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Re: Risks - Pyramids - MaxDD ...I need your thoughts



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Andy Dunn wrote:
> 
> Let me give you a sample of a system I am playing with...I want to show a certain type of pyramidding and if it is mathematically safe.
> 
> ...
> I then add the following line into the trading system
> 
> if netprofit <= 12000 then value1=1;
> if netprofit > 12000 then value1 = (netprofit/6000);
> 
> If bla bla bla then buy value1 contracts tomorrow at open;
> If bla bla bla then sell value1 contracts tomorrow at open;
> 
> ....
> 1. Is this LOGICAL?
> 2. Is the MaxDD $2,800 or $119,637 or something in between?
> 3. I think Kaufman would argue that in the first system risks are constantly decreasing, but in the second system...risk is a constant....does this constant risk mean this is a time bomb? Got any simple math to prove it?
> 4. Can a MonteCarlo simulation be done on this system or does this again not work since postition size increases with netprofit...so the odds of a huge drawdown really early actually don't exist since the contract quantity traded early on would be very low.
> 5. Can this system be traded with $2,800 or even $10,000...rather than $120,000?
> 
> 


I am a systems newbie but;   Could you do a monteCarlo sim. on the one
contract system to get the worst "conceivable" drawdown (DDMC) per
contract. Then use #contracts = equity/DDMC or equity/(n*DDMC)?  

How does one do a monteCarlo simulation.  (My understanding is that this
is taking the trades in a random order to get a better idea of what
drawdowns might be.)  Is there software to do this?

									Conrad Bowers