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> What is really dangerous ( or seems to be in my limited experience ) is
> that the largest losing trade can take you out when trading at optimal f.
This is at the heart of all robust discussion on RV for sure, and why he is not 'well liked' ... I think a few have done their dinner trading Opt f.
A few more things:
- he doesn't advise us to put all of our assets into a system trading account
- the biggest loss, over a large N, has a high probability of being the largest loss we will encounter (>4 StDev losses don't come along that often
- anyone of us could be the unlucky SOB who experiences three 'non-correlated' systems all zig at the same time
- play around with the idea of designing systems where the BL can't jump the fence
- think about the outcome to your trading if you use RV's methods and apply them via instruments that have fixed losses e.g. options etc.
- the work he published is only the tip of the iceberg .. he left some juice in the orange!
--- In amibroker@xxxxxxxxxxxxxxx, "brian_z111" <brian_z111@xxx> wrote:
>
> > The optimal portfolio is a fascinating topic.
>
> I spent so much time on entries and systems etc. I am all panned out on that topic (except for clip [arbitrage] trading which is a different game altogether).
>
> I see maximising the portfolio as the ultimate trading challenge ... how close to 'fully invested' can we go without dying?
>
> Day in and day out people in this forum talk about indicators etc and barely a word about this magnificent challenge!
>
> > I gave been using some of the Vince ideas for my futures trading
> > and one of the biggest advantages it gives me is a way of keeping
> > myself sane - knowing how to size a position when you are getting
> > crushed or elated is important. It's great having a number to tell
> > you how greedy or scared to be!
>
> Hear, hear!
>
> Vince is pretty clear about the fact that he is preparing us to handle the big scares and giving us a chance to ease off the throttle before we hit the bend.
>
> I am amazed that he is not more popular.
> Over three years in this forum and barely a word about him.
>
> > To give you an idea of where I find optimal f useful:
> > - I stay well short of the optimal amount.
> > - Where it does come in useful is at the portfolio level.
> > - I trade a number of systems in futures:
> > - intraday Index and Bonds - Asian session
> > - intraday Bonds - European session bonds
> > - EOD Curve ( 3Yr Bond / 10 year Bond )
> > - EOD Bill Spread ( 90 day treasuries ) (This has been only
> > recent so no stats yet - trades go for weeks )
> >
> > Not sure if you would consider these as uncorrelated, but there
> > seems to be a measurable advantage so far in optimising at the
> > portfolio level. Not sure if this is an artifact or something that I
> > can use.
>
> Probably not but I am only guessing.
> I think that the reality of global financial markets hasn't truly sunk in yet, even after last year .... it was bizarre at one stage watching all markets around the globe moving in sync for a while.
>
> Only a measurement will tell.
>
> >I've been doing it in spreadsheets and it is a lot of work
> > to get it right.
>
> Implementing Vince et al, isn't the hardest maths going around ..... his early books include Basic and C code for his early models.
>
> His latest book has a couple of Java examples for his Leveraged Space Portfolio Model (I am not up to speed on that one yet).
>
> If there isn't AB implementations around already then it shouldn't be hard to write them.
>
> Eventually I will do it, and share it, if someone else doesn't beat me to it.
>
> >I also suspect that the number of intraday trades >which
> > are needed to be significant is way more than other time frames.
>
> I don't think so.
> Sample Error is a LAW - inviolable just like gravity.
> I am not a mathematician, but I also find the subject fascinating.
> To compensate for my maths naivity I spent a lot of time 'in the lab' using Excel to test randomness and sample error ... I found sample error to be theory that is water tight in the real world.
>
> I have been nagging the forum about it ever since ... I found that I had to perform repeated lab runs, and eyeball the end results, to convince teach myself to believe in the power of variance .. the variance that a 50/50 fair coin toss can produce is intuitively 'unbelievable'.
>
> I have a little bit of interesting work (observations mainly) on propagation of sample error and the flow on effect that has on our evaluation metrics ... haven't posted it anywhere because it is very raw and posting/explaining takes up a lot of time.
>
>
> > The other thing I've noticed about optimal f ( at the itnraday >level at
> > least ) is that it is moves around more than I expected it to. >Once
> > again this could be due to what i think is greater noise at the intraday level.
