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>
> A fellow by the name of Ryan Jones has developed and/or promotes a
> money management concept called "Fixed Ratio". BTW, this not "Fixed
> Fractional". The two are entirely different.
>
There is a discussion about this on another list. Here are some recent
(one-sided) submissions. Can someone cite what Vince says on p. 77 of his
book about why he allegedly rejected Fixed Ratio? Jones admits that Fixed
Fractional is the way to go if you have a very large sum of money to invest
but I do not have Vince's book.
Wes Williams
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From: Ted Annemann <teda@xxxxxxxxx>
The typical mathematical relationship for money management,
shares2trade = function(equity)
is defined IN REVERSE by the proponents of Fixed Ratio.
Instead FR defines
equity = function(shares2trade)
using the recurrence relationship
equity(n) = equity(n-1) + (n-1)*DELTA
where DELTA is a constant of the Fixed Ratio method, selected according to
the trader's risk avoidance / risk seeking profile.
As is plain for all to see, this recurrence relationship is simply the sum
of an arithmetic sequence (see algebra textbooks for a derivation). The
polynomial form of this sum is an overnight homework problem assigned to 15
year olds. Its solution is a straightforward polynomial of degree 2.
Knowing the functional form of
equity = function(shares2trade)
it is now easy to deduce the functional form of
shares2trade = function(equity)
Knowing this, I urge you to have a second look at the Bible of Fixed
Fractional Trading, also known as "Portfolio Management Formulas" by Ralph
Vince (ISBN 0-471-52756-4), specifically page 77. Please read that page
from top to bottom, it won't take more than 5 minutes. As you can plainly
see, the Fixed Ratio algorithm is neither new nor superior. Copyright 1990
by Ralph Vince.
Study and think independently. The rewards are immense.
TEDA
On Sat, 26 January 2002, "Mike" <pooltreatments@xxxxxxxxxxxx> wrote
>
> Fixed Fractional and optimal f both have some nasty
> characterisitics like increasing size too slowly at first and to fast
> later, as well as large exposure to loss.
>
> For a much better method I would suggest reading Ryan Jones
> Book, the trading game in which he explores all these mothods in
> great detail.
>
> Mike
From: Ted Annemann <teda@xxxxxxxxx>
Dennis Holverstott writes
>
> Short versions....
>
> Vince: contracts = factor * equity
> Jones: contracts = factor * squareroot(equity)
>
Yes exactly. Furthermore, Vince's 1990 book mentions +both+ of these
formulations (page# cited yesterday) before embracing the first one and
rejecting the second. Five years later, Jones comes out with "Performance
I" software to automate the second one, waits another four years, and writes
a book. Holy plagairism, Batman!
TEDA
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