This is Larry William's famous win equity chart: <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=950856> Quote from spike500: Larry Williamsâ super performance in 1987 made me curious. So I loaded all his 1987â trades in an excel and came to the following information: Number of trades: 308 Winning trades: 179 (58%) for an amount of 5,991,704.35 $ Losing trades: 129 (42%) for an amount of 4,878,852.65 $ 5 draw downs of over â30% 2 draw downs of over â60% 1 draw downs of over â75% (maximum draw down was â 78.45%)
Some further notes on the usefulness nononsense's "random non-linear chaotic strategy of the 3rd kind". Over the years, a lot of stuff has been posted on ET about Williams, Kelly, Sharpe, you name it. Didn't Baron write recently about something like 30,000+ threads? Quite a number deal with MM. Most MM posts are done by great loser clowns (remember the 95% popular wisdom), holding up charts about ex-trader Williams' equity ups & downs. Since about 20-30 years ago, Williams apparently switched (just in time?) into the pixie-dust business as his MM clearly established that catering to this great "95%" market entails far less risk and yields an almost perfectly smooth equity curve without those ugly $1,000,000 DD rides. nononsense, like some other brave souls, used to publish some stuff on pointing out that clowning around with little formulae about risk as applied to games of chance, copied from statistics books, might not always do much good. Being a staunch defender of mathematical rigor, I can smell from far funny recipes dispensed for the benefit of gullable simpletons, even without clowns throwing obscenities and other kind of dog dirt in their return posts. As the "95%" segment of our reading public gets very much irritated with any form of negative opinion on mathematical pixie tricks, foul smelling or not, I kind of avoid to break into such outpours of twit-advise to the those to riches aspiring 95%-ers. I now visit these MM & Trend threads for entertainment only. As nononsense, always exhorted by his love for the common good, once in a while succumbs to an irresistible itch to post, he keeps accidentally throwing in a little contribution. Most of the MM dogmatic wisdom like only risking 2% (or is it <1% ?) of your capital and so on CAN'T TURN THE 95% LOSERS INTO WINNERS. It merely boils down to slowing your path to ruin, i.e. dragging out the period of suffering for the wretched. If you want to get there, stop taking the MM & TREND clowns seriously. You are going to need MUCH BETTER than that. Don't play before you know what you are doing. MM ain't going to save you. Hope this helps, nononsense ___________________________ "I prefer leading indicators most of all." champion Jack's recent shortest post ever
cnms2... Somehow I missed this thread last month. I visit elite about once a month to seriously read. I have to comment that this is a good thread and should be very helpful to new traders entering the fray. Best Regards Oddi
Typical money management makes alot more sense at the casino than in the markets; I've never had a problem with splitting up my bankroll and walking away from the table once some arbitrary loss point is reached, because at the casino arbitrary results are the general rule. When it comes to trading markets however, money management is like love: an entirely personal and often highly irrational concept that is nonetheless absolutely necessary for survival. In the market's point of view, none of our rules have any meaning. The market does not know you've just had 5 straight losers in a row, or have dropped 2% of your equity thus far for the day -- there's no logical reason why you shouldn't take the next entry that your edge exploits. Along the same lines, any trade you do will likely work the same whether you execute 2 contracts or 20. But at some point you need to draw a line, and for me it's an entirely subjective line that has nothing to do with the market but delineates where distortions in judgement begin to degrade performance. Accepting this line as absolutely necessary for survival no matter how illogical or irrational was the hardest part, but like love it don't work unless you trust it completely.
Using spike500's Excel file (thanks! ): trades = 308 wins = 179 average win = 8.2% max win = 130.9% losses = 129 average loss = 5.8% max loss = 44.8% avg win / avg loss = 1.41 Kelly ratio = 28.4% (LW may have used a fixed 20-30% risk after all) max drawdown = 78.45% account: . initial = 10,000 . final = 1,147,607 . max during contest = 2,048,643 The money and the glory goes to ... Larry Williams!
I think a lot of this debate stems from the fact that "system expectancy" is just a crude average and our experience tells us when certain trades far outperform this average. 1. Too much credit is given to crude averages and stats which perform poorly on small samples. 2. If we even examine even 5 chart variables and 5 market variables (with 3 choices each (+1,-1, 0), we have 3^10=59,000 possibilities. Take a number? 3. The market keeps morphing so that system results are weak at best anyway. 4. Optimal f and risk of ruin are not readily applied to an event which occurs 5-10 times per year in a n=100 system. 5. Somewhere hidden in the the fog of 59,000 random events are a few trades which you know deserve a little nitrous. But most of us don't. 6. On top of that, information studies suggest that accuracy does not proportionately increase with the amount of data, although overconfidence and therefore overtrading does. The conclusion is that discretionary aggressive trading is best left to those with years of aggressive discretionary trading experience...
fortuna wrote "When u feel u have a strong edge in a trade, strong risk reward , don't diversify, put all your money in it". (full post) In my opinion: trading based on your feelings is a recipe for disaster. More: the odds of getting wiped out get very high when you don't observe money management. Following fortuna's tip/recommendation could cause a lot of pain to unaware newbies that don't have yet the capability to sift through trading gurus' recommendations.
Although I disagree with fortuna's tip #8, this is a reference to an article in which somebody advises a "20-t0-1": A favorite trading story that I tell concerns a very successful trader. He promised to tell me the secret of trading success. Of course, my curiosity was piqued and I asked, âWhat is that?â He responded with a question: âWhat is the ratio of your largest position size to your normal size?â âThree-to-oneâ, I told him. He smiled. âConsider 20-to-1,â was his advice and his success formula. Although I like and apply the 10/90 principle (sometimes called 20/80), I don't think it should be applied this way. OTOH people have the right to disagree, and this is one of the things that make this country great, not only because freedom feels great but disagreement often germinates into innovation and success.
A funny line from "Chris Isaak Show": "'He who fighteth and runneth away, liveth to fighteth another day.' Somebody famouth said that." It applies to stop loss based money management too: when odds are against you, cut your losses to be alive to trade another day ... Most hilarious was Chris's misspoken famouth.