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Rich:
I can certainly relate to your sense of conservatism, but Fixed Ratio
accomplishes this only by restricting upside potential. This restriction is
not in response to increased or changing risk, but rather to the account
getting large.
On the other hand, the higher returns in the early years are accomplished
simply by accepting increased risk. Now, increased risk (as compared to
Spear's fixed percentage system) may be warranted, but the underlying flaw
I found with Fixed Ratio is that you just cannot quantify risk, so you never
really know how dangerous or overly-cautious you are trading.
Glen
----- Original Message -----
From: Rich Estrem <estrem@xxxxxxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: September 7, 1999 10:31
Subject: Re: RESEARCH RESULTS ol: Fixed Ratio loses in a comparison
> At 09:26 PM 9/6/99 -0700, Mark Johnson wrote:
> >Over the Labor Day weekend, I decided to try out the
> >Fixed Ratio approach for choosing position sizes when
> >trading commodity futures. This scheme appears in Ryan
> >Jones's book "The Trading Game":
>
> -snip-
>
>
> Mark was kind enough to send me some details of these 2 tests,
> and I'd like to point out why I would choose the Jones
> method. FR (fixed ratio) is good at allowing size to increase
> faster in the beginning and then slow down and get more
> conservative as the acct gets larger. Below is the year ending
> acct balances from Mark's data for the first few years to
> illustrate:
> year spear jones
> 1987 113K 130K
> 1988 149K 199K
> 1989 212K 384K
> 1990 336K 608K
>
> From this point on, FF starts catching up and then blows
> by FR, since it is then trading larger size and risking
> more of the acct/trade than FR. At the end of the test,
> FR is only trading 29 contracts. Thats pretty small for
> being up 5 mil+ . FF is trading from 80 to 194 cnts.
> Jones talks about switching to FF after reaching a certain
> point in the acct, but we should all be so lucky as to
> have to worry about that. I'd rather see the better
> bottom line in those first 4 years.
>
> regards,
> rich
>
>
>
> ___________________________
> Rich Estrem, Tucson,Az.
> estrem@xxxxxxxxxxxxx
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