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Pascal's Triangle as MM

  • Post #1
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  • First Post: Edited at 10:04pm Dec 25, 2007 10:35am | Edited at 10:04pm
Because soooo many ask, I might as well post it.

How to use Pascal's Triangle as a guide to MM:



Those are what we affectionately call "hockey sticks" for obvious reasons. You can start with any progression. Because the pascal's triangle has Fibonacci embedded in it, you are guaranteed to get an optimized path.

Different paths yield different reduction speeds.
70,56,28,8,1 Translated into mini would be excellent.

I really like the 45,36,28,21,15,10,6,3,1. That's excellent and has worked well in a pyramid in the past for me.

The red hockey stick of 84,56,21,6,1 works well also.


How I usually do it:

1) Pick the number of "steps" I want in a pyramid
2) Pick the starting amount in lot sizes. If the lot sizes seem too big, put a decimal between them.
3) From that number, pick a path radiating out that progresses at a rate you like.

Easy, breezy, beautiful..
Attached Image
google:
it seems that tripod doesn't want us to see the mm image.
Can you please repost your image, it looks interesting
I use picnac.com for that
"Abandon all hope, you who enter here" La Divina Commedia, Dante Alighieri
Hi Twoblink!

I knew Iīd get something special for this Christmas ! Please, do repost the image through some other image-hosting service. Thank You in advance.

God bless You and Merry Christmas to You and Your family!!!

Bluefish
Repost of a hard copy, not just a link. Enjoy!
google:
erm...any more explaination??
Patience is virtue
@twoblink

so do you do forward or reverse pyramiding?
From your fist journal, it looks like you are doing forward pyramiding (could be wrong there). But in this thread, it seems that you are saying to do reverse pyramiding.
To answer your question, I don't do either. I straight Kelly, so as the bankroll shrinks or grows, so does my position.

That said, Ed Seykota recommends that pyramiding be like the One dollar bill:

"Pyramid smaller and keep an eye on top of it!"

As for "more explanations", What do you actually want?? I can get into complex math theory, but is that really useful to you? If you need me to explain the math, my theory is, you probably wouldn't understand the math if I explained it.

"Any man who reads too much and uses his own brain too little falls into lazy habits of thinking. " (Albert Einstein)

So stare at the triangle a bit more, google it, read up on the secrets contained within it. I am just a man with an internet connection and google.com, just as you. I highly recommend you doing a search and reading for yourselves. You will learn more and probably find new discoveries along the way.
google:
Nice stuff Twoblink. I love theories like this, especially because it has fibonacci rooted to it (as you said, I haven't really read it yet, but I do plan to do a lot of research on this. Thanks once again.
I dream, therefore I become.
So if you straight kelly... means that you have to know your win ratio and win %. Do you get the figure based on backtesting? Also, do you use 0.20 as your kelly factor and 5% per trade?
Where did you get 0.20 as my kelly from??

I calculate my kelly based on my past performance, with buffet discount.

@Mike

http://ptri1.tripod.com/ There you go! All you ever wanted to know about the pascal's triangle.. (No, seriously, that is the title of the page!)

You can see the fib effect in it from the explanations.
google:
try to understand pascal s triangle with this|
Such a "diagonal" has a sum that is a Fibonacci number. In the case of the example, the Fibonacci number is 13: 1
1 1
1 2 1
1 → 3 ↓ 3 1
1 4 →6 → 4 ↓ 1
1 5 10 10 →5 → 1 ↓
1 → 6 ↓ 15 20 15 6 →1
1 7 →21 35 35 21 7 1
1 8 28 56 70 56 28 8 1
1 9 36 84 126 126 84 36 9 1
1 10 45 120 210 252 210 120 45 10 1
1 11 55 165 330 462 462 330 165 55 11 1
1 12 66 220 495 792 924 792 495 220 66 12 1
1 13 78 286 715 1287 1716 1716 1287 715 286 78 13 1
1 14 91 364 1001 2002 3003 3432 3003 2002 1001 364 91 14 1
1 15 105 455 1365 3003 5005 6435 6435 5005 3003 1365 455 105 15 1
1 16 120 560 1820 4368 8008 11440 12870 11440 8008 4368 1820 560 120 16 1
The second highlighted diagonal has a sum of 233. The numbers 'skipped over' between the move right and the move down-right also sum to Fibonacci numbers, being the numbers 'between' the sums formed by the first construction. For example, the numbers skipped over in the first highlighted diagonal are 3, 4 and 1, making 8.
In addition, if row m is taken to indicate row (n + 1), the sum of the squares of the elements of row m equals the middle element of row (2m − 1). For example, 12 + 42 + 62 + 42 + 12 = 70.
if I explain here, will most of you stop PM'ing me about it, or will this cause more PM's?? :

