Money Management vs. % of Success in Trading Systems - Page 2
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Thread: Money Management vs. % of Success in Trading Systems

  1. #11
    Quote Originally Posted by ;
    Well, now, that's really intriguing. Additionally, I ran a test using fixed fraction and didn't come up with exactly the exact same equity curve because you. So, perhaps you could shed more light in your calculations.

    The example from the book, however, was NOT a fixed fractional example. This was a fixed percentage illuion.
    How in hell could you come up with a curve that has been generated from my machine? As explained earlier, the appliions took the 378 trades, applied a fixed fraction of 3 percent and then jumbled the sequence using monte carlo analysis. The point is that when using asymmetrical leverage together with any currency management process is implemented the outcome is completely dependent on the sequence where trades occur.

    You don't have enough information to definitively say the Ryan Jones instance was a fixed percentage illuion.

  2. #12

  3. #13
    ,

    One thing that occured to me personally is that your spreadsheet, while entirely valid, does not account for contract dimensions and that is where the problem that Ryan Jones explained comes in to play. Let us say you can trade 1 mini lot per $1000 in your account. If that's the case, the outcome of your evaluations would be wholly dependent upon the sequence of wins and losses.

    Phil

  4. #14
    Quote Originally Posted by ;
    ,

    One thing that occured to me is that your spreadsheet, while completely legal, does not account for contract sizes and that's where the problem that Ryan Jones clarified comes in to play. Let us say you can trade 1 lot per $1000 on your account. If that's the case, the results of your evaluations would be wholly dependent on the sequence of wins and losses.

    Phil
    I presume it that spreadsheet, he's working with the stop loss.
    If you have fix two% and fix 10$/pip... you have to adjust your SL.

  5. #15
    Whooah. This isn't a fight.

    OK, let's get back to the orginal scenario, which was looking at a set of transactions using 4:1 win loss ratio with xpercent success rate and randomly spread losses and wins. That's how this whole thing got started. The only way that two scenarios, using fixed percentage mm would not be equal at end would be if any one of these factors were changed during the course of this test. If your win loss ratio is variable between the tests, then, you might receive your equity number. So, you're right, I can not replie YOUR 378 transactions, but, I will comment on the scenario and confirm what Pawn and have been saying, and that's that order doesn't matter provided that all other factors remain the same.

    As far as not having enough information. Well, you are right. Sorry I made an assumption that the Ryan Jones example was fixed ratio, but, given the excerpt in the book you posted, you can certainly understand my confusion.

    Let's just chalk this up to me being completely perplexed and continue to another exciting subject!

    Quote Originally Posted by ;
    How in hell could you think of a curve that has been generated in my machine? As explained previously, the appliions took the 378 transactions, applied a fixed percentage of 3% and then jumbled the sequence using monte carlo analysis. The point is that when using asymmetrical leverage with any money management system is applied the result is completely dependent upon the sequence where transactions happen.

    You don't have enough information to definitively say the Ryan Jones example was a fixed ratio illuion.

  6. #16
    Quote Originally Posted by ;
    I think it spreadsheet, he is working together with the stop loss.
    In case you have fix 2% and mend 10$/pip... you have to adjust your SL.
    Which, if you alter the SL, thereby changes the win/loss ratio. As I said, I can not determine how you get different equity results using fixed percent if you don't alter one of the other variables in this situation. However, alas, my head is spinning.

  7. #17
    1 Attachment(s) Look in the Qty of Pips Required in the 2nd to Last Trade to aceive Exactly the Exact Same balance.

    Sory. There was a mistake from the Pip Totals in preceding image.

  8. #18
    Geez, I'm busy for a day and come back to find THIS!

    Heheh.

    Anyway, search fellas, everyone's got to keep in mind that forum postings, like emails, can be very readily misinterpretted or misread. That is why its important to over-explain everything. Talking about results - and this is directed at nobody specifically - with no A) showing some sort of chart, spreadsheet, chart, or anything , and B) explaining and over-explaining how you attained those results, does not actually do much for anyone. Assume first the individuals you are speaking to don't know anything about FX, and we'll go far.

    What we are doing here is subjective, theoretical, quasi-scientific studies based on mathematical formulae that are assessing erronous historical data via highly imperfect techniques. If we don't take the approach that in the end of our theses somebody else should be in a position to closely replie our work - or at least know why they can't because of our own failings in egy - then misunderstanding will inevitably follow. Thus the reason I write such painfully long posts, like this one.

    Beyond this, question yourself first and others later. I've found it to be a good working model for life in general. Even mathematics disproves itself (read Godel, Escher, Bach to get a quick summation), so as I mentioned in one of the first posts on this thread:

    . . .please, let us keep the thread clean, be respectful and fair, and also possess an eduional, edued conversation.

    Can it be OK to quote ? Heheh. I'm not trying to lecture anyone here... just want to maintain the value as high as I believe it's been.

    I made a mistake earlier when I published that fixed fractional spreadsheet - I did not explain exactly how I constructed it, and on the assumptions. I regret this... it was my error to post something when knowing I did not have the opportunity to fully explain what I did there. So learn from my error.

