Consider These Two Trading Strategies...

Discussion in 'Risk Management' started by Visaria, Jan 28, 2016.

  1. speedo

    speedo

    I am prejudiced toward A for the simple reason that it is closer to my own and it works for me. I would recommend spending more time sharpening one's trading than obsessing over academic esoteria. In my opinion, trading is best made simple....behavior is the rub.
     
    #31     Jan 28, 2016
    VPhantom and Xela like this.
  2. kut2k2

    kut2k2

    "A theory should be made as simple as possible but no simpler." -- Albert Einstein

    The simplest theory Einstein could find to explain the cosmos was General Relativity, which most scientists would agree is not simple compared to most other scientific theories.

    Putting simplicity first in trading strategy development is putting the cart before the horse. If the markets were as simple as some traders claim, we'd all be rich. First find a strategy that best beats the market. Then if possible simplify it. Otherwise learn to live with the complexity. Never sacrifice accuracy for simplicity.
     
    #32     Jan 28, 2016
    Xela and K-Pia like this.
  3. speedo

    speedo

    It's certainly simpler than it once was, although it might not appear "simple" to the novice eye. Again the system is not the hard part while it's development requires time and effort, consistent execution of trade plan rules keys success.
     
    #33     Jan 28, 2016
  4. speedo

    speedo

    .....in any event it isn't theoretical physics.
     
    #34     Jan 28, 2016
  5. kut2k2

    kut2k2

    System Achievement Score (SAS)


    SAS == 4*k*max[ 0, E ]*PF*min[ 1, N/1000 ] ,
    where
    k is the Kelly fraction aka the solution to the optimal geometric growth equation (see below),
    E is the expectation (%/100),
    PF is the profit factor (see below),
    N is the number of trades in the performance evaluation.

    The optimal geometric growth equation for trading is
    0 = sum[ Ri/(1+ k*Ri) ]_i=1toN ,
    where
    Ri is the return (%/100) of the i'th trade.

    PF is the ratio of the gain total to the absolute value of the loss total.

    PF == sum[ max[ 0, Ri ] ]_i=1toN / sum[ max[ 0, -Ri ] ]_i=1toN



    SAS(A) == SAS[ +1, +1, +1, -1, -1 ] == 4*.2*.2*(3/2) == +0.24

    SAS(B) == SAS[ +2, +2, -1, -1, -1 ] == 4*.1*.2*(4/3) == +0.11


    Strategy A is superior.
     
    #35     Jan 28, 2016
  6. 28Pairs

    28Pairs

    All other things held constant, I would go with A, as profit factor is the metric i tend to focus more on. Out of 10 trades, betting $1 on each, system A will win $6 and loose $4 , PF = 6/4 = 1.5 , system B will win $8 and loose $6, PF = 8/6 = 1.3
     
    #36     Jan 28, 2016
  7. Handle123

    Handle123

    So I would select Stat A, but my thoughts run toward averaging down of taking on more at 50% of the risk and the risk would be whatever the stop price of original entry and target be the original target, providing of course what back testing shows.
     
    #37     Feb 2, 2016
  8. romik

    romik

    If costs & outcome are the same, then what's the difference?
     
    #38     Feb 2, 2016
  9. K-Pia

    K-Pia

    Same input as well as same output.
    (Notice the singularity (Snapshot) vs Plurality)
    Doesn't make two things equal.

    That's two different roads.

    But we won't know them,
    Because we won't walk them.

    They look the same,
    But they are two singular beings.

    I personally think the first way (A)
    Can inflict you more harm than the second.

    But there may be other differences,
    We just have to walk them.
     
    #39     Feb 2, 2016
  10. Visaria

    Visaria


    Strategy A will compound your account much faster than strategy B.
     
    #40     Feb 3, 2016