|
PureBytes Links
Trading Reference Links
|
Thanks for the reply, Dennis. So... if I understand your comments correctly,
if one trades with a standard/known risk per trade (stop of some sort), then
MC analysis can be useful in determining leverage/bet size in relation to
risk tolerance/reward. But what if one trades futures contracts with a
modest account size (not stocks, where the shares are easily scalable to bet
size) using a reversal system ( risk is not pre-defined)? It seems in this
case, MC analysis would be much less practical. Am I correct in this
assumption?
From: "DH" <catapult@xxxxxxxxxxxxxxxxxx>
To: "Omega List" <omega-list@xxxxxxxxxx>
Sent: Friday, April 19, 2002 6:07 PM
Subject: Re: Monte Carlo Simulations
> > what benefit are these obscure( IMO) probabilities?
>
> Money management.
>
> Most people can generally agree with the concept that you should never
> risk more than X% of your account on each trade. The question becomes
> how big is X? Monte Carlo can give you an answer for YOUR account,
> trading YOUR system, with YOUR risk tolerance.
>
> > : Specifically... what practical benefit is it to know that there's a
> > : 5% (or x%) chance my maximum drawdown (or any drawdown) will be
exceeded
> > in
> > : the next 60 (or however many) days? How does that help you make even
one
> > : decision regarding your trading other than raising a red flag as to
when
> > : your system may/may not be performing within a wide range of
> > probabilities?
>
> You seem confused about the concept. The MC is done during system
> development before you ever start trading the system. The practical
> benefit comes from deciding how big to trade. Can you handle a 50%
> chance of going broke (in return for a 50% chance of getting rich
> quick?) Or do you prefer a slow and steady approach with a very small
> probability of blowing out the account? The MC can tell you how much
> leverage to use to accomplish each of those goals.
>
> It's not for everybody and it's hard to do it right. If you don't
> understand it, forget about it. All it will do is confuse you.
>
> --
> Dennis
>
|