Combinatorical Money Management

Hello again.

This is just an idea I had, based on a software testing course I took. The idea is loosely based on Latin Square combinatorics.

The idea is to have a high R:R, and risk half profits from each winning trade on the next two trades......

So.....

If R:R is 3:1, for example, and each trade risks $50.... An example sequence might go....

L -50
L -50
W +150
W +225 (75x3) (risking 1/2 of previous)
L -75
...... now at this point, you are up +$200....

I guess what I am trying to do here is risk all my winnings, and compound them as much as I can.


A true combinatorical sequence would be set up like a truth table, where:

- - W
- W W
W W W
W - -
W W -
- W -

Where Ws could be winners or losers..... and the idea is to compound as much as possible, while avoiding losing trades. You'd need to split your capital up into little chunks to do this.

Anyway, its just a thought.

PLEASE DO NOT TRADE THIS WAY.... WE DO NOT KNOW IF IT IS WORTH ANYTHING YET....

I think this is pretty inovative. It is like a Oscar's Grind on steroids. Thanks for posting the concept. I am going to think about this for a while, before responding indepth.

Very interesting post. Thanks for sharing with us.

I think I'm confused. So the goal is to incrementally increase your risk amount by half the last winning trade. So if your risk is $50 on a 3:1. You win $150. half is $75. Wouldn't your next risk amount be $125(75+50). Maybe my math is wrong.

Never mind I get it. If you you just risk half the amount you prevously won you still safegaurd the money in your account to reduce drawdown and when you trade the next one you would risk $112.50(half of 225) with a potential return of $ 337.50. Thats pretty smart, and your still not risking much, if any of your initial account balance as long as you win 50% your trades

I got a little creative. I tested the system with a 3:1 R:R and a cointoss to determine the trade result for 20 trades. Here is the result in excel.
9 winners and 11 losers.
There is also a column for standard money management. I used 10%, so you can see how they differ.

Comments?

Hello again. Scott, I always like your feedback on these types of things.

I didn't really do a good job of explaining this method in post one.... here's a second try.

Let's say your system produces these 3 trades in sequence....

-50
+75
-50

Okay, so there are 3 trades, but a total of 6 combinations these could be traded.....

T N N
N T N
N N T
T T N
N T T
T T T

N = No trade (skip it)
T = Trade it

So.... if you traded the "N T N" set, you'd have no losses...... the others could be all losers, or a winner and a loser, etc....

So what I was thinking was, if I could split my capital 6 ways, then I might come out ahead better than with R%. Some would lose, some would win, etc....

So if I am risk 6% of my account with R%, then I might risk 1% on each sequence. If all 3 trades are losers, I lose my 6%.....

I don't know how well it would work.... or how many trades to put into sequence.... maybe your better off with:

T T
N T
T N

@ 2% per sequence.... or maybe you should build a matrix for 4 trades....

You will not do as well with this method if all trades win, but perhaps it could be a slow consistent winner, even in down periods.

Thanks JC

I revised it more how I see it in post #1.... this is the "risk your profit" method, not the exactly the same as the method described in post 7..... two trades, and if both lose, back to R% until a winner....

Results not as good as R%, but this strategy is more for losing periods I think....

The more I think about it, the more I like this for a long term approach.... instead of looking at it in terms of trades, you could apply this to fiscal year quarters, or even months....

Risk fixed percentage of your profit from one quarter to the next quarters (months, whatever).... that would help survive drawdowns....

Need better evidence, as this could be junk science.