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- Re:Another Strategy destined to fail

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11 REPLIES 11

Super Contributor

14-10-2009 03:01 PM

interesting. so you saying if you blow 50% of your capital you must risk 4% on the next trade?

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Valued Contributor

14-10-2009 09:48 PM

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Not applicable

14-10-2009 11:06 PM

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Valued Contributor

15-10-2009 08:16 AM

nope, read trade Your Way to Financial Freedom ..

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Frequent Contributor

15-10-2009 08:19 AM

let initial capital be "C"

then a positive trade will give C*1.02

and a genative trade will give C*0.98

A sequence of trades ... C * 1.02^p * 0.98^n

because multiplication is commutative. with p number of positive trades and n number of negative trades. And because multiplication is commutative the order with which the trades happen is not important. You make money as long as p > n. so any strategy that ensures p>n, will make money in the long run. You cannot run out of capital - I ignore small issues like trading costs.

Not scaling will take C to zero with any sequence (any) that where n-p>50. OK, given that would be a pritty crappy strategy.

PS: if you fix your growth expectation (say 15%) then that allows you to compute the p/(p+n) ratio - some say this is 0.6, that is 60% successfull trades.

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OK, I will check it out over the weekend

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Frequent Contributor

15-10-2009 08:35 AM

So the tradeoff between your suggestion and the traditional approach is that in your approach you should avoid any sequence that has n-p>50 and in the traditional scaled capital approach you should avoid any strategy with p/(n+p)<0.52. makes sense now.

Thanks, interesting post.

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