Advanced money mgmt techniques?

Discussions about Money Management and Risk Control.
Post Reply
LeviF
Roundtable Knight
Roundtable Knight
Posts: 1428
Joined: Mon Dec 22, 2003 12:24 pm
Location: Des Moines, IA
Contact:

Advanced money mgmt techniques?

Post by LeviF » Tue May 20, 2008 2:26 pm

What are some good resources to read about advanced money management techniques? Perhaps discussion about changing bet sizes based on the system's equity curve, or methods I've never even fathomed.

freeman
Roundtable Knight
Roundtable Knight
Posts: 114
Joined: Tue Oct 04, 2005 7:12 pm
Location: Switzerland

Post by freeman » Wed May 21, 2008 1:27 pm

Here's a link for u,youll find the history of money management and resource's to study ect.

http://finance.martinsewell.com/money-management/

orange
Full Member
Full Member
Posts: 21
Joined: Sun Dec 30, 2007 5:19 am
Location: Singapore
Contact:

Advanced MM algorithm vs Simple fixed fractional approach

Post by orange » Fri May 30, 2008 9:43 am

Hi,

I am a spot currency trader with less than 2 years of trading experience. I have a simplistic money management methodology. Having determined the optimal f for a system, I will risk fractional f for every trade.

I am finding it hard to improve upon my fixed fractional approach. Am I correct to say that an advanced money management algorithm is only possible for systems where there exists dependency between trades (e.g. winner begets winners and loser begets losers)? And in the absence of such dependency , an advanced money management algorithm is based on factors such as time of the day, day of the week, trader's experience etc?

Best regards,
Feng

freeman
Roundtable Knight
Roundtable Knight
Posts: 114
Joined: Tue Oct 04, 2005 7:12 pm
Location: Switzerland

Post by freeman » Fri May 30, 2008 3:41 pm

yes i agree,and heres a idea,use a basic MM with ur system to get the bases,then use the win\loss ratio, average trade size,winingBars,LoosingBars ect ect to build a advance MM.
The world of thoughts to experiment with are never ending,dont u just love it :D

orange
Full Member
Full Member
Posts: 21
Joined: Sun Dec 30, 2007 5:19 am
Location: Singapore
Contact:

Post by orange » Thu Jun 05, 2008 11:43 am

Hi Freeman,

Thank you for your reply and suggestion.


Feng

Johnedoe
Full Member
Full Member
Posts: 14
Joined: Tue Dec 15, 2009 1:13 am

Post by Johnedoe » Thu May 31, 2012 10:13 am

I know this is a very old thread but hey I'm new here and thought this might be revived.
So with that in mind I add, Van Tharps' book "Definitive Guide to Position Sizing" is a good resource for risk management study.

Chris67
Roundtable Knight
Roundtable Knight
Posts: 1046
Joined: Tue Dec 16, 2003 2:12 pm
Location: London

Post by Chris67 » Thu May 31, 2012 1:04 pm

CALL ME cynical but in my opinion these markets are abnormal and it would be suicidal to use old MM techniques in the current abnormal environment. In my opinion the safe thing to do at present is reduce position sizes, reduce risk, and disregard the vast literature of MM which (in my opinion) is not relevant currently.

For the next 2 months at least
C

Edited by Moderator

Johnedoe
Full Member
Full Member
Posts: 14
Joined: Tue Dec 15, 2009 1:13 am

Post by Johnedoe » Thu May 31, 2012 1:35 pm

Hi Chris....

Have you read the book I mentioned?
I don't think the risk management that is covered there is anywhere near outdated.

Also, if you are a trend trader why are you predicting the market?

Turtle40
Roundtable Knight
Roundtable Knight
Posts: 201
Joined: Wed Oct 19, 2005 1:53 pm
Location: Guernsey, Channel Islands

Post by Turtle40 » Thu May 31, 2012 2:48 pm

Personally I think it is suicidal to use improper MM in any market (!). I am happily using the good old FF MM in TB, but I only risk 1% per trade.

The stops move quickly enough with favourable trades, such that open risk per trade drops immediately if the trade moves in the desired direction.

At present, for my system, the current move in crude oil is most favourable :)

gunter
Roundtable Fellow
Roundtable Fellow
Posts: 83
Joined: Wed Aug 24, 2005 7:25 am
Location: George Town, Cayman Islands

Post by gunter » Thu May 31, 2012 4:29 pm

Johnedoe wrote:I know this is a very old thread but hey I'm new here and thought this might be revived.
So with that in mind I add, Van Tharps' book "Definitive Guide to Position Sizing" is a good resource for risk management study.
Hi John,

I am generally pretty skeptical of anything Van writes, but out of interest, is there anything you found especially useful mentioned in his book? Does he have ideas that once backtested properly it actually improves the risk adjusted-returns of the portfolio?

Thank you,

Johnedoe
Full Member
Full Member
Posts: 14
Joined: Tue Dec 15, 2009 1:13 am

Post by Johnedoe » Thu May 31, 2012 9:25 pm

gunter wrote:
Johnedoe wrote:I know this is a very old thread but hey I'm new here and thought this might be revived.
So with that in mind I add, Van Tharps' book "Definitive Guide to Position Sizing" is a good resource for risk management study.
Hi John,

I am generally pretty skeptical of anything Van writes, but out of interest, is there anything you found especially useful mentioned in his book? Does he have ideas that once backtested properly it actually improves the risk adjusted-returns of the portfolio?

