Search found 10 matches
- 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: 5643
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 ...
- Tue Dec 14, 2004 8:31 am
- Forum: Money Management
- Topic: Diversification Question
- Replies: 16
- Views: 16881
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...
- Tue Dec 07, 2004 9:32 am
- Forum: Money Management
- Topic: Diversification Question
- Replies: 16
- Views: 16881
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...
- Tue Dec 07, 2004 5:44 am
- Forum: Money Management
- Topic: Diversification Question
- Replies: 16
- Views: 16881
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...
- Tue Sep 09, 2003 1:10 pm
- Forum: Testing and Simulation
- Topic: Monte Carlo Simulation
- Replies: 22
- Views: 26773
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...
- Tue Sep 09, 2003 9:16 am
- Forum: Testing and Simulation
- Topic: Monte Carlo Simulation
- Replies: 22
- Views: 26773
- Tue Jul 22, 2003 10:46 am
- Forum: Money Management
- Topic: Optimal f
- Replies: 87
- Views: 153016
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...
- Tue Jul 22, 2003 5:59 am
- Forum: Money Management
- Topic: Optimal f
- Replies: 87
- Views: 153016
- Tue May 27, 2003 6:55 am
- Forum: Money Management
- Topic: perplexed: Position Sizing
- Replies: 10
- Views: 15553
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...
- Sat May 24, 2003 6:18 pm
- Forum: Money Management
- Topic: perplexed: Position Sizing
- Replies: 10
- Views: 15553
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 ...