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Let's not all get too excited about the merits of fixed-ratio vs.
fixed-fractional betsizing.......
without a decent system, these betsizing schemes only get you to the poor
house faster.
Either one will do it just as well.
No question, the Rate of Decrease (ROD) is critical when you are leveraged
to-the-max.
However, my research has show the ROD technique and actual decrease amount
are highly dependent upon the system being used and moreover highly
correlated to the sharpe ratio of that system.
And let's all acknowledge that Mr. Jones is no longer in the top 3 in the
Futures division of the www.robbinstrading.com championship. No response has
been forthcoming by Mr. Jones as to his recent failure, nor does
robbinstrading divulged his exact standing DESPITE NUMEROUS REQUESTS.
http://www.robbinstrading.com/worldcup/futures/standings.asp
> -----Original Message-----
> From: Mark Johnson [mailto:janitor@xxxxxxxxxxxx]
> Sent: Monday, December 24, 2001 12:06 PM
> To: omega-list@xxxxxxxxxx
> Subject: Re: Fixed Ratio Function
>
>
> Congratulations to Ken Lindauer for applying
> the Quadratic Formula to get the closed form
> expression for #contracts = f(equity). Also
> congratulations for making the more subtle observation
> that Jones's formula depends, in fact, upon
> NetProfits *only*, and not [for example] on
> the amount of starting equity in the account.
> Thus we have the paradoxical result that if
> two traders, Alice and Bob, start trading
> some system like Oddball at the same time,
> but Alice starts with $300,000 and Bob starts
> with $30,000, the given formula will have them
> trade the exact same number of contracts,
> on the first trade (when Alice has 10X more
> money than Bob) and on all subsequent trades.
>
> However, please remember that this is only the
> easy part. This is the part that Jones calls
> "Rate of Increase" or ROI. The *hard* part is the
> part that Jones calls "Rate of Decrease" or ROD.
>
> The reason why ROD is difficult is that you need
> access to the entire portfolio-level equity history
> stretching back to the first day of trading.
> Unlike ROI, ROD is "path dependent" -- what you
> do today is a function of today's equity AND of
> the historical events that got you to this equity.
>
> Behold! doesn't provide this. Trading Recipes doesn't
> provide this. Athena doesn't provide this.
>
> You can fudge it in Tradestation, as long as you
> are willing to have a "portfolio" containing only
> one tradeable and only one tradingsystem.
>
> So, as a result, most folks either pretend they
> never read those chapters of Jones's book, or they
> do some kind of roll-your-own specialized software
> to handle ROD. Jones himself used to sell a standalone
> program called "Performance I" which did perform the
> ROD calculations.
>
> Here's a little challenge for the math enthusiasts
> on the list. Jones says that he recommends switching
> from Fixed Ratio to Fixed Fractional once the account
> has grown in size. If this is a good idea, then
> there ought to be mathematical solutions to these
> problems:
> (1) invent a criterion whereby you can judge whether
> Fixed Ratio or Fixed Fractional is preferable, at any
> particular time.
> (2) using your criterion, find the OPTIMUM point at
> which it is best to switch from FR to FF.
>
> Perhaps Jones's book already answers these problems;
> if so, I haven't been able to find those passages.
> --
>
> Mark Johnson Silicon Valley, California mark@xxxxxxxxxxxx
>
> "... The world will little note, nor long remember, what we
> say here..." -Abraham Lincoln, "The Gettysburg Address"
>
>
>
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