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I have heard from several traders on this list or other trader lists that bet
size based upon a martingale method was stupid unless it was a reverse
martingale (bet more on wins, less on losses). BTW, my use of the word
"martingale" merely means that bets are varied by an amount that is
determined from the previous wins and losses. It can be any algorithm, not
just the stupid "doubling down" after a loss. I also define a regular
martingale as a method that requires buying more after "some, not necessarily
all" losses; whereas, a reverse martingale often requires buying less after
"some, not necessarily all" losses.
About four years ago, I spent a couple of hours on the phone with a retired
statistics professor that had also spent a lot of time working with some
missile company. Please excuse that I can't remember his name or all the
facts about the professor; however, I "do" remember he .....
1. Traded a significant stock portfolio.
2. Traded only long positions
3. Used a sophisticated modified martingale. It was a unique algorithm that
often purchased more shares when the price went against him. It was always
in the market unless certain predetermined circumstances occurred (rarely out
of the market because of the stocks chosen to trade). I could explain it in
detail but it would take a very lengthy discussion. We had fun talking
because I had been kicked out of the Tahoe casinos when I was using my own
modified martingale. They thought I was counting cards.
4. Claimed to have had huge annual returns for several years. If I remember
correctly, over 50% annual on some stocks that had gone sideways or even
lower for a year.
5. Chose stocks that had high short term volatility relative to their very
low longer-term volatility.
6. Said the concept would work with any market and that he had a friend that
was making multiples of his returns with OEX options. He chose low
volatility stocks because his risk was extremely low.
I told him about the negative remarks about martingale systems that I had
heard from other system gurus. He said that most just did not know how to
minimize the risk incurred from martingale systems and did not know how to
enhance the positive features. His algorithm went to great lengths to do
this.
I became quite excited with our discussions and spent a lot of time with
Excel to test his concepts as well as other martingales. I even hired a VB
programmer to help. I abandoned the project because others on this type of
list and friends discouraged me. In addition, it was going to cost thousands
more to develop code for what I considered an adequate method to test the
concept. I feel most comfortable trading systems that I have tested that
generate 100000+ trades. I realize that may be overkill, but that gives me a
psychological edge. Since I was still very "green" at trading and easily
impressed by negative comments, I abandoned the idea. However, my very
preliminary testing seemed to show that the professor's method and some of my
own variations worked great. Many times I wish that I had continued.
Has anyone tried to develop martingale ( that may buy more after a loss) code
that will simulate thousands of trades across multiple markets?
Has anyone actually traded this way?
If someone can answer yes, I think their experience would be of great
interest to many of us. In addition, if there is a proficient VB programmer
out there that wants to help develop a system, I can share what I learned.
I thought about developing EL code with a "C" program linked to it, as I have
done many times. I have spent thousands on a "C" programmer that is also an
EL expert. However, I think it is just easier to use Excel because of some
of the crazy problems encountered with Easy Language. I have a problem
trusting EL results.
Like most on this list, I have heard many negative reasons why NOT to use a
system that may buy more after a loss. I hope we could benefit by limiting
the discussion to those that have tested or traded with success by buying
more after losses. If we get no further discussion, we can assume that none
has or none knows of anyone that has had success with this method.
Russ
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