Monte Carlo w/ your money management

Quoting tdion

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i don't think i've done a good job of explaining the idea

obviously this thread has nothing to do with how to obtain green pips... the focus is on maximizing those green pips when (or if) they come....
Understood

the first graph is profit/loss in terms of pips.
Yes, this is effectively fixed position size

the second graph is elevating the risk once a certain percent has been achieved (the "house money" as i like to call it...)
This is a kind of anti-Martingale (although nowhere near as severe as doubling up following each win). After enough wins have occurred, causing equity to reach a certain value, the bet size increases, putting wins and losses on an equal weighting. But then when enough losses occur, at the larger bet size, the bet size is reduced, so the subsequent recovery rate is impeded. Look at the green histogram in relation to the wins and losses in the equity curve, and you will see this effect. Immediately the blue curve falls sufficiently, the green histogram falls also.

the third graph is a slow and steady increase in risk as the account grows
Yes, this will work fine as long as the account continues to grow. But the increased risk means bigger losses when if / when trading conditions no longer favor the system. In other words, the early trades (when position size is low), are recieving lower weighting. IMHO there needs to be a reason to justify this, i.e. why these trades are less likely to be profitable.

here's the point of the entire thread: trade 1/2 the account as demonstrated with the first MM and 1/2 the account as demonstrated w/ the second... the end result would have been +300% on the year (1/2 of 600%)....
I assume that by the first MM you're referring to post #3, and the second is post #4?

there are years when the 1st MM would have made several thousand percent for me.... so it is definitely worth considering trading that way, even with a small percentage of my account.... and supposing i did risk 1/2 my account, +300% would look very small compared to a few thousand %
The anti-Martingale will perform exceptionally during a winning streak, because you're effectively increasing your bet size as the winners roll out. (It's akin to pyramiding your trading positions during a prolonged trend). But then any losses are also subject to the increased bet size, so a sudden losing streak will just as quickly undo all of the good work. Then you have the problem of the slow recovery rate, which is where I assume that your MM in post #4 (on the separate account) is designed to compensate.

to do what i am saying, you'd need two different accounts, completely isolated from one another

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Quoting Craig

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You are taking the piss aren't you?
The Kelly formula will lead to risk sizes that will kill you real quick on string of losers.

Anyway, back to the topic of the thread, check out this http://hquotes.com/tradehard/simulator.html, it's an eye opener.

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Quoting pippero

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Of course, it helps if have a very large number of trades you've backtested on, so that you can be more sure of the ratios and probabilities you're putting in. But I see tdion's system has taken 168 over a few years, that's not insignificant statistically speaking.

Maybe he could run the same system over more pairs, find out the one that gives the worst results and then average the best and worst ratios and probs and then put that into kelly's... just an idea.

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Quoting tdion

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.......
the "anti-martingale" is really just fixed fraction! instead of wimpy 2%, why not consider 15% per trade? but only do this after you are up about 25%... that way, you can turn down the risk if it starts eating into your original capital (see post 3)......
True enough, but remember that every time you turn down the risk, you decrease the immediate return; and vice versa. Since you prefer to play with the house's money, then that's fair enough. Cold statistical aspects aren't necessarily the only ones; there's no reason why MM shouldn't also incorporate personal and lifestyle considerations.

i never posted charts where the fixed fraction of 15% did well, but lets just say it is a few thousand percent in a year.... you are correct when you say it will "undo the good work" in a losing period.... so either you:

A) remove profits after achieving X percent
B) remove profits if you draw down X percent
C) remove profits at the end of X time period
Removing profit = decrease in account equity. Using fixed fractional, that equates to smaller position size. Again, lower risk = lower return.

as you said, recovery after drawing down with fixed fraction of 15% can take awhile... BUT... if you truly have an edge, it will come back soon .... just look how many "failures" were in post #3.... it had many chances to take off
I also believe that the key ultimately lies with the edge. If all of your years show a similar curve to that in your initial post, then you have a very high expectancy method. 900 trades is a very respectable sample, IMHO.

i actually look at it as an airplane trying to get off the ground... and when it soars, watch out buddy!

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