Re: Money Management Stops

["Glen Wallace" <gcwallace@xxxxxxxx>]

Bhanja:

You just hit upon the classic problem with money management stops.  As soon as
you squeeze the exit parameters to reduce the maximum loss, your profit begins
to degrade and your win rate falls off.  You'll probably see your average-win
to average-loss ratio climb, but overall your system worsens.

In my opinion, it is a delicate balance between minimizing the risk of an
unbearably large loss and reduced profits.  Personally, I run several
variations and then compute overall system profit after factoring in
position-sizing and risk of ruin.  Then I apply my patented Ulcer Test to see
if what I came up with is tradable.

I know Chuck "Mr. Exit" Le Beau monitors this list, and I also know Steve
Karnish has strong feelings about the effect of money management stops on a
system, so this topic would make for an excellent discussion.

Regards.


----- Original Message -----
From: Dr. R.BHANJA
To: metastock@xxxxxxxxxxxxx
Sent: Monday, April 10, 2000 11:17 AM
Subject: Money Management Stops

Can any body give an idea on how to set the exit parameters settings in a
system building exercise. Two things needed to be set "Money Management Stop"
and "Exit Parameters". While fixing the exit parameters first I am getting
good winning trade% and average win to loss ratio with a respectable profit.
But since the drawdowns are more I tried to put the Money Management stops but
here the system got deteriorated. My money management stops are coming some
where around 15% of the entry point to get the good result. But this is
frightening. So I am trying with other set of entry models.
Can any body have the idea what should be an acceptable money management stops
people do follow. At what point this stop should be tested during a system
building exercise and while fixing this stop what parameters one should check
(I mean winning % or net profit or drawdown or average win to loss ratio).
BHANJA