Search found 10 matches

by gbos
Thu Feb 03, 2005 11:47 am
Forum: Money Management
Topic: plz help me with my math: probability of N losses in a row
Replies: 3
Views: 4288

In both examples the first statement is correct but the second is wrong. The number of trades needed for this to occur can’t be calculated like that. I will give you an example with 2 losses in a row from a fair coin flip. The sequence may look like this Loss-loss we will need two coin flips ...
by gbos
Tue Dec 14, 2004 8:31 am
Forum: Money Management
Topic: Diversification Question
Replies: 16
Views: 11799

Without reinventing the wheel I will post the solution illustrated in Ed Thorps paper that can be found everywhere on the web. Only one system available We take a simple system: p (probability of winning) 60% , q (probability of losing) 40% R-multiple probability -1 40% 1 60% f (Kelly) = [(-1)*0.4+1...
by gbos
Tue Dec 07, 2004 9:32 am
Forum: Money Management
Topic: Diversification Question
Replies: 16
Views: 11799

Example for two systems: System_1 : f = 0.18 System_2 : f = 0.2 1 st case: The two systems are independent When system_1 gives a signal allocate 0.16 of your capital to it When system_2 gives a signal allocate 0.18 of your capital to it Gbos, thanks for your reply. Lets stick with this example wher...
by gbos
Tue Dec 07, 2004 5:44 am
Forum: Money Management
Topic: Diversification Question
Replies: 16
Views: 11799

I am afraid that the answer to that is very complicated. Also it is one of the most misunderstood concepts of money management. The solution of simply dividing your capital in proportions and trading each system independently is highly sub-optimal. For a ‘correct’ treatment, you have to know the...
by gbos
Tue Sep 09, 2003 1:10 pm
Forum: Testing and Simulation
Topic: Monte Carlo Simulation
Replies: 22
Views: 20781

Hi vegasoul This is not difficult. An easy way that you can simulate this kind of relationship between trades is with the aid of Markov chains. See any introductory text on probability for reference. As for a<0.5 I can’t understand the question. If you are referring to the add-in 'a' coefficient c...
by gbos
Tue Sep 09, 2003 9:16 am
Forum: Testing and Simulation
Topic: Monte Carlo Simulation
Replies: 22
Views: 20781

Kiwi very nice program. Here is my own home made add-in (MonteCarlo.xla) (money management orientated) with instructions (Read_Me.pdf). Works fine on my Excel 2002 (English Version) but I haven’t tested in other excel versions so if it doesn’t work please don’t throw me rocks. :D
by gbos
Tue Jul 22, 2003 10:46 am
Forum: Money Management
Topic: Optimal f
Replies: 87
Views: 120516

Hi Hiramhon That’s true but the calculation of expectation and variance remains straightforward. Expectation = p1 * w1 + p2*w2 + p3*w3 + ….. Variance = p1*w1^2 + p2*w2^2 + p3*w3^2 + ….. – Expectation^2 The approximation f = mean/variance remains valid for small f not matter how many possible...
by gbos
Tue Jul 22, 2003 5:59 am
Forum: Money Management
Topic: Optimal f
Replies: 87
Views: 120516

An excellent paper about betting size and “optimal fâ€
by gbos
Tue May 27, 2003 6:55 am
Forum: Money Management
Topic: perplexed: Position Sizing
Replies: 10
Views: 12494

About the spreadsheet

A few explanations about the spreadsheet: Yes, the payoffs that we know (by statistics) our system generates are entered in column C. When we click on Monte Carlo button, vba code does the following: It creates a trial of say 30 consecutive trades. Each trade of these is pooled randomly from the pay...
by gbos
Sat May 24, 2003 6:18 pm
Forum: Money Management
Topic: perplexed: Position Sizing
Replies: 10
Views: 12494

Monte Carlo

8) If one knows the characteristics (profit/loss frequency and magnitude) of the trades generated from his system, then an easy way to examine the alternative paths that chance alone could realize is Monte Carlo simulation. Suppose that you know your system generates equal probable (this assumption ...