Dislikedp27 on your spreadsheet is where we diverge
you reached a new high balance (10,200) at o27.... so the next bet should have been (0.02 * 10200), and the win would have put at 10404.
it is a very minute point, but it is what it is.
okay so the idea (w/ a 2% risk) is to divide the highest balance you've attained by 50, and risk exactly that figure on each trade until a new high balance is achieved.
OK, I will amend the XLS and re-post. It's currently allowing us to change the % at risk, as opposed to keeping a fixed % of the changing (highest) balance. Similar concept, but let me make the modification, and we'll see what happens, and why.
so after losing 25 times in a row, your account would be drawn down 50%.... wheras with %R, it would be 0.98^25.... which a 40% drawdown. Note that my method will draw down faster, but WILL RECOVER FASTER.
I likewise believe that there is always a trade-off, i.e. to improve one aspect one must make sacrifices in another, leaving the overall expectancy (edge) unchanged, i.e. zero. But let's allow the math to prove it one way or the other.
it is all based on your expectancy to make consistent green pips. You lose 50 times in a row (or any other stretch where your losers outweigh your winners by 50.... example) 60 losses and 10 wins over 70 trades) you bankrupt the account....
while with %R, it is impossible to ever completely bankrupt the account.
Agreed, that was the exact conclusion I reached when comparing FDA and FFS in an earlier post.
i have simply proposed a solution that is less risky than martigale, and eliminates the "make more to break even" problem.Ignored
- #42
- Jul 6, 2008 5:31pm Jul 6, 2008 5:31pm
- Joined Nov 2005 | Status: EURUSD Quant FREAK | 3,197 Posts
- #44
- Jul 6, 2008 7:53pm Jul 6, 2008 7:53pm
- Joined Nov 2005 | Status: EURUSD Quant FREAK | 3,197 Posts
- #45
- Edited 12:11pm Sep 16, 2008 11:50am | Edited 12:11pm
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Trends exist: there's no doubt about it, price moves from one extreme to another, across all timeframes. That's the good news.
But, in the context of a move.......
1. Consider the anatomy of a winning trade:
-- Entry: we never catch the beginning of a move, beacuse we must wait for the move to confirm its existence. In other words, we enter late. (Enter too late, and we miss the move altogether.)
-- Exit: if we use a trailing SL, we never catch the end of a move, beacuse we must wait for the retracement to confirm its end. In other words, we exit late. Or if we use a TP, we exit too early, leaving pips on the table.
-- Costs: we must pay spread, and possibly swap.
Profit = length of move – profit forfeited on entry – profit forfeited on exit – costs
(of course if the outcome of this is neagtive, the win actually becomes a loss)
2. Consider the anatomy of a losing trade:
-- Entry: as above.
-- Exit: we get stopped out for a loss.
-- Costs: we must pay spread, and possibly swap.
Loss = distance between entry and stoploss + costs
SUMMARY:
-- On winning trades, we're forfeiting profit at both ends of the trade, and costs get deducted from the profit. Profit is what's left at the end of this process.
-- On losing trades, we bear the full brunt of the loss (i.e. there's no 'mirror image compensation' for the profit forfeited on the winning trades), and costs get added to the loss.
-- A winning trade can become a loss, if a trailing SL is employed, and price retraces sufficiently. But a loss can never become a win: once stopped out, it's all over.
-- For a net positive bottom line, the dollars won must exceed the dollars lost. So price must move far enough, on average, to generate wins large and frequently enough (taking forfeitures and costs into account) to exceed the losses, which is something we can't control. And if a move is as likely to end at one point as any other, then all of this amounts to significantly negative expectancy.
As I've illustrated earlier in the thread, we can't use MM to redress this balance.
It all adds up to another good reason why "MM + discipline" is not enough. A darn good method/strategy is required to overcome these odds. It's hardly surprising that so many newcomers (did somebody say 95%?) fail.
Anybody want to continue trading?
David
But, in the context of a move.......
1. Consider the anatomy of a winning trade:
-- Entry: we never catch the beginning of a move, beacuse we must wait for the move to confirm its existence. In other words, we enter late. (Enter too late, and we miss the move altogether.)
-- Exit: if we use a trailing SL, we never catch the end of a move, beacuse we must wait for the retracement to confirm its end. In other words, we exit late. Or if we use a TP, we exit too early, leaving pips on the table.
-- Costs: we must pay spread, and possibly swap.
Profit = length of move – profit forfeited on entry – profit forfeited on exit – costs
(of course if the outcome of this is neagtive, the win actually becomes a loss)
2. Consider the anatomy of a losing trade:
-- Entry: as above.
-- Exit: we get stopped out for a loss.
-- Costs: we must pay spread, and possibly swap.
Loss = distance between entry and stoploss + costs
SUMMARY:
-- On winning trades, we're forfeiting profit at both ends of the trade, and costs get deducted from the profit. Profit is what's left at the end of this process.
-- On losing trades, we bear the full brunt of the loss (i.e. there's no 'mirror image compensation' for the profit forfeited on the winning trades), and costs get added to the loss.
-- A winning trade can become a loss, if a trailing SL is employed, and price retraces sufficiently. But a loss can never become a win: once stopped out, it's all over.
-- For a net positive bottom line, the dollars won must exceed the dollars lost. So price must move far enough, on average, to generate wins large and frequently enough (taking forfeitures and costs into account) to exceed the losses, which is something we can't control. And if a move is as likely to end at one point as any other, then all of this amounts to significantly negative expectancy.
As I've illustrated earlier in the thread, we can't use MM to redress this balance.
It all adds up to another good reason why "MM + discipline" is not enough. A darn good method/strategy is required to overcome these odds. It's hardly surprising that so many newcomers (did somebody say 95%?) fail.
Anybody want to continue trading?
David
