|
PureBytes Links
Trading Reference Links
|
Am looking in a book called "The Commodity Futures Game" by Richard J
Teweles, Charles V. Harlow and Herbert L. Stone with copyright of 69 and
later of 74.
They state Risk of Ruin R is equal the quantity of 1- A divided by the
quantity 1+ A and with this result raised to the power of C. The letter A
represents the traders advantage expressed in decimal form. For example if
one might expect to be successfully .55 of all his trades. C is equal the
number of units he breaks up his capital for trading units. For example if
you risk 5% of your total capital in each trade C = 20.
The book gives an example of A = .10 the traders advantage, using 25% of his
capital on each trade makes C = 4. Thus [(1-.1)/(1+.1)]raised to the fourth
power provides .45. This means that the trader risks are 45% of eventual
ruin. It can be shown that using a smaller fraction of ones capital for each
trade will decrease possibility of ruin.
The book references "An Introduction to Probability Theory" by William
Feller 1957 as a good source.
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx
[mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Guy Tann
Sent: Tuesday, June 27, 2000 5:13 PM
To: metastock@xxxxxxxxxxxxx
Subject: RE: Risk of ruin, amount per trade formula?
Mike
We used the Vince book. Seems to work for us. We discovered that we were
running a 100% risk of ruin. We modified our methodology and went to a 0%
risk of ruin. You wouldn't think there would be that big a difference
between investing 50% of your capital and 33%, but our account balances have
proven it out. :)
Guy
Paranoia...you only have to be right once to make it all worthwhile!
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
Behalf Of Mike Campbell
Sent: Tuesday, June 27, 2000 10:07 AM
To: metastock@xxxxxxxxxxxxx; quotes-plus@xxxxxxxxxxx
Subject: Risk of ruin, amount per trade formula?
Some time ago I saw a formula that spit out the amount of capital (as
a percentage) that you should devote to any given trade based on the
number of wins, number of losses, average dollars made per win, and
average dollars lost per loss.
The theory being that if you devoted LESS than this per trade, you
were not making as much as you could, and if you devoted MORE than
this per trade, your risk/reward ratio went up (increased risk of
ruin).
Anyone have this formula handy? I'm trying to comparea couple
different systems to each other and while this formula may or may not
be what I use to determine how much to put into a trade, it seems
useful for comparison purposes.
Thanks in advance,
Mike
|