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Re: [amibroker] Re: Awesome trading system



PureBytes Links

Trading Reference Links

Even Trade size algorithm is proprietary these days.

//Shares to buy

Account=10000;

Risk=.03;//3%

Adverse_move=2*ATR(10);//points against.

BuyPrice=C;

SellPrice=BuyPrice-Adverse_move;





shares = (Risk * account) / (BuyPrice - SellPrice);

Filter=1;

AddColumn(int(shares),"Shares",1);AddColumn(BuyPrice,"BuyPrice");AddColumn(SellPrice,"Stop");

AddColumn(shares*C,"cost");

AddColumn(Adverse_move,"atr");











----- Original Message ----- 
  From: ed nl 
  To: amibroker@xxxxxxxxxxxxxxx 
  Sent: Saturday, October 02, 2004 6:09 AM
  Subject: Re: [amibroker] Re: Awesome trading system


  hi,

  I was refering to the example he gave with flipping a coin. If you win (your chance of winning is 50%) you make 200% of the amount of money you placed in that bet. If you loose you loose it all (100%). The question was how much of my account do I risk for each bet. The answer is 25%.

  Reading about your money management sounds to me like things I am already using and really are pretty obvious. I spread my risk by only using 5% om my account for each trading signal I get. Entry and exit are carefully planned and I calculate my systems using "worst case scenario" meaning if my entry signal tells me to enter on the limit at 22$ (long position) and the price opens at 21.50$ my backtest will chose 21.50$ as the buy price. In practice we will always have some slippage. Therefor I test my systems to enter at my buylimit (22$) or if the high that day was less than 22$ I enter at the high. And ofcourse include a stoploss for each trade

  I thought there was some kind of miracle fraction (the miracle fraction method) I could calculate so that my profits would explode. 

  Ed
    ----- Original Message ----- 
    From: Pal Anand 
    To: amibroker@xxxxxxxxxxxxxxx 
    Sent: Saturday, October 02, 2004 11:39 AM
    Subject: [amibroker] Re: Awesome trading system


    Hi Ed,

    Betting the farm. Let's be realistic. Not every trade is going to be 
    a winner. Here is a simple rule for you to remember. Never risk more 
    than 50% of your account equity for your total active portfolio 
    positions including new positions assuming that your Portfolio 
    Reward Risk Ratio (PRRR) is greater than 10.0 and the %wins of your 
    system is atleast 50%. When I was trading in Chicago I heard for the 
    first time about the "RIO TRADE". Simply put, you take a huge 
    position in the market. If it works out, you are a hero and rich. If 
    you lose, you leave home and head for Brazil never to be heard from 
    again. Remember, NEVER BET THE FARM ON ANY ONE POSITION.

    When you hear of someone making a huge killing in the market on a 
    relatively small trading account, more likely than not it was a 
    fluke: The trader was not using sound money management techniques. 
    The trader probably exposed his trading account to obscene risk due 
    to an abnormally large trade size. The trader may have just gotten 
    lucky and experienced a profit windfall. Trading like this means 
    it's just a matter of time before huge losses dwarf the wins, and 
    the trader is devastated emotionally and financially.

    Money management in trading involves specialized techniques combined 
    with your own judgment. Not adhering to a sound money management 
    program can find you exposed to a deadly risk of ruin, and, worst of 
    all, most probable equity bust. Keeping this in mind, you may find a 
    few essential money management techniques can make a big difference 
    to your bottom line. Here are some things to remember when it comes 
    to money management.

    CALCULATING PROPER TRADE SIZE

    If you are trading the exact same number of shares or contracts on 
    every trade, you may not be calculating the proper trade size for 
    your own risk tolerance. Trade size can vary from trade to trade 
    because your entries, stops, and account size are constantly 
    changing variables.

    To help reduce your risk exposure, the first step is for you to 
    believe you need this sort of program. Usually, this belief comes 
    from suffering a few large losses that make you want to change. This 
    kind of experience can enable you to see how the wrong trade size 
    and lack of discipline can sabotage your trading results.

    Calculating proper trade size is a relatively simple process and can 
    ultimately reward you with greater profits and more efficient risk 
    control. I calculate the maximum trade size using a proprietary 
    algorithm.

    Sorting out the criteria for a coherent money management plan is a 
    complex, detailed job. Using a spreadsheet to keep track of the 
    logic helps ensure nothing has been omitted.

    With a little planning, you can develop a logically sound money 
    management system. Historically, too much emphasis has been placed 
    on the development of profitable entry and exit rules, whereas the 
    determination of the proper number of contracts or shares to trade 
    has been treated as a distant afterthought.

    An individualized money management algorithm (using a spreadsheet 
    program such as Microsoft Excel) will control the equity growth of 
    any positive-expectancy system as a direct function of using correct 
    position sizing. Risking too large a portion of trading capital per 
    position will eventually cause even the most profitable trading 
    system to fail.

