Question ,Can money management alone create any edge????? Put it simple. If after trading several years , you noticed your losses and your wins were tending to be in certain time periods; do you think you might want to cut back position size during loss periods.????? Even no position =position in something. Or put it even more simple; related to cut losses short. Yes i do.
sure it can, If at a certain point in time, the instrument you're trading has a 50 % percent chance of going up and a 50 % chance of going down, then a moeny management will help you create an "edge" out of nothing..,,, you just have to set your loss limit less than the average "gain" when the instrument is riding up and down, an exemple for the low intelligence folks posting on ET. Supposes the DOW has an average movement of 30 points per day either up or down. if you set your loss limit to 10 points...everytime the dow is riding up , you'' ll make on average 30. everytime it's riding down you'll lose on average 10 This of course suppose a pretty trendy dow, and it's the case when we're either in a bull or a bear market...this strategy is not viable for a sideways market (like the last couple of days) but this is only a "primitve" example of how money management can be applied to create an edge ! (van tharp book has some pretty decent insights on this in his book) and let me reiterate my philosphy in life. TA is astrology applied to markets daytraders are academic / professional losers Good luck to you !
Only a few people answered what I think you're asking, which is can money management create an edge out of a purely 50/50 game. The answer is no, for the reason Mathemagician pointed out. However, 50/50 is different than a 50% win rate. The only really important attribute of a system is the trade expectancy. You can have a system with 25% wins, but if the expectancy is positive, then you have an edge. If the edge is small, it can be amplified by money management. But a system with no edge will not gain one through bet sizing.
Very dangerous reasoning ! Expectancy is one of the worst number in probabilities to work with. Just compare the probabilities to have N negative trades in a row or N negative trades in the middle of M trades with a 25% or a 75% winning rate. 40-45% would be my acceptable minimum for a winning rate and I usually work with a 65% winning rate.
Geesh...what's up with all the insults ??? This thread provided interesting discussions from both sides of the coin without any mud slinging. Yet, you show up and are the first to throw a personal attack toward the ET community in this particular thread via trying to imbed it or hide it among your other words. By the way...in case you haven't forgotten...your also a member of this ET community or else you wouldn't be able to post here. I honestly cannot figure out why the moderators are allowing you to intentionally degrade topics via such baiting tactics to start more mud slinging. Baron and the moderators have obviously fallen asleep on your profanity (not here...in other threads) which that in itself can't be impressive to the sponsors that sees such an eye sore. Eventually they themselves will grow tired and put an end to it. Last of all, that type of consistent negativity cannot possibly be good for trading... At the minimum it must be exhausting for you. http://www.elitetrader.com/vb/member2.php?s=&action=addlist&userlist=ignore&userid=26152 Hopefully your comments and my comments will not get this thread off track into that area were you obviously want it to go. NihabaAshi
Granted, the odds of a long string of losing trades is very high. But I also assume you have backtested the strategy over an adequate number of trades. If you have done proper backtesting and have a couple hundred trades, then you should have a good idea if the system is statistically viable. I also agree with the minimum rate of 40% or so, but it is for psychological reasons, not statistical ones. If the system is working as expected based on backtesting, you should have a good idea what to expect as far as a losing streak. The odds of having 8 losing trades in a row is very high for a 25% win rate, but if the expectancy is high and statistically valid, then it is a system that should be traded.