> > To give you an example, after 50 backtested trades I get on optimal
> > f of 0.55. Vince suggests that 30 trades should be sufficient - but >he
> > does acknowledge that opt f does move around. Anyhow, now I'm
> > trading, and I get to
> > - trade 80 ( 50 backtest, 30 actual ) opt f is 0.60
> > - trade 109 ( 50 bt, 59 actual ) opt f is 0.36
> > - trade 191 ( 50 bt, 141 actual ) f is 0.45 and finally seems to be
> > getting a bit more stable.
>
> I have been the lone voice in the (forum) wilderness ranting against the sample error propaganda machine.
>
> N == 30 came from academia ... 30 is around the number of data points where certain (important to academia and sometimes relevant to traders) stats become useful i.e. namely probability distributions that become normal.
>
> Mathematicians are paid (salaries) to make their mistakes ... whereas we have to pay for ours.
>
> Plot sample error, as %, against N ... use a spreadsheet ... you will see that if you want consistency then anything below N == 1000 is a joke.
>
> Off the top of my head, your numbers are within the expected sample error for low N datasets.
>
> Optimal f is like the arithmetic mean ... it is asymptotic ... in laymans' terms that means it is very stable with time.
>
> Read RV again ... he is a brilliant educator and thinker .. his work is packed with relevant issues ... some just get a mention ... work each point around and you will see that all of the answers are there e.g. he does say that the higher the N the better.
>
> I am not one for making adjustments, based on short term analysis .. I wouldn't change my system or my staking on 100 current samples.
>
>
> > What is really dangerous ( or seems to be in my limited experience ) is
> > that the largest losing trade can take you out when trading at optimal f.
> > If you are trading a non-discretionary trading system at full f, then
> > you MUST pull the plug if you see the biggest losing trade coming your
> > way. I can't remember if Vince mentions it, but the backtesting/calcuation
> > of optimal f assumes that the biggest loss is in the past. Experience seems
> > to indicate other wise!
>
> Actually in the intro to one of his later books he gets really cranky about the fact that this is the common view of his work.
>
> He definitely said that the biggest loss is in the future.
> He also definitely said that we can expect massive drawdown if we want to trade with optimum growth (he is just a theoretician because he worked with Larry Williams in those heady days when Williams traded up $2M in one year and down 1.9 the next (or something like that ... so presumably Willims went out and did it, on Ralph's maths!)
>
> I thought that just told us that we should put more effort into designing systems with less variance in them ... plus the whole idea of non-correlated portfolios is to smooth the variance.
>
> (Your intraday example probably just has more variance in it than you are assuming? or understanding?)
>
> > I've put none of this into AB yet. I've still got the trial version! As soon
> > as I can tear my self away from exploring it I will buy it!
>
> That will be in a year or two :-)
>
> I hope you are not in a relationship .. AB is a relationship buster for sure!
>
>
>
>
>
>
>
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, i cs <ics4mer@> wrote:
> >
> > Hi guys,
> >
> > The optimal portfolio is a fascinating topic.
> >
> > I gave been using some of the Vince ideas for my futures trading
> > and one of the biggest advantages it gives me is a way of keeping
> > myself sane - knowing how to size a position when you are getting
> > crushed or elated is important. It's great having a number to tell
> > you how greedy or scared to be!
> >
> > To give you an idea of where I find optimal f useful:
> > - I stay well short of the optimal amount.
> > - Where it does come in useful is at the portfolio level.
> > - I trade a number of systems in futures:
> > - intraday Index and Bonds - Asian session
> > - intraday Bonds - European session bonds
> > - EOD Curve ( 3Yr Bond / 10 year Bond )
> > - EOD Bill Spread ( 90 day treasuries ) (This has been only
> > recent so no stats yet - trades go for weeks )
> >
> > Not sure if you would consider these as uncorrelated, but there
> > seems to be a measurable advantage so far in optimising at the
> > portfolio level. Not sure if this is an artifact or something that I
> > can use. I've been doing it in spreadsheets and it is a lot of work
> > to get it right. I also suspect that the number of intraday trades which
> > are needed to be significant is way more than other time frames.
> >
> > The other thing I've noticed about optimal f ( at the itnraday level at
> > least ) is that it is moves around more than I expected it to. Once
> > again this could be due to what i think is greater noise at the intraday level.
