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Mark,
I looked through my emails for the last year and
came up with the following message. After reading his book, I asked for
opinions from my research associates and here's a response from a large money
manager (who really trades hundreds of minis at a whack):
"I read "The Trading Game" last weekend, and I was NOT impressed.
First off, I find it remarkable that people can get so much attention
for the radical concept of position sizing. I mean, are there that
many people out there who don't understand that you'll make more profits
(assuming a positive expectation) if you trade multiple contracts!?
Jones talks like scaling your size up is a huge
revelation. But ignoring that, I think his Fixed
Ratio approach is bogus. IMO his entire premise is flawed: he
looks at the per-contract profit it takes to move from 1 to 2 contracts, and
he says that it should take the same per-contract profit to move from X to
X+1 contracts. I.e. if you need $10k profit to move from 1 to 2
contracts, you should need $10k profit **per contract** to move from 100 to
101. You'd need $1M total profit to increase by 1
contract. I think this is flawed for 2 reasons:
first, it relies much too heavily on the size of the contract. The
entire leverage structure he computes would be totally different for, say,
$250 SP's vs. $500 SP's. But the big flaw is his use of additive
growth instead of percentage growth. Moving from 1 contract to 2 isn't
equivalent to moving from 100 to 101; it's like moving from 100 to
200! I think simple fixed-fractional approaches handle the position
sizing much more logically. What really honks me
off, though, is the way he cooks the books to make his approach look
good. Fundamentally what he's doing is using very high leverage when
the account is small, and backing off as the account gets big. This
has the advantage that it gets the small account off the ground &
running quickly. But it also exposes you to a lot more risk early
on. He uses all kinds of examples to show how the FR approach can take
a $X per contract loss with a much lower drawdown than FF -- but he
constructs his examples so that drawdown happens AFTER he's scaled back the
leverage. He conveniently neglects to mention that the FR approach
would BANKRUPT you if that same per-contract loss happened early on with
higher leverage. Add to that a host of logical and
math errors, and I was SERIOUSLY underwhelmed. My
advice would be to use a basic Fixed Fractional approach. Decide what
leverage works for you, taking into account your risk tolerance, the Optimal
F of your system (make sure you trade far UNDER the "optimal" F value), etc,
and just risk a constant percentage on each trade. As your account
grows, you may decide to back off on the leverage a bit. You can do
all that without the Fixed Ratio complexities."
"Extensively tested"? Isn't that what Ryan
did with his own account when he blew it up? Oh, maybe he sell books on
fixed ratio and then goes out and trades with a different style. Either
way, with or without FR, he did "blow up". And as John Candy used to say
on SCTV: "Wow, he blew up real good."
Take care,
Steve
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
MarkF2
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Thursday, October 30, 2003 11:57
AM
Subject: [amibroker] Re: Managing
drawdowns (was % channels)
Steve,See my post to Fred. I've *extensively*
tested this stuff. I likeVan Tharp's material and that's what got me
"turned on" to moneymanagement and position sizing in the first
place. But I've got totell you that my home brewed variation of
Ryan's fixed ratio methodworks better on my systems from a risk/reward
standpoint than whatI've learned from Van Tharp. The criticisms I've
seen of Jones' bookhave all been anecdotal. I'd love to see a
*quantitative* analysis toback up one of these opinions. There's
nothing subjective about this.Regards,Mark--- In
amibroker@xxxxxxxxxxxxxxx, "CedarCreekTrading"
<kernish@xxxx>wrote:> Mark,> > Some of the best
traders I know (running 10-plus million) hate thisbook. They all
seem to find logic flaws in some of the chapters (Iread it twice and have
little or no opinion). Are you familiar withRyan's disastrous
trading record? Ryan has spread some bad "juju" inColorado.
For my money, Van Tharp lays it out a bit better than Ryan.> >
Take care,> > Steve> ----- Original Message
----- > From: MarkF2 > To:
amibroker@xxxxxxxxxxxxxxx > Sent: Thursday, October 30,
2003 10:43 AM> Subject: [amibroker] Re: Managing drawdowns
(was % channels)> > > Hi Leo!>
> Let me elaborate. Although I wouldn't put $.02 on a
*simple*> Martingale or anti-Martingale method of money
management, I dothink> that the latter is certainly
viable while the former is not. Howto do> better?
I'd recommend reading The Trading Game by Ryan Jones *and>
then running simulations* of the tradeoff between equity
growthand> drawdown for the various methods *for your
trading systems*. I> developed my personal favorites
after reading this book buteveryone> needs to look at
their own curves from their own simulations for> themselves
to see what suits them best. This is a tediousproject
and> not much fun, but well worth the effort in my
opinion. BTW, ifyou> look at the reviews of this
book on amazon, there are some*incredibly> ignorant*
ones by people who obviously didn't take the time todig
in> to the material and do their homework which to me, is
running> simulations on all of the methods. I have
and trust me, lol,there's> good stuff in this
book.> > Best Regards,> >
Mark> > --- In amibroker@xxxxxxxxxxxxxxx,
"leonardot19"<leo.timmermans@xxxx>>
wrote:> > Hi Mark,> >
> > Which MM technique would you use than, can you give
an example> > please ?> >
> > Kind regards> >
Leo> > > > >
> --- In amibroker@xxxxxxxxxxxxxxx, "MarkF2"
<feierstein@xxxx>wrote:> > > Neither of
these is a technique I'd put $.02 on, quite easily> >
> demonstrated by bootstrapping representative trades
whileapplying> > > them. Every time I
mention simulation everyones' eyes glaze> over,
> > but> > > if you're not
using it for position sizing or moneymanagement or>
> > whatever you want to call it, you're flying
blind.> > > > > > --- In
amibroker@xxxxxxxxxxxxxxx, "palsanand"<palsanand@xxxx>
> > wrote:> > > >
Dave,> > > > > > > >
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 thesesystems,> 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, butmay > >
most > > > > likely exit losing positions at
break-even price. I would> double>
> > up > > > > only when I get stronger
signals verfied by OB/OSconditions in > > the
> > > > subsequent session, so that my system of
using 3BSMA for the> next > > >
> session is temporarily suspended. It does take usuallyabout
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 donethis> > > 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
upbut> you> > > may
> > > > miss some signals. This may sound
crazy for some but itdoes> seem>
> > to > > > > work for me especially with
the AFL pivot points to predictthe> > > Next
> > > > bar approximate High/Low of Day and
appropriate positionsizing.> > > >
> > > > Regarding whether your system has stopped
working or not,it is> > > hard
> > > > to say. I would try to improve the
system performanceusing a> > > system
> > > > of filters, stops and walkforward
testing. Easier saidthan > >
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 thatmuch > > > > 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 theydo>
to> > > ones> > > >
> ability psycologically to trade and stay with
systemsthat> do > > > >
work.> >
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