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Steve,
OK, more opinion, lol. As I said in my first post I developed my own
methods after reading the book. They just so happen to be variants of
fixed ratio which must be modified fairly extensively in the first
place to trade stocks which is what I trade. And then there's my slant
on it in addition. I wouldn't call your email critique of fixed ratio
(as it pertains to futures) very quantitative. By the way, does this
guy *really* trade "hundreds of minis at a whack" (like your "triple
degreed" engineer who turned out to only have a bachelors degree)? As
for your comment about my testing, you'd be better served to talk
about things you have direct knowledge of. You have no clue what kind
of testing I did, how much, what variants I tested, on which systems,
or the extent to which I've actually traded this in real time.
Speaking of testing, I wouldn't call what you posted (in Message 50839
Robustivity) robust by any yardstick I'd use, so you may want to focus
on your own testing instead of mine. Now I'm *not* saying that you
haven't traded this or a variation of it successfully, with or without
bells and whistles, I just wouldn't call what you posted robust. Is
that why you used "robustivity" instead? My bottom line on fixed
ratio is that anyone serious about money management should
*quantitatively* test it with MCS on their own and decide for
themselves, based on *their own *analysis**, what part of it to use or
avoid. This bottom line is based on my personal analysis and
experience, not opinion, and certainly not someone else's opinion.
Let's move on.
Regards,
Mark
--- In amibroker@xxxxxxxxxxxxxxx, "CedarCreekTrading" <kernish@xxxx>
wrote:
> 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
>
>
> ----- Original Message -----
> From: MarkF2
> To: 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
like
> Van Tharp's material and that's what got me "turned on" to money
> management and position sizing in the first place. But I've got
to
> tell you that my home brewed variation of Ryan's fixed ratio
method
> works better on my systems from a risk/reward standpoint than what
> I've learned from Van Tharp. The criticisms I've seen of Jones'
book
> have all been anecdotal. I'd love to see a *quantitative*
analysis to
> back 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
this
> book. They all seem to find logic flaws in some of the chapters
(I
> read it twice and have little or no opinion). Are you familiar
with
> Ryan's disastrous trading record? Ryan has spread some bad
"juju" in
> Colorado. 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 do
> think
> > that the latter is certainly viable while the former is not.
How
> to do
> > better? I'd recommend reading The Trading Game by Ryan Jones
*and
> > then running simulations* of the tradeoff between equity
growth
> and
> > drawdown for the various methods *for your trading systems*.
I
> > developed my personal favorites after reading this book but
> everyone
> > needs to look at their own curves from their own simulations
for
> > themselves to see what suits them best. This is a tedious
> project and
> > not much fun, but well worth the effort in my opinion. BTW,
if
> you
> > look at the reviews of this book on amazon, there are some
> *incredibly
> > ignorant* ones by people who obviously didn't take the time to
> dig 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 while
> applying
> > > > them. Every time I mention simulation everyones' eyes
glaze
> > over,
> > > but
> > > > if you're not using it for position sizing or money
> management 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:
> > > > >
> > > > > 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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