> > To give you an example, after 50 backtested trades I get on optimal
> > f of 0.55. Vince suggests that 30 trades should be sufficient - but he
> > does acknowledge that opt f does move around. Anyhow, now I'm
> > trading, and I get to
> > - trade 80 ( 50 backtest, 30 actual ) opt f is 0.60
> > - trade 109 ( 50 bt, 59 actual ) opt f is 0.36
> > - trade 191 ( 50 bt, 141 actual ) f is 0.45 and finally seems to be
> > getting a bit more stable.
> >
> > What is really dangerous ( or seems to be in my limited experience ) is
> > that the largest losing trade can take you out when trading at optimal f.
> > If you are trading a non-discretionary trading system at full f, then
> > you MUST pull the plug if you see the biggest losing trade coming your
> > way. I can't remember if Vince mentions it, but the backtesting/calcuation
> > of optimal f assumes that the biggest loss is in the past. Experience seems
> > to indicate other wise!
> >
> > I've put none of this into AB yet. I've still got the trial version! As soon
> > as I can tear my self away from exploring it I will buy it!
> >
> > Z
> >
> >
> >
> >
> >
> >
> > ________________________________
> > From: brian_z111 <brian_z111@>
> > To: amibroker@xxxxxxxxxxxxxxx
> > Sent: Tuesday, 5 May, 2009 12:08:28 PM
> > Subject: [amibroker] Re: testing multiple systems simultaneously
> >
> >
> >
> >
> >
> > Have you guys read Vince .... the first book, chapter 6, "The Total Portfolio Approach"?
> >
> > He gives a very good account of how to construct an optimal portfolio using system diversification ... it would be quite easy to implement in AB..... his mathematical modelling is quite straightforward. .... basically he nets the (special case) period returns (as growth factor) of each system .... net (portfolio) geometric mean == reward and variance of the net (portfolio) geometric mean == risk.
> >
> > He also discusses Markowitz and the Capital Asset Pricing model and briefly shows why the 'geometric mean portfolio strategy' is a valid extension of those models.
> >
> > I'm not a Vince, or a portfolio, guru and I don't have the time for an in depth project at this stage ..... just some quick comments ... scanning your posts it seems that an understanding of the theory, or some portfolio theory, needs to precede the implementation ... IMO:
> >
> > - each system should be optimized independently first
> > - systems should be standardised to a common time frame e.g. daily returns
> > - correlation of the period returns of the already optimised systems should be measured (how are you all doing that in AB?)
> > - the only optimisation that is done at the portfolio level is allocation of capital (this is done on an iterative basis in Vinces model).
> > - I find that Money Management combined with equity curve analysis (of any kind) is logically flawed because Money Management varies the outcomes e.g.
> >
> > one trade series .... +10%,-10%;
> >
> > start $100 -> 110,99;// a 1% loss of capital
> > start $100 -> 110, add 890 capital -> 900;//approx 10% loss of capital
> > - an account can never be fully invested unless we find the HolyGrail of systems?
> >
> > Optimal f was developed specifically to minimise the drag on equity recovery caused by asymmetrical leverage i.e. it calculates the optimum staking to return equity to a postive state after the max loss has been encountered.
> >
> > - if you want to reopt then you will need to recalc 'all of the above again'.
> >
> > Out of curiosity ... are you finding it easy to come up with noncorrelated systems?
> >
> > --- In amibroker@xxxxxxxxx ps.com, "bh.hicks" <bh.hicks@ .> wrote:
> > >
> > > I am basically looking for a way to have AmiBroker run multiple systems concurrently in order to examine how trading multiple non-correlated strategies affect drawdowns. I think if there was a way to "name" an entry condition so that stops and position sizing rules could be applied to a particular entry criteria, it would be possible to do without too many changes to AB architecture.
> > >
> > > I can already do this in excel using exported equity curves but it would be nice to be able to do this internally so that the optimizer engine could be exploited.
> > >
> > > Is anyone aware of a technique to do this and if not, is this something others would find useful if integrated into a future version?
> > >
> > > As always - thank you.
> > >
> >
> >
> >
> >
> >
> > Enjoy a safer web experience. Upgrade to the new Internet Explorer 8 optimised for Yahoo!7. Get it now.
> >
>
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