## Comments on My Money Management Algorithm?

Discussions about Money Management and Risk Control.
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### Money Management

I recently developed a money management system for my trading system. It uses the probability of winning trades of the system and the dollar value of the ATR to determine how many contracts to trade. I have explained it thoroughly on a web page and there is an Excel spreadsheet that you can down load to try the method. I would like any comments you might have on this new method I have developed.

David

JT
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Microsoft has a add-in that removes all personal data from your office documents. It's a good idea to use it before you post files to the web.

JT

Hiramhon
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Yes, your thinking is wrong. You seem to be interested in the MAXIMUM POSSIBLE number of occurrences of "N losses in a row". Consider the case of three losses in a row. Clearly and obviously the maximum possible number is 16 occurrences of three losses in a row, when there are exactly 50 losses in 100 trades. Here is incontrovertible proof, an example:

WLLL WLLL WLLL WLLL WLLL WLLL WLLL WLLL
WLLL WLLL WLLL WLLL WLLL WLLL WLLL WLLL
WLLW WWWW WWWW WWWW WWWW WWWW WWWW WWWW
WWWW

Count it up. There are 100 trades, of which 50 are wins and 50 are losses. Three losses in a row occurs 16 times. But your table says "12.5", twelve and a half. I would say that you and your Air Force pal and his (Capitalized) Medical Doctor wife, have got some explaining to do.

Equally obviously, Ted did the probability calculations for the Expected Value of the number of losses in a row. Expected Value is a math concept. You can do some experiments with it by dealing with small examples, small enough to exhaustively enumerate all possibilities, then just counting up the outcomes. Based on his prior posts here and their mathematical sophistication, I'm extremely confident that Ted's figures are correct. I also think you are venturing into the realm of questionable / poor taste, asking for free tutoring on a product that you intend to sell. Particularly that you intend to sell using rush-rush pressure tactics like "Do not sleep on this. It won't last forever."

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Hiramhon wrote:Yes, your thinking is wrong. You seem to be interested in the MAXIMUM POSSIBLE number of occurrences of "N losses in a row". Consider the case of three losses in a row. Clearly and obviously the maximum possible number is 16 occurrences of three losses in a row, when there are exactly 50 losses in 100 trades. Here is incontrovertible proof, an example:

WLLL WLLL WLLL WLLL WLLL WLLL WLLL WLLL
WLLL WLLL WLLL WLLL WLLL WLLL WLLL WLLL
WLLW WWWW WWWW WWWW WWWW WWWW WWWW WWWW
WWWW

Count it up. There are 100 trades, of which 50 are wins and 50 are losses. Three losses in a row occurs 16 times. But your table says "12.5", twelve and a half.
When I first tried to develop this I did what you just did, "WLLL WLLL". But I only did it for row "1" and row "2'. I then talked to my friend and he gave me the method I used in my Excel spreadsheet. Rows 1 and 2 were right and I did not catch that Row 3 did not add up like you just demonstrated. You are right Row "3" is wrong.

I will be calling my friend in the next day or two and get back to this. You have understood my first concept in developing this simple technique of determining how many contracts to trade. There is a more important question to ask in determining how many contracts to trade, but I want to see if I can get through this first.

I will post again when I get clear with this. There is another person I want to talk to also.

Hiramhon wrote:I also think you are venturing into the realm of questionable / poor taste, asking for free tutoring on a product that you intend to sell. Particularly that you intend to sell using rush-rush pressure tactics like "Do not sleep on this. It won't last forever."
I think you are not understanding my web site here. I have no intention of selling this Money Management System that I have made available to down load. The spreadsheet is for free. It is just a way, for me and any one else who would like to have it, to determine how many contracts they should trade with a system they are using. I also explain my trading system too. I don't know if you read that part but it is there for people to have.

The phrase " Do not sleep on this." is a play on the "Hare", which is my theme on my web site . If my method continues to trade like it is, I do not see myself giving out trade signals forever. It is too time consuming.

(Just a side note)
The CFTC subpoena my documents and asked me to take out what they considered to be "hype". Naturally I complied.

Ghostrider
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This is one of those amazing strings. I read a few posts and I couldn't take it anymore, so here's my comment.
If I was seekinga review of my money management, I'd explain it, then compare the test results to say fixed fractional and maybe % ratio, and if the test results of the new money management were better than the others, I'd consider trading it. This whole thing would take about two sentences to explain. Could you do this?