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There is some interesting discussion going on here about money management.
As someone who knows Ryan Jones (who is Rumery & Lehman) I thought you might
like some answers and a slightly different insight:
Firstly do you need to spend $1500 on the software? Well that depends on
how you value your time. If quite some hours of your time developing a
similar application is worth more to you than that, then consider buying it.
If you have more time on your hands and less money build your own. It is
relatively straightforward just using Excel and a bit of Visual Basic - if
you have the time! All of the principles and equations can be obtained from
Ryan's video from Futures West which I think costs about $70 or something.
That is all you need to build your own.
Secondly, and perhaps the most important aspect of fixed ratio is this: It
will NOT make a losing system make money. It may or may not make an average
system better (over the long term yes it will, short term is just down to
luck). A decent system or methodology it will set on fire!!!!
Thirdly, to implement the correct fixed ratio to your trading you must
tailor the parameters to suit your system. If you have a very high % of
winners making small amounts you would select the numbers of contracts
differently to a system that makes huge amounts on a very low % of winners.
That is down to understanding the CONCEPT inside out and not just the
mathematics. Actually in a similar vein you should be wary of slippage and
commissions and make generous allowances when doing your analysis. If your
system is only making $100 per trade on average after S&C and you are not
getting the figures spot on you will spend your life oscillating back and
forth between 1 and 2 contracts.
Overall I consider Fixed Ratio to be a good simple concept that has been
expanded and embellished so as to command the high prices that we all see.
However consider this. 90% of your earnings potentially come from selecting
the number of contracts to put on each trade and not selecting the trade
itself. Yet the really hard bit, in my experience, is selecting the damn
trade to start with!! This is a classic example of Pareto's 80/20 Law: 20%
of the effort generates 80% of the rewards, whilst 80% of the effort
generates only 20% of the rewards. That really is spot on it this case.
You might deduce from this that I am in favour of Ryan Jones and his Fixed
Ratio techniques. Well yes I am now. The operative word in that last
sentence is NOW. Until you have a system / methodology that produces decent
and consistent profits you do not even need to worry about all of this.
Carry on working to get to the point where your 1 lot is bring you in a
regular weekly wage. Then and only then does all of this become relevant
and by that stage you will not worry too much about paying premium prices.
In case you were wondering, I have been in touch with Ryan Jones for some
time now. I am paying him rather a lot of money for him to work with me and
yes it is worth it as I can already see the Pareto principle at work in
practice rather than just theory.
Hope that adds something to the debate!
Happy trading
Simon
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