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Kevin & All:
Doesn't this then make sense? Reasked, wouldn't the following
rules be a way to implement your ideas to wit?
After each winning trade increase the number of contracts traded
by one. Using this type of Anti-Martingale system of money man-
agement, you are pressing after each win. Your firs loss will be
the largest with the greatest number of contracts, but don't try to
pick a top in the equity curve of your account.
After a losing trade, revert back to trading just one contract. Fol-
lowing this money management system, you are backing down after
each loss. Always let the size of your total equity dictate risk size
on the next position. Never increase the risk size, or contracts, when
your account is in debit. Let the ups and downs of your total equity
tell you the risk size of each new position; which in no event should
exceed 2% thereof. Should you go into a prolonged slump with
a string of losses, break it by switching to Mid-Am contracts.
Thanks for any comments
Chas
-----Original Message-----
From: Kevin Morgan <kmorgan@xxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Thursday, May 27, 1999 3:43 PM
Subject: GEN: Re: BET SIZING
>Pompatis and others:
>
> What you are suggesting is that there is inter-trade correlation in
> a trading system that can be exploited.
>
> I believe that Ralph Vince has some good statistical assessment tools
> for this in his Portfolio Management Formula's book. He conclusion is
> that it is extremely rare for substantial correlations to exist in
> trading systems. If you are concluding there are correllations based
> on simple observation of trade history, you are almost certainly getting
> misled by our human tendency to see patterns where none exist.
Particularly
> if your trade history is "small" (<200); you just don't have enough data
> demonstrating sequence variation that will really validate correllation.
> And then finally there's the problem of the lack of a stable
distribution
> of results in any system, due to changing market conditions....
>
> I personally completely shy away from using any correlation methods for
> bet sizing. I strictly use anti-martingale.
>
> Also, I believe the "don't risk more than X% of equity" is too
conservative
> particularly when X is small, as in <=2%. With a good system (>75%
> winners, decent average win size to loss size, reasonable max loss),
> this figure is really underutilizing capital, and keeping risk of ruin
> down in the <<1% range. I prefer to keep risk of ruin at the 2-3%
range.
> That's not risk of ruin in a single trade, that's risk of ruin if I
> just kept on making the exact same bet size over and over...which I
> don't, if I lose, I recompute for a new risk of ruin based on bet size
> and new equity amount, and adjust positions. Anti-martingale...
>
> At any rate, I typically find that with a good system, using this
approach,
> I'm risking more in the range of 10-20% of equity per trade. I know
that
> sounds high, but IF you have a sound system with a good real-time track
> record, I think for myself I want to bet it hard, with reasonable
> risk control. 2% max loss of equity is betting it way way too soft.
>
>
>Just my thoughts and ways of doing things.
>
>-Kevin
>
>
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