Micro explanation:


~~~~~ Pascal's Triangle as a Lot Size (MM) determinant ~~~~~

I think the EUR is going up and I am willing to enter up to 4 lots in position if things go my way.

I decide I want to split it into 4 entries as a pyramid..

I shop around in the pascal triangle, and I see the orange hockey stick that fits my needs...

21,15,5,1

21+15+5+1 = 42 Great!

Because I'm not Bill Gates and don't work for a bank, I'll scoot the decimal over by one.

I will have a predetermined total of 4.2 positions.

So I go long on the EUR with 2.1 lots.
Assuming the market is up, at another predetermined point, I buy another 1.5 lots.
As it keeps climbing, I buy another 0.5 lots.
And it climbs again, and I buy another 0.1 lots.

First Entry 2.1 lots
Second Entry 1.5 lots
Third Entry 0.5 lots
Fourth Entry 0.1 lots

Total, I have purchased: 2.1 + 1.5 + 0.5 + 0.1 = 4.2 lots.

This is using the pascal triangle as a lot size pyramid.
google:
I was thinking, I really should write this in a book, and charge you all for it.. maybe I will...
This post is dedicated to razldazl's 3 kids, hopefully, some of this information will go towards their college fund someday.. I'm a sucker for hard working moms, the most difficult job in the world..

~~~~~ Pascal's Triangle used in Stop Losses with MM ~~~~~

This is just an example of what can be doing with hockey stick pairings.


Blue hockey stick vs orange hockey stick.

Blue: 84,56,21,6,1 As my SL stick
Orange: 21,15,5,1 As my MM stick

The relationship between them is a shared rate of decay. All of this is quite complex math, with multiple hidden fib ratios, but the pascal triangle takes care of all that complexity for you, and is more of a lookup chart with hidden math.

The theory is, as price keeps moving in my favor, I build more and more distrust and make it prove itself to me in smaller increments (liken it to mountain climbing, the air should be thinner the higher you go)

So:
I think EUR is going up, same situation and lot sizes as the above.

A) I enter with 2.1 lots, and put my SL 84 pips away.

Max Risk if SL hit: -176.4 pips

A2) It moves 21 pips in my favor.
B) I enter another 1.5 lots and I put my SL 56 pips away for both sets, thus reducing my risk.

Position check:
2.1 lots @ + 21pips with SL -56 pips deep (-73.5 pips max risk)
1.5 lots @ +0 pips with SL -56 pips deep (-84 pips max risk.. familiar number??)
Max total risk if SL was hit, -157.5 pips

(Note that pyramiding reduces our total risk even though we have a bigger position size, the reason why I ALWAYS advocate averaging up, and the stupidity and folly of averaging down.. Do the math, and never listen to stupid people who are math illiterate)

B2) It moves another 15 pips in my favor.
C) I add another 0.5 lots and now put the SL only 21 pips away.

Position check:
2.1 lots @ +36 pips with SL -21 pips deep (this one has locked in profit)
1.5 lots @ +15 pips with SL -21 pips deep
0.5 lots @ +0 pips with SL -21 pips deep
Max Risk of SL was hit, +1.5 pips (We are no on the + side and can't lose past this point)

C2) It moves another 5 pips in your favor.
At this point, I'd probably forgo the additional 0.1 lots and just exit and take profit. That's me personally.

If this is the case,

Position Check on Take Profit:

2.1 lots X +41 pips = +86.1 pips
1.5 lots X +20 pips = +30 pips
0.5 lots X +5 pips = +2.5 pips

Grand total = +118.6 pips if you took a TP at this point.

Your hockey sticks and lot sizes and SL depth might vary, but this is one of the many methods to use 2 pascal triangle hockey sticks to do both MM control and SL control in combination.

You will note that while prices only rose +41 pips, we were able to extract 118 pips from it, with minimal risk, with the risk being highest at the beginning (-176 pips) and never greater than that. Averaging up and pyramiding in will allow you mass pip extractions from a small movement with no increased risk.

