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>Once you have a positive expectancy trading method, money management is
what magnifies
>your profits.
Yes, I had similar thoughts - that Money Management is akin to compounding
in that it is a re-investment of return. Just much more complicated.
>Fixed ratio, IMO a stupid idea marketed by Ryan Jones. It fails to account
for
>capitalization, it fails to account for trade risk or market volatility, it
fails to
>manage risk and drawdown, it fails to preserve capital.
Thanks for the heads up. Haven't looked at Fixed ratio in detail yet. It
feels intuitive that a MM strategy should reduce risk as the capital
approaches zero - even if it's a Martingale style strategy that increases
risk with consecutive losses - or else it's almost guaranteed to bottom out.
Thanks for the ref to Prosizer - am taking a look.
Thanks for your other insights. Hopefully some other list-dwellers will
post further thoughts in reply.
-----Original Message-----
From: unicorn@xxxxxxxxx [mailto:unicorn@xxxxxxxxx] On Behalf Of Alex
Matulich
Sent: Wednesday, 12 October 2005 1:37 PM
To: omega-list@xxxxxxxxxx
Subject: Re: Money management/leveraging - varying position size to control
risk/enhance profit
>* What approaches to money management have you had a positive
>experience with?
My experiences are based mostly on monte carlo simulations. I like a
"percent risked" (adjust the size so that the total amount risked
- or stoploss - for each trade is a fixed fraction of your equity
- this isn't the same as fixed fraction where the trade size is a fraction
of total equity). I can eke out a bit more performance by combining it with
"percent volatility" (adjust the size os that a measure of volatility
expressed in dollars is a fixed fraction of your equity).
>* What approaches to money management have you had a negative
>experience with?
Fixed ratio, IMO a stupid idea marketed by Ryan Jones. It fails to account
for capitalization, it fails to account for trade risk or market volatility,
it fails to manage risk and drawdown, it fails to preserve capital. It
reacts purely to net profit without regard to anything else. A small
account can trade itself into nearly 100% drawdown with this technique; an
impossibility for other position sizing methods that can tell you to trade
zero contracts at times, and yield far more profit for less risk.
>* What importance to you place on money management?
Once you have a positive expectancy trading method, money management is what
magnifies your profits.
>* Which do you prefer - simple or complex money management strategies?
Simple is harder to mess up. Developing a simple strategy can be a complex
process -- in my case involving Monte Carlo simulations.
>* Which is more effective - simple or complex money management
>strategies?
My own attempts at devising complex strategies didn't turn out measurably
better than the simple ones.
>I'm thinking here mostly of managing the size of short-term trades on a
>single strategy on a single symbol rather than the more complicated
>notion of portfolio management. However, all thoughts will be
>gratefully received.
You might be interested in http://unicorn.us.com/trading/prosizer.html - an
Excel tool designed for deriving an effective money management strategy for
a single-contract trading system.
-Alex
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