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Thanks Ed. I have modified my available_equity = 0.5 * Usable_Margin
equation which previously used 0.42 as the coefficient. I then
divide the available_equity equally among the positions I intedn to
trade (diversification). This way I can enter at MOO (previous days
close price) and double up at High of Day/Low Day as predicted by the
AFL pivot points code, with the assumption (hope) that MOO is the
best price to enter and that predicted High/Low of Day may never be
touched. This method may approximate the kelly formula method of
using 0.25 as the optimal fraction of the available_equity.
Also, I came across some interesting code which might be of use:
$max_risk_per_trade = .025; #never lose more than 2.5% per trade
$risk_in_trade = $entry_price - $sell_stop; #percent decline to hit
stop
$coeff = $max_risk_per_trade / $risk_in_trade;
$shares_to_buy = ($coeff * $equity) / $entry_price;
There are also a lot of money_management formulas built-in into AFL
in AB. I don't know how exactly to include these formulas with my
available_equity formula to further enhance money_management. Any
thoughts?
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "ed2000nl" <pablito@xxxx> wrote:
> money management is an interesting topic. Is anyone using "Optimal
f"
> or other ideas by Ralph Vince? It doesn't make too much sense to me
> that once you have a winning system one needs to calculate the
> optimal fraction for each wager so I never looked at it in detail.
>
> Interesting though is the example of the Kelly method. The problem
> is: what fraction of your account should you use for each bet /
wager
> to maximize your profits as fast as possible when the chance to win
> is 50%. Further constraints: a winning trade gives you a 200%
return
> and a losing trade gives a 100% loss. The answer is: 0.25 (this you
> can calculate using the Kelly formula but it is easy to simulate
the
> situation with a little program).
>
> Then I had the idea to treat my trades as "discrete" bets / wagers
in
> order to find an optimal fraction of the account or just to find
out
> if a system could be profitable. I had the idea to use 1/100 of my
> account for each bet and take a profit quickly at 2% and use a
> stoploss of 100%. In situations like this your system needs to be
> pretty good. But the higher your stoploss the greater the chances
are
> that one day it will make a profit. And choosing the entry point
> carefully, chances are pretty good you will be able to sell it with
a
> 2% profit.
>
> I like the idea of exposing just a small amount of the account to a
> single trade and also to take a profit quickly.
>
> I must say I didn't finish working on these ideas yet in detail....
> since I am in the process of switching to Amibroker. But I would
like
> to read about other ideas about "money management"
>
> rgds, Ed
>
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Howard Bandy" <howardbandy@xxxx>
> wrote:
> > 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@x...]
> > Sent: Tuesday, October 28, 2003 9:23 PM
> > To: amibroker@xxxxxxxxxxxxxxx
> > Subject: [amibroker] Re: Managing drawdowns (was % channels)
> >
> >
> >
> > Dave,
> >
> > There is a good link I came across:
> >
> > 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.
> >
> >
> >
> >
> >
> >
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> >
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