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on 4/13/00 3:31 PM, Thomas Pfluegl at thomas.pfluegl@xxxxxxxxxxxxxxxxx was
heard to mumble:
> Hi list,
>
> Concerning Money Management ideas, almost every publication about (Futures)
> Trading Systems, etc. mentions that it is important to risk only a small
> percentage (max. 2%, better <=1%) on each trade.
>
> I did a small test with Excel (coin toss, which is a 50/50 system), to
> reveal how many Consecutive Losses are 'necessary' to suffer a 50% drawdown
> (which is a close-down benchmark for most of the funds around).
> The attached chart (RunsDrawdown.jpg) shows that when risking 0.25% it
> takes 278 consecutive runs, when risking 2.0%, 36 runs, and with 5.0% only
> 15 runs to throw the towel. The minimized columns illustrate what big
> difference it makes varying risk only by a small percentage .
>
> A simulated coin toss expectation game (which ran almost a week) showed,
> that one must expect up to 20 (probability: 1 : 1.048.576 or 0.000095%)
> consecutive profits/losses in a 50/50 system!
>
> Comments anyone?
>
> Thanks,
> Thomas Pfluegl
> ----------------------------------------------------------------------------
> Thomas Pfluegl, Rudersdorf 8, A - 4212 Neumarkt
> Austria Tel. ++ 43 - (0) 7941 - 8106
> http://keplerweb.oeh.uni-linz.ac.at/trading/index.html
> ----------------------------------------------------------------------------
> Austria/Europe --> high mountains --> Mozart --> no kangaroos
> ----------------------------------------------------------------------------
Just curious, how many times do you have to expect to have to toss the coin
to get 20 consecutive heads or tails? I have a feeling that it might require
a very large number of trades to see that happen ( on average).
thanks for an interesting and informative post
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