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Re: Risk of Ruin



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Guy;

That's great that you never had three losers in a row but I am sorry that 
does not convince me. The point is that with 75% winner (which is great) your 
chances (if I can call that chances) of hitting 3 losers in a row are 6.25%. 
This is not a percentage that you can dismiss like that. As a matter of fact 
this is your risk of ruin (OK, I consider that when you are down 70%, you are 
dead and will most probably not come back). Our job is to deal with 
probabilities.

To try to be constructive to this list and not to look that I am criticizing 
for the sake of it, here are some statistics that should be looked at in a 
system. This is of course not exhaustive and there is no "good" or "bad" 
answers but in my opinion the following points deserve consideration:
 
Largest Daily Cumulative Drawdown at portfolio Level:
Time of recovery:
Winning Percentage:  
    Frequency Distribution of Daily Portfolio Returns: 
    -3% or below, -3% to -2%,-2% to -1%. -1% to 0%, 0  to 1%,  1%  to 2%, 2% 
to 3 %, 3% and above. 
Time in the market:  (Everything equal, a system that is 50% of the time in 
the market will be rated higher than a system that is 75% of the time in the 
market. A system that is always in the market is obvyoulsy the worst)
    Gain/Loss Ratio:  
     Average Gain/Average Loss: 
     Average days (hours for day traders) in winners: 
     Average days in losers:   
    Strings of Trades - Maximum Consecutive Winners :  
                                  Maximum Losers  : 
    Edge per Trade: (average win per trade * winning percentage)/(average 
loss per trade * losing percentage)
Impact of five best trades:
Impact of five worst trades:

I hope this may help some who are looking for a professional approach. It is 
not necessary to reinvent the wheel. They are some principles that are widely 
accepted because they are based on sound mathematics. It does not mean that 
some rules can never been violated (rules are made to be violated) but it has 
to be done knowingly, not relying on some lucky experience. 

Jean Jacques