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If your system had a win ratio in the 30-55% ratio I totally
agree with you Dennis. I'm not sure that this is the case
for a system with a similar expectancy but a 70-80% win
ratio.
What I may not have explained is that when you hit max
historical drawdown you still need to react to it. The
original poster reacted by stopping trading until the system
recovered to a certain point or he found out why it had
died. I think he uses a high win ratio discretionary
approach. My tests were based on moving to a reduced bet
size (30% for a 30% drawdown) instead at a certain fraction
of historical max drawdown (like 85% or 100%) because I have
been trading trend following systems that do tend to "fail"
from time to time and then recover next month (like April
this year).
I havent been able to do montecarlo analysis on the two
scenarios but will certainly do that when I get Alex's
software.
John
----- Original Message -----
From: "DH" <catapult@xxxxxxxxxxxxxxxxxx>
To: "Omega List" <omega-list@xxxxxxxxxx>
Sent: Saturday, July 27, 2002 9:55 PM
Subject: Re: Any Ryan Jones Money Management Fans? --
another method
> I found
> that if you had long strings of loosers (as you'd expect
> from time to time especially with a low win ratio medium
> term system) then optimal F was much better. If, however,
> you had a system with a high win ratio (and thus lacking
> many long strings of loosers) then you were better off not
> reducing the bet size.
That about covers it. I never used to reduce size because I
had done all
my money management testing on "decent" systems. However,
Gary F.
finally convinced me it was foolish. I was being stubborn so
he sent me
a spreadsheet to simulate what happens if a good system goes
bad. That
was all it took to change my mind. You never know what the
future holds
and preservation of capital is job one. If your system blows
up, for
whatever reason, and you don't reduce size, you will be out
of the game
by the time you accept that it's broken and not just a
temporary
drawdown. So, I decided it's better to accept a little less
return for
far less risk of ruin.
--
Dennis
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