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Anthony,
Well, it is incomplete. You are assuming an arbitrary %Risk/trade
and an arbitrary Adverse_move. %Risk/trade is determined by the
PRRR mentioned before and %wins of your system. Adverse_move is not
determined by volatility. It depends on the fundamentals. Also,
you are not taking into account, exchange rate, price change/row and
the value per market unit. My algorithm is proprietary not because
of choice. Your algorithm is good, but not good enough for me to
consider it a holy grail...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso" <ajf1111@xxxx>
wrote:
> 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
>
>
>
>
> Check AmiBroker web page at:
> http://www.amibroker.com/
>
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>
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