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I really cant prove anything with information provided. Extrapolation of data supplied shows that at a level of equality NP=400K the DD for #2 = 40K and for #1 it is 60K, so as I understand it risk of ruin is faster with #1 == no money == no trades and a variety of simulations such as Monte Carlo could offer somre insight into how soon and what propability it happening first, assuming account size of 10k then you would be out of trading sooner with #1 as it is depleted and you cant carry on trading at the same level with reduced account size. HOW SOON the DD happens is a huge factor to resolving these questions. YMMV
I realize not well said, but trying to be brief.
Jon
Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
YUP. I was thinking that also, should have said that as well.
Jon
Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
It is probability theory. Although an individual coin toss or the roll of a dice is a random event, if repeated many times, the sequence of random events exhibits certain statistical patterns, which can be studied and predicted. Two representative mathematical results describing such patterns are the 'law of large numbers' and 'central limit theorem'.
If you trade both, and if you assume that future performance will match historical performance (a problematic assumption possibly, but let's set that aside for the moment), then you'd expect net profits of 50K and a max drawdown of 7K (assuming both strategies hit max drawdown at the same time). Min drawdown could be zero (assuming that strat 1 hits max 6K drawdown at the same time that strat 2 is on a 6K winning streak). Actual expected drawdown can't be computed without additional input I believe (need to know correlation for instance).
Ok, trick question! The trick is that you flipped the role of heads, you win on heads with 1 guy and loose on heads with the other guy on the same coin toss. I thought you were always betting 1 way, just plain win or loose, heads you always win, tails you always loose.
Ok, give an actual trading example to demonstrate your point.
In my experience, the first week I start live trading the system with a "max $1K drawdown" I'll wind up with a $2K drawdown, so trusing my account equity to any theory remains a problem for me.
But I'm interested in seeing where this thread is going so I can learn more.
You can make odds work in your favor. In Las Vegas, if you go to the "Craps" table and bet the "No Pass" line every time , assuming you have sufficient capital to cover you during the draw downs, you will make money over time.
The "house" is profitable because the odds are in their favor; players will lose eventually. The house has a large enough bank to ride out the streaks where players win more than they lose , a streak that historically is always short lived. By betting against the player throwing the dice, you are aligning yourself with the house position.
BTW... You won't make any friends doing this ... but you will make money.
I'm just a simple man trading a simple plan.
My daddy always said, "Every day above ground is a good day!"