This is "Anti-martingaling" in a sense.

Hope this answers a massive amount of questions and relieves my PM box.
google:
Quoting twoblink
I was thinking, I really should write this in a book, and charge you all for it.. maybe I will...
This post is dedicated to razldazl's 3 kids, hopefully, some of this information will go towards their college fund someday.. I'm a sucker for hard working moms, the most difficult job in the world..

~~~~~ Pascal's Triangle used in Stop Losses with MM ~~~~~

This is just an example of what can be doing with hockey stick pairings.


Blue hockey stick vs orange hockey stick.

Blue: 84,56,21,6,1 As my SL stick
Orange: 21,15,5,1 As my MM stick

The relationship between them is a shared rate of decay. All of this is quite complex math, with multiple hidden fib ratios, but the pascal triangle takes care of all that complexity for you, and is more of a lookup chart with hidden math.

The theory is, as price keeps moving in my favor, I build more and more distrust and make it prove itself to me in smaller increments (liken it to mountain climbing, the air should be thinner the higher you go)

So:
I think EUR is going up, same situation and lot sizes as the above.

A) I enter with 2.1 lots, and put my SL 84 pips away.

Max Risk if SL hit: -176.4 pips

A2) It moves 21 pips in my favor.
B) I enter another 1.5 lots and I put my SL 56 pips away for both sets, thus reducing my risk.

Position check:
2.1 lots @ + 21pips with SL -56 pips deep (-73.5 pips max risk)
1.5 lots @ +0 pips with SL -56 pips deep (-84 pips max risk.. familiar number??)
Max total risk if SL was hit, -157.5 pips

(Note that pyramiding reduces our total risk even though we have a bigger position size, the reason why I ALWAYS advocate averaging up, and the stupidity and folly of averaging down.. Do the math, and never listen to stupid people who are math illiterate)

B2) It moves another 15 pips in my favor.
C) I add another 0.5 lots and now put the SL only 21 pips away.

Position check:
2.1 lots @ +36 pips with SL -21 pips deep (this one has locked in profit)
1.5 lots @ +15 pips with SL -21 pips deep
0.5 lots @ +0 pips with SL -21 pips deep
Max Risk of SL was hit, +1.5 pips (We are no on the + side and can't lose past this point)

C2) It moves another 5 pips in your favor.
At this point, I'd probably forgo the additional 0.1 lots and just exit and take profit. That's me personally.

If this is the case,

Position Check on Take Profit:

2.1 lots X +41 pips = +86.1 pips
1.5 lots X +20 pips = +30 pips
0.5 lots X +5 pips = +2.5 pips

Grand total = +118.6 pips if you took a TP at this point.

Your hockey sticks and lot sizes and SL depth might vary, but this is one of the many methods to use 2 pascal triangle hockey sticks to do both MM control and SL control in combination.

You will note that while prices only rose +41 pips, we were able to extract 118 pips from it, with minimal risk, with the risk being highest at the beginning (-176 pips) and never greater than that. Averaging up and pyramiding in will allow you mass pip extractions from a small movement with no increased risk.

This is "Anti-martingaling" in a sense.

Hope this answers a massive amount of questions and relieves my PM box.
My children thank you, my grandchildren thank you even my dogs thank you Two Blink LOL, great great stuff 118 pips out of 41, amazing!
Never say never.
Hi TwoBlink,
Im trying to do this using units on oanda, am I doing it completely wrong, do I have to change units to lots or does it work whatever you use...try and follow and sorry if Im way off base

Good. So I am applying mm and Pascals triangle, but Im going to use different numbers just because Ive already entered the trade with 100 units on oanda and this simplifies things on this one, so Im going to use 10, 6, 3, and 1, which on oanda would translate to 100 60, 30 and 10. Ok, so then I will stick with your sl numbers, so they would be 84,56, 21, 6 and 1

In this case it means...I sold swissy at 1.0995, so my stop for now is at -84 pips which is 1.1079, instead of original 1.100

So, I entered with 100 units (yeah I know its tiny but Im just trying to get the hang of this adding and subtracting stuff) and my stop is 84 pips away
It moves 10 pips in my favour I add 60 units and put my stop at 56 pips away on both positions
Position check 100 units @+10 pips with sl @-56 (-46 pips risk)
60 units @0 pips with sl @-56 pips with sl @ -56 (56 x .6 =33.6 risk)
Max total risk if sl hit is 79.6 pips

Am I way off here? ... just running out the door so will look back later on, thanks so much, Raz
Never say never.
Quoting twoblink
I was thinking, I really should write this in a book, and charge you all for it.. maybe I will...
This post is dedicated to razldazl's 3 kids, hopefully, some of this information will go towards their college fund someday.. I'm a sucker for hard working moms, the most difficult job in the world..