    TO CLARIFY THE FIXED FRACTIONAL SPREADSHEET:

    My perception, most likely incorrect, was the'fixed fractional' supposed that you chose, say, a 2 percent risk on each trade - 2% of your CURRENT account equilibrium. So if you had $10,000, you'd risk $200. If you won along with your balance was now $10,800 (assuming a 1:4 RR here), you'd then risk $216 on your next commerce (2 percent of $10,800, not the original $10,000). I've actually read that's not a good idea, but regardless, that's exactly what I presumed in that spreadsheet.

    Additionally, I assumed a FIXED SL and TP in pips, not dollars. My perception was,'' If I've established that a 28 pip SL works along with also a 112 pip TP is attainable within my machine on currency X, then I'm not going to mess with these numbers.

    Instead, I varied the amount of lots that I exchanged in order to reach the risk in dollars based on a 28 pip SL... and then just figure out the payoff in dollars by multiplying the risked dollars by 4 (again, 1:4 RR).

    Therefore, within my understanding, I presented there a system that was fixed fractional, as 2 percent of their current balance was risked on each trade, and also fixed percentage, as the R/R remained constant for every trade (1:4 or 1:3, depending on if you looked at Sheet 1 or 2). Additionally, it maintained fixed SL and TP in pips. The only true variable employed was altering the amount of lots traded as the current equilibrium increased or diminished. And then the entire thing was applied to an absolutely hopeless model where you always lost three transactions and then won a single trade.

    One of the most interesting points I've seen since I published that was stated by Darkstar:

    Now I'm no statistician, but the likelihood of hitting a 50% drawdown (8 consecutive transactions ) is SIGNIFICANTLY higher to a 25% platform then it's on a 75% platform, so the trader is forced to lower his risk-per-trade rate.


    ... followed shortly later by Capt. Piptastic's'likelihood of seeing X consecutive losing trades chart. Both of these statements / presentations are mathematically irrefutable fact... for what that's worth. Heheh.

    And allow me to explain that *I* don't believe that percent Success is irrelevant, which would seem a simple issue to misunderstand due to the essence of the original posting. Instead, my original point - and also the point that I continue to think - is that:

    Before you spend time trying to find a'tradable system' based on percent Success, understand Money Management into the best of your ability.

    ... after you have done that, it's definitely time to study trading systems that produce a high likelihood of success... be that because of mathematical studies on historical data, easiness to really work the system taking into consideration the time you have available, plogical variables regarding how much drawdown you can handle, or whatever else (all of which I believe to be very significant variables and has to be researched and understood in order to succeed ).

    This is a intrie game, my friends. Unfortunate that its been marketed as'easy money' into the ignorant. If we all work hard, study hard, and discuss what we've heard, we can all get there... and the payoff is brilliant.



    -

  9. #19
    Excellent post miscon,

    The more I read informative posts from generous individuals such as yourself who are willing to learn while teaching others the more I realise that FX trading is a game of numbers and probabilities, and a comprehensive understanding of how these variables are related to real life trading is imperetive to success (more so than special indiors and approaches ).

    I love your comprehensive posts and look forward to reading more.

    Regards

    Dingo


    Quote Originally Posted by ;
    GeezI get busy for a day and come back to find THIS!

    Heheh.

    Anyway, look fellas, everybody's got to keep in mind that forum postings, like emails, can be quite easily misinterpretted or misread. That's why its important to over-explain everything. Talking about outcomes - and this can be aimed at no-one in particular - with no A) showing some sort of chart, spreadsheet, chart, or anything , and B) describing and over-explaining exactly how you reached those outcomes, does not really do much for anyone. Assume first the individuals you're talking to do not understand anything about FX, and we'll all go far.

    What we're all doing here is abstract, theoretical, quasi-scientific studies based on mathematical formulae which are assessing erronous historical data through highly imperfect procedures. If we do not take the approach that at the end of our theses someone else ought to be in a position to closely replie our work - or at least know why they can not because of our own failings in approach - subsequently misunderstanding will inevitably follow. Thus the reason I write such posts, like this one.

    Beyond that, question yourself first and others later. I have found it to be quite a good working model for life generally. Even mathematics disproves itself (read Godel, Escher, Bach for a quick summation), so as I said in one of the first posts in this thread:

    . . .please, let us keep the thread clean, be respectful and fair, and possess an eduional, informed conversation.

    Is it OK to quote oneself? Heheh. I'm not trying to lecture anyone here... just need to keep the value as high as I feel it has been.

    I made a mistake earlier when I published that repaired fractional dictionary - I did not clarify exactly how I built it, and on what premises. I regret that... it was my own error to post something while knowing I did not have the time to completely clarify what I did there. So learn from my error.

