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I inserted the link to that thread, I think you will find a few things you touched upon in there.
Why don't you start a thread on that? I would very much enjoy such a thread! I think successful trading has two main elements: 1. you actually have an edge, 2. you execute that edge properly. One is nothing without the other.
I just checked out your journal. I thought it was going to be general comments about
your trading and such. I see a lot of math which I'm not competent to comment on.
(Be advised, I'm only on-line on the weekends. That's why it's been a few days.)
Well, you don't have to understand why a plane flies to travel with it...
I thought you might be interested in it for tracking different setups and so on as it pulls all the statistics out of your trades automatically....
Maybe I should be interested. At this point it's not something I'd be getting into.
I can see the importance of it though. monpere has done this sort of thing I think. He's always
talking about seeing certain setups and the probability of success. He apparently has a
very structured system.
I have posted a new (beta) version of the Journal ( see Trading Metrics for journals/record keeping ), now featuring a real, powerful Monte Carlo engine. As the formulas don't seem to be very precise, we could perhaps use the Monte Carlo instead. I could easily convert it to a standalone version if anyone wishes so...
That is right, it's completely different.
But ideally the results would be similar. Personally I would rather trust a Monte Carlo simulation with many iterations than the formulas you gave me. Bottom line is, both ways are only more or less accurate estimates. You can see that if you think about the initial collection of trades. Would you always exactly repeat this string of trades, your risk of ruin would either be 0 or 100%. This means that both ways involve a concept of shuffling the trades in the collection. I can not see that any of the RoR formulas actually calculates this risk. They all calculate an estimate of that risk. A MC actually calculates strings of trades, and that is done to the penny. But still it is a simulation based on. Random shuffling of the trades. In some cases the results could be very misleading, for example if trades in the original collection are grouped in long strings with many either winning or losing trades. The problem here is that the outcome of a trade would probably have a rather strong correlation to the outcome of the last trade. And as the MC selects trades randomly it breaks that correlation and thus leads to different results(although it would be theoretically possible to include similar behaviour in a MC engine).
I thought there were some basics concepts regarding risk of ruin.
The most basic to me is, if you're losing, then reduce position size.
Like if you look back, whatever, the past week (or 2 or 3) and you have less
money than when you started...you must trade smaller. If you trade the 6E futures
with 1 contract and you are losing money then you must go to the Forex EUR/USD and
trade a mini-lot. Don't go back to the 6E until you are profitable again.
(Hope I got the technicals correct in the above.)
Don't go back to the 6E for at least one month, even if your trading dramatically improves
in the first week.
There are also ETF's as suggested by monpere below. Still on the idea of reducing position size.
(Excerpt of his post below.)
================================================================
If you want to trade the S&P, trade the SPY etf instead of the ES, trade the IWM etf instead of TF, if you want to trade gold, trade the GLD etf instead of the GC.
What's so great about ETF's? The granularity of share sizing. You can trade very few shares, 10, 20 30 shares while you are learning, or developing your method, and keep your risk to a bare minimum so you don't reach the point of ruin, before you develop a winning method. For example, I use to trade the SPY on 8 range chart, 8 tick fixed stop, 16 tick fixed target, and I traded 125 shares on each trade. This meant, on each losing trade, I lost $10, and on each winning trade I made $20. This also means, I can take 10 trades during the day, lose all of them, and only be out $100 at the end of the day! If I win all of them, I made $200 for the day. There a plenty of people making a decent living on $200 a day. So, you can keep your risk to an absolute minimum while you are learning, and developing your method. Once you are confident, and want to make more money, just increase you share size.
I use Van Tharpe's R-Multiple share sizing formula to figure out how many shares to trade: 'shares = risk / stoploss', so in my case above my stop loss was always 8 ticks, and I only wanted to risk $10 on every trade, so: $10 / 0.08 = 125 shares.
If you have a small account, or if you are risk averse like I am. I think day trading the ETF's is the way to go in the beginning. I mainly trade CL and GC now, but I still trade the ETF's sometimes. The major index ETF's are very closely …
Correct, but that (how do I react to a certain ror?) is the second step .
The first is to determin the ror, which in that case, or as a matter of fact in any case with negative expectancy (always presumed you carry on with a rather constant expectancy) is 100%, no formulas needed for that...