~~~~~ Pascal's Triangle used in Stop Losses with MM ~~~~~

This is just an example of what can be doing with hockey stick pairings.

Hope this answers a massive amount of questions and relieves my PM box.
I usually set sl and add to positions using s/r levels I identify on charts, which I find more "trustworthy" than fibs, whenever they don't agree. Do you find these levels often correspond to Pascal-triangle based prices?
Also, what do you do if you've just added your last planned lot, but your TA or whatever-analysis screams at you "hey, I have a lot more to move here in the direction of your trade!"? Will you still close all the positions, as you suggest, or take only a partial profit? In a [rare?] situation like this, I might
even add to my position if I could.
Quoting twoblink
This post is dedicated to razldazl's 3 kids, hopefully, some of this information will go towards their college fund someday.. I'm a sucker for hard working moms, the most difficult job in the world..
Thank You, Twoblink, for being very kind to razldazl (and the rest of us ) with explaining the use of Pascalīs triangle. I for one really appreciate it.
And to You, dear Razldazl - good luck with trading. Twoblink said, that being Mom is the most difficult job in the world, but may I add, also the most beautiful one!

All the best

Bluefish
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting twoblink
Because soooo many ask, I might as well post it.

How to use Pascal's Triangle as a guide to MM:



Those are what we affectionately call "hockey sticks" for obvious reasons. You can start with any progression. Because the pascal's triangle has Fibonacci embedded in it, you are guaranteed to get an optimized path.

Different paths yield different reduction speeds.
70,56,28,8,1 Translated into mini would be excellent.

I really like the 45,36,28,21,15,10,6,3,1. That's excellent and has worked well in a pyramid in the past for me.

The red hockey stick of 84,56,21,6,1 works well also.


How I usually do it:

1) Pick the number of "steps" I want in a pyramid
2) Pick the starting amount in lot sizes. If the lot sizes seem too big, put a decimal between them.
3) From that number, pick a path radiating out that progresses at a rate you like.

Easy, breezy, beautiful..
This is absolutely awesome! It never ceases to amaze me how many little nuggets of wisdom are contributed to this forum on a daily basis.

I've been toying with the idea of applying hockey sticks to optimize stop-losses for an opening trade so we'll see how that goes.

TrevA
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting 6pack
I usually set sl and add to positions using s/r levels I identify on charts, which I find more "trustworthy" than fibs, whenever they don't agree. Do you find these levels often correspond to Pascal-triangle based prices?
Also, what do you do if you've just added your last planned lot, but your TA or whatever-analysis screams at you "hey, I have a lot more to move here in the direction of your trade!"? Will you still close all the positions, as you suggest, or take only a partial profit? In a [rare?] situation like this, I might
even add to my position if I could.
I do the same things as you. Just using a fibo as an arbitrary stop loss doesn't make sense. Used in conjunction with sr or daily pivots does.

Do you think it is possible to model hockey sticks around pivots? I wonder if any research has been done into fibo-levels around pivot points for reversals... that is... at what level does a price over or undershoot a pivot level before reversing.... just idle curiosity.

TrevA
  • Post #20
  • Quote
  • Edited at 10:27pm Jan 18, 2008 11:28am | Edited at 10:27pm
One of the things I forgot to mention is that,
if you took 4.1 lots and divided it into the +118.6 profitable pips, and that gives you your "raw" pips per lot. In this case, that's 28.9pips raw per lot. That is off a 41 pip movement, so you've captured 70% (28.9/41) of the entire movement with less risk. That is why people pyramid.

There are better more intelligent ways to learn where to put the SL's, but absent the knowhow, this is as good as any, and the system works in your favor exponentially.

And razldazl, you are doing fine... It's gotta make sense to YOU, that's the important part.

I actually was dreaming about a method to work with fibs easily, and in the dream, I remembered the fib relationships in the pascal triangle.. Thus the use of it.
google:
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