    TO CLARIFY THE FIXED FRACTIONAL SPREADSHEET:

    My understanding, most likely incorrect, was the'fixed fractional' supposed that you took, say, a 2 percent risk on each trade - two% of your CURRENT account equilibrium. So if you had $10,000, you'd risk $200. If you won and your balance was currently $10,800 (supposing a 1:4 RR here), you'd then risk $216 on your next trade (2 percent of $10,800, not the original $10,000). I have actually read that's not a good idea, but that's exactly what I assumed in that spreadsheet.

    Additionally, I assumed a FIXED SL and TP in pips, not dollars. My perception was,'' If I have established that a 28 pip SL works and a 112 pip TP is attainable within my system on currency Xthen I'm not going to mess with those amounts.

    Instead, I varied the number of lots I exchanged in order to attain the risk in dollars according to a 28 pip SL... then simply calculate the reward in dollars by multiplying the risked dollars by 4 (again, 1:4 RR).

    Therefore, within my understanding, I introduced there a system which has been repaired fractional, as 2 percent of the current balance was risked on every trade, along with fixed ratio, since the R/R remained constant for every single trade (1:4 or 1:3, depending on if you looked at Sheet 1 or two ). Additionally, it maintained adjusted SL and TP in pips. The sole variable employed was altering the number of lots traded as the current equilibrium increased or diminished. And then the entire thing was applied to an absolutely impossible model where you constantly lost three transactions and then won one trade.

    One of the most interesting points I have seen since I published that has been stated by Darkstar:

    Now I'm no statistician, but the likelihood of hitting a 50% drawdown (8 consecutive trades) is SIGNIFICANTLY greater to a 25% platform then it is on a 75% platform, so the trader is all but forced to reduce his risk-per-trade rate.


    ... followed shortly later by Capt. Piptastic's'likelihood of visiting X consecutive losing trades chart. Both these statements / presentations are mathematically irrefutable fact... for what that's worth. Heheh.

    And allow me to clarify that *I* do not believe that percent Success is immaterial, which would seem a simple issue to misunderstand due to the nature of the first posting. Instead, my first point - and also the point that I continue to believe - is that:

    Before you spend time looking for a'tradable system' based on percent Success, understand Money Management into the very best of your skill.

    ... after you have done that, it's definitely time to study trading systems that produce a high likelihood of success... be that because of mathematical studies on historic data, easiness to really work the system taking into consideration the time you have available, plogical variables regarding how much drawdown you can handle, or whatever else (all of which I believe to be very significant variables and must be researched and known in order to succeed ).

    This is a complex game, my friends. Unfortunate that its been sold into the dumb since' easy money'. If we all work hard, study hard, and discuss what we've learned, we could all get there... and the payoff is brilliant.



    -miscon777

  10. #20
    Quote Originally Posted by ;
    Hi Phil,

    Today it's a expectancy.

    I do not have Mr. Jones' novel. If there's a breife excuse you could post I'd appreciate that.
    I hope this helps. . .it is from page 20/21 and took me a long time to form

    The principal characteristics of antimartingale methods are that is causes geometric growth during positive conducts and suffers from what is called asymmetrical leverage during drawdowns. Asymetrical leverage only states tht as an account achieves losses, the capability to make up those losses declines. If a 20 percent drawdown is endured, a 25% gain is required to get back to even. A 10% drawdown demands a 11.11% gain to get back to . The forumula to this can be:

    [1/(1-percent reduction )] -1 = Required% gain

    In many cases, asymmetical leverage doesn't affect trading. By way of example, ifa trader trading that the minimum available in the bond market endured a 20 percent drawdown, the requjired gain would still be 25 percent of the new account balance, but also the ability to acheive that the extra 5 percent has not diminished. This occurs because even though the percentage necessary to recover the precentage loss of hte account rises, the quantity of capital to recover the quantity of captial lost stays the same. Therefore, asymmetrical leverage doesn't play a role in the performance of the account. [This concept applies to a own spreadsheet ]

    On the other hand, it plays a huge role when traders apply certain money managment techniques. By way of example, if a trader decides to trade 1 contract for each $10,000 in the account, then a single contract could be traded from $10,000 through $19,999. At $20,000, contracts could rise from one to two. Suppose that the very first transaction after increasing to two contracts is a failure for $1000. Since there were two contracts on this particular trade, the true loss comes to $2000 and also the account goes back to $18,000. According to the cash management principles a single contract has to be exchanged once more. The trader must currently incur two, $1000 winning trades to get the account back to where it had been just before suffering a $1000 loss with just two contracts. Here, the total amount of capital necessary to bring the account back to even remains the same, but also the capability to achieve that amount has decreased by 50%. That is asymmetrical leverage also it may be detrimental.


    I hope this helps clarify my purpose. There is nothing wrong with your spreadsheet but it doesn't account for variations in wins and losses, irregular distributions of wins and losses, the arrangement of wins and losses nor the affects of asymmetrical leverage. Earlier in this thread I posted to equity curves of the same system. From them it is possible to see they both employed a 3% fixed percentage cash management technique. Because of the reasons discussed above, one seemed great, and one when bust.

    Phil

    PS Sorry about the spelling...I attempted to type while reading rather than looking at the keys.

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