Why do you limit the maximum drawdown on the account? - page 17
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I'm not an economist, I don't do a lot of things. Still, I think I'm thinking from a common sense point of view)
I come to a BCS office a couple of months ago, they accept me as a potential investor, first of all I answer that I have the possibility to allocate 1 mn RUB for investments. Among other things they offer me a strategy to manage my assets with expected profit of 100% p.a. and a risk of 50% of investment.
According to you, I should invest the entire amount because it is a lot of money (for me); investment planning; preserving future substantial profits, etc. etc. In my opinion, it is right to invest 500tp and offer a return of 200% with a risk of 100%.
In this case, I get operational space and possibility to dispose the remaining sum, which I can multiply or spend on something substantial and useful at a given time, rather than keeping it, in fact ballast, in an investment account.
Or I am a trader and I explain the essence of my system in brief, which is not worse than others, but with a possible theoretical 100% profitability. At the same time I explain the main trading principle where I use all assets of my deposit and open a deal with a volume that characterizes the current state and the market and the risk of it in case of wrong market estimation. To diversify risks within one account I open, for instance, 10 deals with 10% risk of the deposited funds each. Explaining that the probability of errors in 10 trades in a row is almost impossible, moreover the TP is several times bigger than SL, which means that even a numerical loss ratio will not affect the final result.
But I don't find the investors' understanding that I work with the whole depo and there is a risk, respectively, of the whole depo.
If you allow a drawdown of e.g. 20%, what is the purpose of the remaining 80% of the account? In this case, open an account with 20% of all funds and work for all. Trading with a max drawdown of 20% of the total amount available and trading with a drawdown of 100% of the total amount is one and the same.
I don't talk to anyone about it, but they all turn their heads. Maybe I don't understand?
If you do not know what to do with trader, you should invest 100% of your account balance, i.e. not 100$ when the drawdown is 20%, but 20$ when the drawdown is 100%.
What's so wild about it?
and the interim withdrawal is kind of a no-no? Who is forcing an investor to reinvest until the end?
The intermediate withdrawal is simply another option with the cut rate. By leaving the ejection time t unchanged from the pamphlet we are cutting the volumes, thereby reducing capitalisation. The same result can be achieved without withdrawing anything, but by reducing the holding time of money in the pamm, in this case the capitalization will be maximum, but the holding time will be limited. Knowing the extreme instability of PAMM accounts the second option is always preferable.
The intermediate conclusion is just another option with a cut rate. Leaving the catapulting time t from the pamphlet unchanged we are cutting the volumes, thereby reducing capitalisation. The same result can be achieved without withdrawing anything, but by reducing the retention time of money in the pamm, in this case the capitalization will be maximum, but the retention time will be limited. Knowing the extreme instability of the pamm-accounts the second option is always preferable.
I don't understand why you have to set this ejection time, leave it unchanged, etc. The investor has X amount of capital. He decides to allocate 10% of the invested capital to manager #1, i.e. 0.1X. For example, the manager has earned 10% within a month. He has a total of 0.11X. The total capital of his manager (excluding other investments) is 1.01X. Next month the investor decided to place 10% of his capital with this manager again, i.e. 0.101X. Accordingly he has to withdraw 0.09X.
If the manager has lost, the investor's capital has become 0.9X. And then he makes his investment decisions based on it. So there is nothing wrong with 100% risks and both investors and managers need to be prepared for them in advance. You just don't put all your eggs in one basket.)
I come to a BCS office a couple of months ago, I am accepted as a potential investor and first of all I answer that I can allocate 1m roubles for investments. Among other things, they offer me a strategy for managing my funds where the expected profit is 100% per annum at a risk of 50% of the investment.
According to you, I should invest the entire amount because it is a lot of money (for me); investment planning; preserving future substantial profits, etc. etc. In my view, however, it is right to invest 500p and offer a return of 200% with a risk of 100%.
Let T1 strategy give 100% p.a. with a maximum drawdown of 50%. Let the desired risk factor for investor A be 50% and for investor B be 100%. Let the amount to be invested by both investors be the same and equal to 1,000,000 roubles. Define the investment horizon for both investors: 1 year. Assume that strategy T1 is stable over time and shows the stated performance. Then after one year the portfolio of investor A will be: 1,000,000 roubles + 1,000,000 roubles * 100% = 2,000,000 roubles. At the same time the worst portfolio result will be fixed at 500,000 roubles. Now let's calculate for investor B the portfolio condition at the moment of maximum drawdown: 500 000 roubles + (500 000 roubles * (-100%) = 0 roubles. Now investor B invests the remaining half of the funds in T1: funds of 0 roubles + 500 000 roubles 500,000 + 500,000 * 200% = 1,500,000 roubles. So, from the second part of the deposit he managed to earn the claimed 200% per annum. Totals for the year: investor A: 2,000,000 roubles, investor B: 1,500,000. With less risk, investor A earned more. P.T.D.
Let the T1 strategy give 100% p.a. with a maximum drawdown of 50%. Let the desired risk factor for investor A be 50% and for investor B be 100%. Let the amount to be invested by both investors be the same and equal to 1,000,000 roubles. Define the investment horizon for both investors: 1 year. Assume that strategy T1 is stable over time and shows the stated performance. Then after one year the portfolio of investor A will be: 1,000,000 roubles + 1,000,000 roubles * 100% = 2,000,000 roubles. At the same time the worst portfolio result will be fixed at 500,000 roubles. Now let's calculate for investor B the portfolio condition at the moment of maximum drawdown: 500 000 roubles + (500 000 roubles * (-100%) = 0 roubles. Now investor B invests the remaining half of the funds in T1: funds of 0 roubles + 500 000 roubles 500,000 + 500,000 * 200% = 1,500,000 roubles. So, from the second part of the deposit he managed to earn the claimed 200% per annum. Totals for the year: investor A: 2,000,000 roubles, investor B: 1,500,000. With less risk, investor A earned more. B.T.D.
I am not talking about the calculation of the trade's equity based on the drawdown, but about the part of the capital used in trading. Investor A will invest twice as much as B, and the relative drawdowns will be the same and margin call if anything
You just don't have to put all your eggs in one basket.)
You can't make one good manager out of 10 fools. Diversification only makes sense if it is based on accounts with positive stable returns. In order to create such accounts, the manager must control his risk, otherwise even with 10,000,000 managers risking everything, it is impossible to build a stable investment portfolio.
Then you cannot invest with 50% or 100% risk at all. Of course, we are talking about potentially profitable ones.
It's not about calculating the trade size based on the drawdown, it's about the amount of capital used in the trade. Investor A will invest twice as much as B, and the relative drawdowns will be the same and margin call if anything
Investors A and B will end up investing the same amount: 1 million roubles each. The one that risked more got less. replace T1 with any other system and parallel investing (diversification) the result will remain unchanged: with more risk he will get less profit.
Investors A and B ended up investing the same amount: 1 million roubles each. The one that risked more got less. replace T1 with any other system and parallel investing (diversification) the result remains unchanged: with more risk he will get less profit.
well you have calculated it wrong. For the system to earn 100% p.a. after a 50% drawdown it must earn 300% over the remaining time (of the funds after the drawdown). Ie in case of B earnings after drawdown area will be: 500K+500K*300%=2000K. I.e. the same eggs in profile))