Strategy to protect the capital.

Discussion in 'Trading' started by fisho, Jun 17, 2009.

  1. fisho


    I am going to invest money with a friend.
    The basic idea is to put money in an investment (bonds market making) where the money is not at risk and to put only the profits into a portfolio of forex and futures semi automated systems.
    I made an excel sheet to simulate the strategy and the results are impressive:
    after 1 year(compounding monthly):
    150% in the worst case and 900% in the best case.
    after 2 years:
    1000% in the worst case and 3000% in the best case.
    Is there any simple algorithm to assign weights to the systems to maximize the profits and manage the risk ?
    I don't want to allow one bad system to eat the profits from the whole strategy but I don't like to put a "hard" stop-loss on every system.
  2. Read some of the books of Ralph Vince about Money- and Risk management. They have been very useful to me in the past.

  3. Is there such a thing? "Money not at risk"?

    Even if you put the money in a matress, you have the risk of inflation. (And the recent case where the daughter threw away her mom's matress which was stuffed with a million dollar.)

    If you put the money in some of the "safest" investment to get a fix return, the return percentage is probably minimal. And you have to pay income tax on the profit first before taking it to the trading system to trade. So unless you have a few million dollars, the profit from that may not be much.

    100% return for an automated system, consistently year after year, seems too good to be true.
  4. piezoe


    There is something very fishy, Fisho, about your "strategy." Are you, perhaps, fishing for an easy mark? The returns you quote are impossible to obtain consistently by retail trading. To obtain them at all requires taking on tremendous risk (using excessive leverage), being extremely lucky, or small amounts of money or something like penny stocks. For example, you buy a share for 1 cent and it goes to 2 cents. You have made 100%. But the risk is that you will buy at 1 cent and have to sell at zero. (Stay away from penny stocks! They are illiquid and a haven for scams, and there will always be someone that is better at scamming than you are. )
  5. fisho


    I did not explain well.
    I am in touch with a verified group of traders who offer 13% per month CONTRACTUAL return. As I wrote it's bonds market making, no penny stocks and they are running for more than 10 years now.
    I am not interested in making their names public and you are free not to believe it.
    That's the base of my strategy. then I will put the profits in higher risk systems partly done by me or friends and partly found on the market or I'll give portions to indipendent traders.
    This is a copy from my excel sheet 1st column is capital in investment A and 2nd is capital in investment B in the average case (I also considered the worst case of course)

    100,000 13,000
    100,000 13,000
    100,000 15,600
    127,000 35,100
    127,000 42,120
    127,000 50,544
    161,290 81,292
    161,290 97,550
    161,290 117,060
    204,838 166,477
    204,838 199,772
    204,838 239,727
    260,145 287,672
    260,145 345,206
    260,145 414,247
    365,503 497,097
    365,503 596,516
    365,503 715,820
    513,532 858,984
    513,532 1,030,780
    513,532 1,236,936
    721,512 1,484,324
    721,512 1,781,188
    721,512 2,137,426

    this is done by putting 1/3 of the assured profits into the risky strategies.
    Any suggestion/criticism is welcome.
  6. NoDoji


    And if you put it in an air mattress you have the risk of deflation :D
  7. promagma


  8. This will never exist in the real world.
  9. fisho


    I am not stupid: I have friends who are getting the profits, I did my due diligence, they are doing it for years and they have a good reputation. I don't really think it could be a Ponzi Scheme...
    It is true there is no 100% safe investment in the world but at least I look for a good return/risk ratio.
    Maybe the average case looks unrealistic but I would be happy enough with the worst case scenario ...
    Anyway that is not the focus of the topic.
    How to manage the systems considering that I can accept high risk on part of the portfolio due to the fact that the principal is protected ?
  10. wartrace


    Madoff's "investors" were also sure.

    I have to ask you this. If they can offer you 13% per month why do they need your capital? If they have been in business for so long they would be earning that 13% on their own capital.

    It really sounds "too good to be true". I wouldn't give them everything you have, maybe five percent of your total risk capital maximum.
    #10     Jun 17, 2009