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RE: Money Management Stops



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Your last part is very interesting Guy.  Of course having consecutive losses
can always be a sign that your system stops functioning. But if we have a
GOOD system and you tested and back tested it thoroughly over many different
market types and it is NOT OVEROPTIMIZED, shouldn't we believe in our system
and stick with it ?  I guess you with all your experience can know.  If you
have a GOOD system 70% prof. (tested & backtested well) and it shows 2 or
more consecutive losses (which RARELY HAPPENS on such a system) what is
mostly the outcome of the next trade in real live ?  Is it mostly a losing
trade and thus system stops working, means I'm completely wrong and so is
LARRY WILLIAMS.   Or is it mostly a winning trade, there is always the
probability that it can be a losing trade but then next trade has higher
probability.  Of course to take this to your advantage you need to work with
stops other ways those trades take you out in no time.

Al I was thinking is if you have a good thoroughly backtested system and it
is deviating through a consecutive loss, isn't there a way to take advantage
from in order for the system to come back to its mean ? Kevin don't be
taking old cows out of the river now. I said that the roulette example was
WRONG. I guess you guys never read books from LARRY WILLIAMS, which SUPPOSE
to be a very profitable trader who proved it already many times. Or is he a
gambler as you said because he uses it to its advantage.

Greetings
Mickey

> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of Guy Tann
> Sent: dinsdag 18 april 2000 3:45
> To: metastock@xxxxxxxxxxxxx
> Subject: RE: Money Management Stops
>
>
> Kevin
>
> I'm not sure whether I agree with any of the gambling
> analogies when used
> for comparison to trading the markets.  My primary reason for
> this is that
> in gambling (roulette and craps are examples) your analogies are 100%
> correct, IMHO.  When compared to blackjack, there are some
> variances based
> upon the play of players before and after you that impact the
> deck and the
> play.
>
> When compared to trading the market, I don't think these analogies are
> applicable at all.  Again, that's just my opinion.
>
> I'll agree that it's possible to have 1,000 events go against
> you in a row
> and then have 1,000 go for you in a row.  However, if in testing this
> system, you ever decided to trade it, you would be broke in
> no time at all.
>
> If on the other hand, you develop a system that is capable of
> 80% profitable
> trades, proper testing would give you some idea as to the
> distribution of
> these losing events.
>
> In our case, even when we develop a new weighting schema, we
> back test the
> system for 6 months, 5 years and 18 years.  While we're
> primarily interested
> in the last 3 years, we also need to see how the system would
> have done in
> the real world over a longer period of time.  Rather than
> manufacturer a
> random list of numbers going back many years, we just use the actual
> market's performance over that longer period.  In our case,
> again, large
> losses are exceedingly rare, thank goodness.  Repetitive
> losses are also
> very rare.  On average, for the past 15 years, we average no
> more than 6 or
> 7 losses a year while still maintaining our minimum
> profitability ratio of
> over 70%.
>
> If in back testing, we ever encounter repetitive losses of
> the type you
> describe, even while still maintaining good profitability, we
> would never,
> ever trade it.  In all of our back testing, we take
> repetitive losses into
> consideration as well as the system's profitability.  A
> system that wipes
> you out without giving you the opportunity to make a "come
> back" is hardly a
> system.
>
> Regards,
>
> Guy
> Fax (630) 604-1589
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On
> Behalf Of Kevin243@xxxxxxx
> Sent: Monday, April 17, 2000 4:53 PM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Money Management Stops
>
> The answer is no.
>
> It is completely possible to have a 1000 events go against
> you in a row and
> then have another 1000 go for you in a row.
>
> The point is that you could be wiped out before the reversion
> back to the
> mean.
>
> What you are describing is like doubling your bet each time you lose
> figuring
> eventually, you will win.  Not true.  You will eventually
> find a streak that
> breaks your bank first.  Play long enough, and you will
> eventually lose
> everything.  The house is counting out that.  The house has a positive
> expectancy, you the gambler does not.
>
> Kevin Campbell
>
> In a message dated 4/17/00 7:43:39 AM Central Daylight Time,
> Michel.Amelinckx@xxxxxxxxxx writes:
>
> > Thanks for helping me out here.  I guess my explanation was not very
> >  understandable. And the example of the roulette table was
> even worse
> >  actually it was WRONG because of course you still have the
> 0, so this was
> >  WRONG.
> >  What I just tried to say, like described here below is if
> you have a
> system
> >  with 70% prob. (of course these statistics are as good as
> you test them)
> and
> >  your system shows 4 or more LOSES IN A ROW. And because of
> this it is
> >  deviating from your mean and thus the prob. of the next trade being
> correct
> >  is higher. (There is of course a change that your system
> stops working at
> >  that point)
> >  Is this incorrect ?
> >
> >  Greetings
> >
> >  Mickey
> >  B
> >
>
>