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I'm surprised Chuck Le Beau would come up with such superficial and
incorrect
Analysis..the bottom line here is easy:
1. If your system has a ZERO or NEGATIVE expectancy the optimal bet
size is ZERO.
2. If your system has a POSITIVE expectancy then increasing bets size
as your
account grows is optimal.
END OF STORY...no ifs of butts..this is 100% accurate and the judges
decision is final.
Adrian
> -----Original Message-----
> From: John Lynch [mailto:kiwi_trader@xxxxxxxxxxxx]
> Sent: Monday, 26 August 2002 10:26 AM
> To: Schindler Trading; omega-list@xxxxxxxxxx
> Subject: Re: Geometric Capital Growth / Optimal-f
>
>
> Aaron,
>
> No references needed. Its a simple demonstration which I've
> borrowed from one of Chuck LeBeau's Traders Club Bulletins:
>
> "Here are the numbers: Risk is always 5% of current capital.
> (I'm going to round the numbers to two decimals.)
>
> Capital $ Risk W/L Account balance
> 100.0 5.00 L 95.00
> 95.00 4.75 L 90.25
> 90.25 4.51 L 85.74
> 85.74 4.29 L 81.45
> 81.45 4.07 L 77.38
>
> OK we are already tired of losing. Let's have five winners
> in a row and see if we can get our money back.
>
> Capital $ Risk W/L Account balance
> 77.38 3.87 W 81.25
> 81.25 4.06 W 85.31
> 85.31 4.27 W 89.58
> 89.58 4.48 W 94.06
> 94.06 4.70 W 98.76
>
> As you can see we had an equal number of winners and losers
> yet somehow we lost money. Perhaps it is because we had bad
> luck and got started in the wrong direction. Lets reverse the
> sequence of trades so that we start out on a winning streak
> instead of losing. Maybe that will help.
>
> Capital $ Risk W/L Account balance
> 100.00 5.00 W 105.00
> 105.00 5.25 W 110.25
> 110.25 5.51 W 115.76
> 115.76 5.79 W 121.55
> 121.55 6.08 W 127.63
>
> Looks good so far. Starting off with winners looks much
> better than starting with losses. But now we have five
> losers coming up.
>
> Capital $ Risk W/L Account balance
> 127.63 6.38 L 121.25
> 121.25 6.06 L 115.19
> 115.19 5.76 L 109.43
> 109.43 5.47 L 103.96
> 103.96 5.20 L 98.76
>
> Hmmm. It doesn't seem to matter if we start out with a
> string of winners or a string of losses. Somehow we wound up
> losing the same amount of money either way."
>
> The full bulletin is at:
>
> http://traderclub.com/discus/messages/107/681.html?SundayApr
> il3020001039pm
>
> I recommend Chuck's group for some interesting discussions
> although some of the members are a bit puerile. His
> bulletins are excellent material.
>
> So the problem is that if your system has marginal
> expectancy then fixed fractional will reduce it further.
> The other side of it makes up for this. On the positive
> side, because you reduce bet size in a losing streak you can
> start with a larger percentage bet for a given maximum
> drawdown. As you can see from my previous posting this not
> only gives you a higher return for a given maxDD but you
> also get a smaller maxDD at 2 Standard Deviations indicating
> a reduced risk of ruin.
>
> Regards, John
>
>
> ----- Original Message -----
> From: "Schindler Trading" <schindlertrading@xxxxxxxxxxx>
> To: "John Lynch" <kiwi_trader@xxxxxxxxxxxx>; <omega-list@xxxxxxxxxx>
> Sent: Sunday, August 25, 2002 11:55 AM
> Subject: Re: Geometric Capital Growth / Optimal-f
>
>
>
> Mr. Lynch:
>
> Fixed fractional has a negative expectancy? What do you
> mean? Do you have
> any references? I don't believe this is true, but I've got
> an open mind.
>
> At Schindler Trading we use fixed fractional position sizing
> and believe it is the wisest choice -- as I believe you also
> concluded after your Monte Carlo testing.
>
>
> Regards,
> Aaron Schindler, CFA
>
> Schindler Trading
> 1243 Yorkshire Lane
> Barrington, IL 60010
> telephone: 847-719-2846
> fax: 847-719-2846
> email: aaron@xxxxxxxxxxxxxxxxxxxx
> www.schindlertrading.com
>
>
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