Lot Sizing (Money Management System) - Which one you prefer? - page 2
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Hi Figurelli,
thanks for your comment.
If you can give more informations about probability and quantitative I believe would be interesting for me and maybe other members.
Thanks
Hi Figurelli,
thanks for your comment.
If you can give more informations about probability and quantitative I believe would be interesting for me and maybe other members.
Thanks
Rosiman, thanks, I read this as a deterministic factor and a probabilistic factor that we can code as a quantitative method for money management.
For instance, you can use the famous Kelly Criterion (http://www.investopedia.com/terms/k/kellycriterion.asp) using the winning probability factor and the win/loss ratio for lot sizing.
The win/loss ratio is easy to calc using trading history functions in MT5 (deterministic factor). The winning probability, i.e. the probabilistic factor, is for me a very quantitative criterion and you can use various techniques to figure out, like detection of relevant news on the market or resistance/support breakouts.
This is just an example, there are several quantitative deterministic/probabilistic methods and approaches for money management.
Rosiman, thanks, I read this as a deterministic factor and a probabilistic factor that we can code as a quantitative method for money management.
For instance, you can use the famous Kelly Criterion (http://www.investopedia.com/terms/k/kellycriterion.asp) using the winning probability factor and the win/loss ratio for lot sizing.
The win/loss ratio is easy to calc using trading history functions in MT5 (deterministic factor). The winning probability, i.e. the probabilistic factor, is for me a very quantitative criterion and you can use various techniques to figure out, like detection of relevant news on the market or resistance/support breakouts.
This is just an example, there are several quantitative deterministic/probabilistic methods and approaches for money management.
The (winning probability) && (win ratios) are subject to change for traders (in general). Only a mathematical-edge can benefit from Kelly's formula. For Example:
A coin-toss game where you win 2x(your wager) when Heads is flipped..... but only lose your wager when a Tail is flipped. <--Clearly you have an Edge because your Average-Win is higher. Another Example:
A dice game where you win your wager if the dice rolls any # >=3 but lose only when a 1 or 2 is rolled. <--Clearly you have an Edge because your Probability of Winning is greater.
Trading involves speculation ... there are no-mathematical beatable formula / system that I'm aware of. The ones we do read about are termed Arbitrage and even those carry execution Risks.
There is no money-management system which is going to turn a Losing-Strategy into a Winning-Strategy. But bad money management can turn a winning-strategy into a Loser through Over-Betting.
Martingale is not worse than ... Flat betting is no worse than .... Fractional betting. All that matters is
A) Does the system have an edge? ... (Kelly calculates this by flat betting). and
B) Are you Over-Betting your edge? ...(Are you risking more than the Optimal-K).
use fixed $ not 2% and all that ...
see if we have 10,000 $ and per trade we are risking fix 300 $ on every trade and risk ration must be 1:2 or 1:3
lets say risk as R =300
lets see ration profit losses lets take 100 trades and risk ration 1:2
-1R total loose 60 trades and profit 40
-1R so as a fix dollar money rule we are having 60R loss and profit 40 x 2 = 80 R
2R still you can make money from forex
2R
-1R hope you guys enjoyed it
2R
STILL WE HAVE 3R PROFIT MEANS K 900$
lets say risk as R =300
lets see ration profit losses lets take 100 trades and risk ration 1:2
-1R total loose 60 trades and profit 40
-1R so as a fix dollar money rule we are having 60R loss and profit 40 x 2 = 80 R
2R still you can make money from forex
2R
-1R hope you guys enjoyed it
2R
STILL WE HAVE 3R PROFIT MEANS K 900$
Wrong. You only have control over the StopLoss and TakeProfit. You have NO control over the Win-Rate in your example. Do-not assume you're guaranteed 40% wins.
Further more the Sl && Tp are also not guarantee because of stuff like Weekend_Gaps and News_Gaps. Also..... factor in your Costs of doing business.
Thank you both Figurelli & Ubzen,
I believe that the "Money Management" being an important rule on strategy system, divides thoughts and methods of calculation of each one.
In any case, backtest can give the right feedback on each different strategy.
The (winning probability) && (win ratios) are subject to change for traders (in general). Only a mathematical-edge can benefit from Kelly's formula. For Example:
A coin-toss game where you win 2x(your wager) when Heads is flipped..... but only lose your wager when a Tail is flipped. <--Clearly you have an Edge because your Average-Win is higher. Another Example:
A dice game where you win your wager if the dice rolls any # >=3 but lose only when a 1 or 2 is rolled. <--Clearly you have an Edge because your Probability of Winning is greater.
Trading involves speculation ... there are no-mathematical beatable formula / system that I'm aware of. The ones we do read about are termed Arbitrage and even those carry execution Risks.
There is no money-management system which is going to turn a Losing-Strategy into a Winning-Strategy. But bad money management can turn a winning-strategy into a Loser through Over-Betting.
Martingale is not worse than ... Flat betting is no worse than .... Fractional betting. All that matters is
A) Does the system have an edge? ... (Kelly calculates this by flat betting). and
B) Are you Over-Betting your edge? ...(Are you risking more than the Optimal-K).
Anyway, obviously the complexity and uncertainty of the market is infinite, and, as I stated, this is just one example of modeling using probability and quantitative position size to risk at each trade.
Strongly disagree. Note that winning probability is not deterministic, so machine learning systems may also have great benefits with the Kelly criterion, as you can test and learn from data and find probabilistic factors that works in the same way in backtesting, forward testing and real testing. For sure, to do this, we need create innovative systems architectures to explore this probabilistic factors.
Anyway, obviously the complexity and uncertainty of the market is infinite, and, as I stated, this is just one example of modeling using probability and quantitative position size to risk at each trade.
Well it'll make for a dull conversation if everyone agrees. From what I've read within articles on this forum, machine learning systems add to the complexity but do-not produce any additional benefits compared to traditional methods. But I guess you'll dis-agree with that too.
https://www.mql5.com/en/articles/525
Interesting discussion, however:
1. I'd love to see someone sizing his position using Kelly criterion and not going bankrupt in the long term - as Kelly criterion usually results in double-digit figures of recommended % risk per trade.
2. Mr4Rana: As I have already said, using fixed lots is far from optimal, as:
- you will never reach your earning potential while winning (as 300$ might become 0.1% or 0.01% of your capital, and such trades won't have any considerable impact on your earnings)
- you will take way too much risk when losing (as 300$ might become 10% or 20% of your capital and you could wipe out your account completely before you even realize it)