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Does anybody know where/how Ryan Jones comes up with Delta? He repeats over
and over that Delta=1/2 drawdown. Nowhere does he demonstrate how risky
this is. My own experiments indicate that this is pretty conservative.
Kevin Campbell
In a message dated 3/1/00 3:34:03 PM Central Standard Time,
gcwallace@xxxxxxxx writes:
> Andrew:
>
> I read Ryan Jones' book, but I found the mathematical support for his
system
> weak. I prefer and use Ralph Vince's optimal f, instead.
>
> I think it was Gwenn who mentioned that risking 10% of your capital on a
> trade is high. I tend to agree, but I wouldn't conclude that risking 10%
> necessarily translates into a near-certain risk of ruin. Risk of ruin is
> affected by the characteristics of your system, the markets you trade and
> the largest loss you will suffer. One thing it cannot anticipate is the 3
> Standard Deviation and 4 Standard Deviation losses (unless you have
captured
> one in your system testing) that traders are exposed to at some point in
> their lifetime. Risk of ruin is certainly something you should calculate
> and be aware of, particularly if your money management system is telling
you
> to risk big money.
>
> You asked about the position size for your first trade. My recall may be
> off, but I think this is related to choosing the right "delta", which was
> Jones' inherent weakness. If you make a mistake in position sizing, this
is
> where it will be.
>
> Before implementing a fixed ratio money management system, I would suggest
> you read Ralph Vince's Portfolio Management Formulas and his Mathematics of
> Money Management for a balanced viewpoint, not to mention a wake-up call
> regarding risk.
>
> Regards.
>
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