawdowns (was % channels)
Dave,<span
>
There is a good link I came across:
<a
href="">http://www.arbtrading.com/moneymanagement.htm
I like the Anti-Martingale and Martingale
(doubling up) systems to
manage drawdowns. I would use a combination
of these systems, so
that when I'm losing money I would use Martingale
system and when I'm
finally making money with the final position, I
would be
automatically switched over to Anti-Martingale
system, but may most
likely exit losing positions at break-even
price. I would double up
only when I get stronger signals verfied by OB/OS
conditions in the
subsequent session, so that my system of using
3BSMA for the next
session is temporarily suspended. It does
take usually about 3 days
for a trend-change to fully develop. I would
not double up beyond 3
consecutive days, because if you are wrong 4 times
in a row, most
likely the market is starting a new trend in the opposite
direction
and will go against you and so better to
exit. I have done this many
times, as I find it impossible to optimize my
entry points. But the
safest course is to wait for the actual
Trend-change signal verified
by OB/OS conditions, then you may never have to
double up but you may
miss some signals. This may sound crazy for
some but it does seem to
work for me especially with the AFL pivot points
to predict the Next
bar approximate High/Low of Day and appropriate
position sizing.
Regarding whether your system has stopped working
or not, it is hard
to say. I would try to improve the system
performance using a system
of filters, stops and walkforward testing.
Easier said than done...
Regards,
Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Dave
Merrill" <dmerrill@xxxx>
wrote:
> I've been wondering, could I trade a system
with 50% average gain
per year
> since '95, and max system drawdown of 40-50%.
even if I've seen
that in
> backtests beforehand, could I really look at
that kind of drop in
my account
> and still believe I was doing the right
thing? or would I think
it'd finally
> just stopped working? and if I am able to
ignore that much
drawdown, how
> would I know if it really *had* stopped
working?
>
> by the half-the-gain-twice-the-drawdown
tolerability rule, this is a
> non-starter.
>
> dave
> Defense ... Yep or as I've said
it's not what you make, it's what
you
> keep. DD's are killers from
lots of aspects not just in terms of
> what they do to your account
balance but also what they do to ones
> ability psycologically to trade
and stay with systems that do
work.
<font size=2
face="Courier New">Send BUG REPORTS to
bugs@xxxxxxxxxxxxx<span
>
Send SUGGESTIONS to suggest@xxxxxxxxxxxxx
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