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[hooya] 21/3/2004 12:22

Right updated the header to include my thoughts on the book.

[alexx] 21/3/2004 12:18

Frequentflyer - it is true, it's your maths that is dodgy, I think

in the coin tossing example, the first link, you lose money staking > 50%

details of calculation:

Play two coin tosses, lose one and win the other,

you end up expanding your capital by a facter of

s(1-p/100)(1+2*p/100) where p is the %

for p=10% you get 1.08, 1.08^50 to give 100 tosses and you get the 46.9, they quote 47

the trick is that as p increases the p^2 term dominates ( in the expansion 1+p/100-2*p^2/10000 ) and you start losing, once p goes over 50 it's not a question of drawdown, it's guaranteed long term loss

[hooya] 21/3/2004 10:12

Just read the full book will give you my thoughts later after I put some questons to followers of the method...but I am not convinced that its the way to go either

[frequentflyer] 20/3/2004 00:50

Had a look at the first powertradesignals article and I'm afraid I'm not at all convinced. It seems to based on some very dodgey maths. They assert that if you increase your %stake in a game that is biased towards winning you get to a point where your returns diminish. I can't agree with this. It just isn't true. The only problem with increasing your stake in a game that you are more likely to win is that the max drawdown may wipe you out. Other than that you are better off with the largest stake possible. Of course in the real world max drawdown isn't that predictable and you have to be ultra cautious. Surely your position size should reflect how you see the risks of the market going against you. Or it should be part of a hedge/ risk management strategy. It definitely shouldn't be some simple mathematical ratio irrespective of the basis of your trade/investment.

[hooya] 18/3/2004 16:00

No thoughts...anyone?

[hooya] 18/3/2004 10:27

Added some other MM links

[hooya] 18/3/2004 09:50

Been discussing various money management techniques and this one seems
quite interesting. Wonder if anyone had anything to add or other suggestions.
Here are some articles on the fixed ratio method and a couple of BB discussions on other boards (I hope ADVFN dont mind)






Other MM links








BB Links






Right I have read the book and not sure I am convinced. Partly becuase the book itself was so biased to the Fixed ratio sytems for obvious reasons some of the examples were just not a correct reflection of fixed fractional . Here are my thoughts/questions unfortunately in order that wrote them down as I was reading so might be a bit mumble jumbled:-


1) he says " the largest loss can not be predicted"......if you can not control or know what your losses could be better stop trading this minute imo

2)First example of FF he uses a system that has 9 losses out of 11 trades and the winners only produce 1/2 the amount of aloser.........this is a shocking system..why would anyone trade it let alone use it as an exmple unless biased????

3) Again he brings up the point that a trading system cant have set parameters because of stops not getting triggered on overnight positions and slippage....??? has he not learnt how to trade and how not to trade and how a system must include all costs etc

4) After 72 pages of coin flipping examples he says " however comparing a coin flipping game to trading is worse than comparing apples tooranges"..........LOL

5)He does admit that sequence of trades has an effect on out come of FF mathod....this also has an effect on Fixed ratio mathod too but not really mentioned as much. Apparantley because probability of sequances isnt reliable but MM can only be based on probability of past performance???? Im a bit confused here......its ok to use probability for ratio of winners to losers but not for squences???

6) Fixed ratio MM fails to really address the trade by trade mangement that is need to be successful? ITs ok to say we will used x size stake between these levels if your stops i.e you risk are the same on every trade??? but more often than not they are not. So on a more risky trade you are are increasing your risk more than the risk increase of the trade. NOT GOOD!......Fixed fraction takes this into account if the trade is more risky you lower your stake and thus still have constant risk.


7) He thinks that because you require less money to make more at the begining of a fixed ratio method it's more efficient. I would argue that it is more stupid. YOu are risking more on the first trades when the system you are trading is new..when your largest loses are like to occur. And then he decreases risk when you are millionaire???Why because with out realising it he has an obsession with money. The method basic means that when your sytem has proved itself...its not worth risking so much on it???? Wrong way round imo. In trading you should distance yourself from the money so to speak. A 2% increase in a 1k account or a 100K shouldnt effect the way you think. (I am not talking about protecting profits....thats a different story)

He talks about the rate of decrease in stakes which I thought was good and the way forward. Then he says " he actually trades a method where he only decreases the risk at 1/2 the rate he incraeses with winners. So let me get this right. When he wins he increases the risk and when he loses he reduces the risk a little bit but smaller inproportion. NOt the capital protecting method his book is meant to be.


9) I have done a chart with a string of trades...I did not hand pick what order they came in it was done randomly but I wanted a profitable system that showed 2:1 RR and win to loser ration of 2:1. And guess what fixed fractional won by 17% over the trades....oooops what happened there. I'll be honest I didnt do any faster rate of reduction on losers as I thought it wouldnt make to mcuh difference over the 30 trades and I wanted to test the theory of "better rate of increase in profits"...



So those are my thoughts? So ulimately it comes down to what and how good your trading method is??? Which isnt really mentioned at the extent that it should be. I think the author is a bit obsessed with the prefect maths of systems that he actually has forgotton that trading method is still the most important thing and must come fist. And I think this fact has made his book and exmples a bit too biased. But it does lead me to believe that his method if it the best can be made better. Who wants to try??



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