    The second advantage to developing your own position-sizing strategy 
    is to preserve trading capital during periods of extended drawdown 
    or losing trades. This saves you the money to trade when things 
    finally turn around. Unfortunately, many traders inadvertently lose 
    their hard-earned trading capital as a result of improper position 
    sizing. This becomes painfully obvious when they have risked too 
    much capital over an extended series of losing trades.

    I developed an effective money management algorithm using Excel 5.0. 
    It is based on the theory of using volatility-derived stop-losses as 
    a logical method to allocate capital. The logic behind using a 
    volatility-based stop compared with a fixed-dollar stop is that the 
    volatility-based stop can dynamically adjust to changes in a stock's 
    recent price noise. This contrasts to trading with a fixed-dollar 
    stop, which ignores volatility by forcing the placement of an 
    externally derived, subjective stop without considering the 
    underlying trade's true character.

    As an example, assume stock XYZ has traded within a range of $10 to 
    $12 per share over the last 14 days, with an average price during 
    that time of $11 per share and a standard deviation of $2. A stop-
    loss could be placed at the time of entry such that it is so far 
    away that it will never be touched except during rare events which 
    cannot be predicted in advance.   A stop loss is the core of any 
    system.  If the stop is vulnerable, so is the entire system.  The 
    stop loss could be moved when making profits, representing twice the 
    standard deviation of $2 per share if it has been determined that 
    the trend has caught up or if it has been determined that the trend 
    has not been caught up, then move the stop loss to entry point. 
    Setting the stop at this $4 per share risk acts as a useful proxy of 
    the stock's recent two-week normal price fluctuations. A stop-loss 
    placed at this level is now less likely to suffer whipsaw losses 
    solely because of a stock's normal price volatility.

    My algorithm allows a portfolio to grow at an above-average rate of 
    return while consistently controlling risk. You should examine the 
    assumptions inherent in my model and make changes in the values to 
    reflect your own overall risk tolerance and trading philosophy

    My algorithm is based on the following personal assumptions:

    1 The maximum number of open positions is limited to 15/per major 
    sector (Equity instruments, Interest Rate Sensitive instruments, FX 
    and Commodity futures).

    2. Assuming that your PRRR > 10.0 and %wins of your system is 
    atleast 50%, the absolute maximum % of closed equity to risk per 
    trade/major sector is 50% for 1 position, 25% for 2 positions, 
    16.67% for 3 positions etc.,.. all the way to 3.34% for 15 
    positions/major sector. 

    By the way the optimal trade-size should be 50% (not 25%) of the 
    capital risked for 1 position in the portfolio which is what the 
    optimum kelly criterion approaches for systems which have a 
    Portfolio Risk Reward Ratio (PRRR) > 10 and %wins > 50. The maximum 
    % for the portfolio decreases to 25% for 2 positions, 16.67% for 3 
    positions, and all the way to 3.34% for 15 positions. Again, the 
    exact percentage depends on the PRRR and the %wins (Expectancy) of 
    your system. 

    rgds, Pal

    --- In amibroker@xxxxxxxxxxxxxxx, "ed nl" <ed2000nl@xxxx> wrote:
    > hi,
    > 
    > you are obviously very knowledgeable but the problem I have with 
    your posts is that it feels like I am reading out of one of these 
    trading books where they claim to exactly know how to make good 
    profits and explain it in a very lengthy way and in the end when I 
    ploughed all through it I ask myself ..... what have I been reading 
    and haven't I been reading this before in some other book and what 
    did I learn? Can I use what he is saying? No actually not. 
    > 
    > All over the place you can read about the fact that money 
    management is the trick to increase your profits substantially. In 
    Ralph Vince his book I liked the example of the coin and what amount 
    (25%) of your capital you have to risk each time you place a bet 
    (the Kelly principle). All this leading to Optimal f  but for 
    trading with stocks I haven't found a use for it.  In my simple mind 
    I believe one simply has to have good timing skills but I would be 
    very happy to be convinced otherwise. 
    > 
    > Since you understand money management maybe you can explain what 
    you mean by it (optimal f or do you just mean that you don't put all 
    your money in 1 bet :) ). Maybe you could give a simple example why 
    for instance Optimal f would transform a marginally winning stock 
    trading system into a supersystem. I just don't see it. If you come 
    with concrete examples that make sense (I don't mind if you just 
    copied them from one of your books) I will be very happy to read it.
    > 
    > Maybe you can help me with this simple example: I trade Nasdaq 100 
    stocks. My capital I divide in portions of 5% per trade. It is a 
    swing system of which 60% of the time I win. On average the winners 
    are the same as the losers in percent. What money management should 
    I now use to make this sytem increase it's profits more rapidly.
    >  
    > thanks, Ed




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