Thank you,
I agree most of his stuff is way overpriced and to full of fluff, and in many respects "Definitive Guide" is similar, it could have been condensed to about half the size ..... With that said there is some good stuff in there.He covers a number of different methodologies as well as understanding R multiples and expectancy.
Also some methods for determining the quality of your system.

Now with all that being said if you do some googling you will be able to find a copy you can read online, I seem to remember scribed had such a copy.

Conclusion:..... Overall I think it is worth a read especially if you can find it at a discount.

Chris67
Roundtable Knight
Roundtable Knight
Posts: 1046
Joined: Tue Dec 16, 2003 2:12 pm
Location: London

Post by Chris67 » Fri Jun 01, 2012 4:50 am

John Doe

Im not predicting teh direction of the market but if you cannot see what is going on and what is about to happen then Im sorry - I have no idea where markets are going but I have been able to realise that the markets are maniuplated and are not free to move as they have for the last 40 or so years - in a manipulated market things will not be as you have back tested
I believe if in doubt you cut down your position size
There are 2 choices at present for the markets - complete armageddon or huge money printing - neither is good for us

Johnedoe
Full Member
Full Member
Posts: 14
Joined: Tue Dec 15, 2009 1:13 am

Post by Johnedoe » Fri Jun 01, 2012 9:18 am

Chris67 wrote:John Doe

Im not predicting teh direction of the market but if you cannot see what is going on and what is about to happen then Im sorry - I have no idea where markets are going but I have been able to realise that the markets are maniuplated and are not free to move as they have for the last 40 or so years - in a manipulated market things will not be as you have back tested
I believe if in doubt you cut down your position size
There are 2 choices at present for the markets - complete armageddon or huge money printing - neither is good for us
Hi Chris,
I did not intend to sound argumentative and in the regards as to something going on and manipulation of the markets I am prone to agree with you.

I also agree that risk management is very important all the time not just now.

So with all that said, keep your powder dry, I think we are going to need it.

Chris67
Roundtable Knight
Roundtable Knight
Posts: 1046
Joined: Tue Dec 16, 2003 2:12 pm
Location: London

Post by Chris67 » Fri Jun 01, 2012 9:56 am

John
Thanks - I have no problem with peeps being argumentative - I like it and wish we saw more of it !!!
Yes I guess im just saying if i can tune it down to one sentence - that anything thats been backtested in teh last 30 years doesnt apply right here today because if we get QE3 I think we will see the end of the road for some of the guys out there who havent made money in 5 years trend following (take out 2008 - probably a lot longer)
Its all very messy and guranteed to get messier
C

Toosday
Roundtable Fellow
Roundtable Fellow
Posts: 70
Joined: Fri Jun 03, 2011 11:21 am
Location: Austin, TX

Post by Toosday » Fri Jun 01, 2012 9:56 am

One of the things the markets have taught me is that trading is not black and white. It is very difficult to make a good risk adjusted return by being ridgid. At times trend following can appear rigid but I think once you get into it you find that many of the decisions you make within a systemic construct greatly improve your system. Some times these decisions run contrary to trend following in the purest sense but you can still have an overall trend following philosophy.

PS Chris I agree that if you are trading simple LTTF systems right now your daily vol is more than most can handle.

Trading Leech
Senior Member
Senior Member
Posts: 48
Joined: Mon Nov 29, 2010 2:07 pm

Re: Advanced MM algorithm vs Simple fixed fractional approac

Post by Trading Leech » Sat Jun 16, 2012 2:54 pm

orange wrote:Hi,

I am a spot currency trader with less than 2 years of trading experience. I have a simplistic money management methodology. Having determined the optimal f for a system, I will risk fractional f for every trade.

I am finding it hard to improve upon my fixed fractional approach. Am I correct to say that an advanced money management algorithm is only possible for systems where there exists dependency between trades (e.g. winner begets winners and loser begets losers)? And in the absence of such dependency , an advanced money management algorithm is based on factors such as time of the day, day of the week, trader's experience etc?

Best regards,
Feng
Vince's "leverage space trading model" (which includes the "optimal f" concept) is probably the most sound scientific framework out there for asset allocation. But it relies on independence, which needs to be tested before the theory (including the optimal f) is applied. If you find strong evidence of dependency in your system (which is rare), Vince's idea is to find the source of this dependency, and create new systems that exploit it.

However, Vince's theories must not be misunderstood. In particular:
  1. Trading at exactly the optimal f is not necessarily what you want (as you already know). This is what Vince advocates in his first book, but he backs away from it in subsequent books. So, given a particular return distribution, one should test carefully which values of f can lead to how big drawdowns, and then choose the appropriate f. Just blindly choosing, say, "half optimal f" is not very sound.
  2. The exponential growth function (the bell-shaped curve with the maximum at the optimal f) can be assumed to change with time. This provides one with great flexibility. For instance, if you believe at some point that the largest possible loss has gotten bigger for the time being, you can adjust your growth function accordingly, and change your f accordingly. This provides a nice dynamic approach to managing one's portfolio.
Of course, the theory gets far more juicier when diversifying. For, say, three systems, you are no longer finding an optimal f number, but an optimal (f1,f2,f3) vector on a three-dimensional surface. Vince's 2009 book, The Leverage Space Trading Model, covers this.

Post Reply