How much profit for an EA to be acceptable commercially? - page 2
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Ruin is ruin regardless of speed.
The faster the better because you can learn from it now instead of later.
I hate delay lessons because improvement should happen today not later!
The faster my improvement, the faster I can make more money.
You really should try talking less and learning more. Read the links, learn a thing or two...or just keep running your mouth and wasting your breath.
This guy does have an excellent maximal drawdown though, you've got room to spare. Up your lots until the drawdown is at around 10-15% then you'll have a much better return, and people will want to use it!
This guy does have an excellent maximal drawdown though, you've got room to spare. Up your lots until the drawdown is at around 10-15% then you'll have a much better return, and people will want to use it!
Drawdown tells you nothing, nothing you should be comfortable relying on anyways, about future performance. Variance, on the other hand, does.
Few traders know how to calculate risk of ruin. Many traders talk about maximum drawdown, as if there is a maximum limit. Obviously, once the “maximum” drawdown has happened, further losses are still possible. The maximum drawdown is merely the point at which the bad luck ended in some historical data set. The maximum observed drawdown will continue to increase the longer the game is played.
Source: http://www.futuresmag.com/Issues/2009/August2009/Pages/Minimizing-your-risk-of-ruin.aspx
Drawdown tells you nothing, nothing you should be comfortable relying on anyways, about future performance. Variance, on the other hand, does.
Thank you for this. For me, Risk of Ruin is a common sense issue and is intuitive, but I do want to learn to calculate Risk of Ruin. Unfortunately I don't understand it yet. I'm going to start by learning standard deviation.
Thank you for this. For me, Risk of Ruin is a common sense issue and is intuitive, but I do want to learn to calculate Risk of Ruin. Unfortunately I don't understand it yet. I'm going to start by learning standard deviation.
to clarify, I understand what Risk of Ruin is and why it is, I just can't figure out the equation for it
to clarify, I understand what Risk of Ruin is and why it is, I just can't figure out the equation for it
I would be more than happy to assist you in your journey.
For starters it is important to understand the distinction between constant versus fixed-fractional position sizes.
When backtesting for the purpose of characterizing the statistical nature of your strategy (which is what you need to know to make statistical-based inferences about future performance) you need to backtest with constant position size and analyze your risk of ruin based on such.
Naturally when trading live or forward testing you then want to employ fixed-fractional position sizing to capitalize on compounding. Mapping between the two is a simple matter of mathematical formality, sounds complicated but it really isn't.
It is also worth mentioning that there is a distinction to be made between characterizing risk versus managing risk.
When we backtest we are supposed to be conducting the backtest in a manner which lends itself nicely to risk measurement and characterization. (we can do things to make such analyses invalid, so it need be mentioned)
When we do live trading and forward testing we are supposed to have our EA setup such that it capitalizes on the aforementioned results of the risk characterization so that proper risk management can be performed. (link to some reading)
I would be more than happy to assist you in your journey.
For starters it is important to understand the distinction between constant versus fixed-fractional position sizes.
When backtesting for the purpose of characterizing the statistical nature of your strategy (which is what you need to know to make statistical-based inferences about future performance) you need to backtest with constant position size and analyze your risk of ruin based on such.
Naturally when trading live or forward testing you then want to employ fixed-fractional position sizing to capitalize on compounding. Mapping between the two is a simple matter of mathematical formality, sounds complicated but it really isn't.
It is also worth mentioning that there is a distinction to be made between characterizing risk versus managing risk.
When we backtest we are supposed to be conducting the backtest in a manner which lends itself nicely to risk measurement and characterization. (we can do things to make such analyses invalid, so it need be mentioned)
When we do live trading and forward testing we are supposed to have our EA setup such that it capitalizes on the aforementioned results of the risk characterization so that proper risk management can be performed. (link to some reading)
I read through your link and did some more studying. In this equation, edge would be defined as Winning percentage, but let's say mine is lower because I rely on big wins to offset these. How would I calculate Edge?
risk_of_ruin = ((1 - Edge)/(1 + Edge)) ^ Capital_Units
I read through your link and did some more studying. In this equation, edge would be defined as Winning percentage, but let's say mine is lower because I rely on big wins to offset these. How would I calculate Edge?
risk_of_ruin = ((1 - Edge)/(1 + Edge)) ^ Capital_Units
I don't really understand this equation...where did it come from? I don't see how the resultant of the righthand-side is equal to risk of ruin as there is no input regarding "variance". Risk of ruin is based on the variance of the results.
Another thing about risk of ruin, it is multi-variate meaning you have to specify a specific condition before a result can be computed. The specific input here would be the percentage of the account's equity you are willing to lose (what do you define as "ruin"?)...then the output is the frequency of that level of equity loss being attained.
Most of my clients are comfortable (interested in) the 20% risk of ruin result...meaning they like to know how frequently can they expect to see their account's equity be 20% below the high watermark.
To compute this one must use the following equation: R = (1-z)^(-2*a/(d*ln(1-d)))
Where:
R = risk of losing z fraction of the account
ln(1-d) is the natural logarithm of (1-d)
z = The fraction of the account that might be lost, in this case 20%, or 0.2
a = average, or mean return
d = standard deviation of returns
If my monthly rate of return is 5% and the standard deviation of my monthly returns is 10% then my customers can expect to see their account 20% underwater at least 12% of the time.
R = (1-0.2)^(-2*0.05/(0.1*ln(1-0.1))) = 0.12
What does "12% of the time" mean? We are working with "monthly" units here, so it would mean 12% of their monthly statements would show a 20% drawdown on equity against the account's high-watermark (which itself might not be captured by a monthly statement). In other words once or twice a year my clients can expect to see their monthly account statement showing a 20% drawdown.
Some clients worry about 10% and others worry about 50%. Some worry about monthly while others worry about daily. It is important to compute the values correctly as well as be able to put the value into context...if the numbers are calculated incorrectly then the context doesn't matter, and likewise if the context if wrong or misleading then it hardly helps the client regardless if the number is computed correctly.
A lot of people can compute risk of ruin correctly, it is just a formula after all, but it is rare to find a person who can communicate the significance/relevance of the information at a level that a non-trader can comprehend and absorb. I don't pretend to be any good at communicating the significant or the relevance, I just try to do my best and aim to continually improve in that area.
Before acting up with attitude on me, remind yourself that maybe you are not fit like me and perhaps someone else is the fool after all.
I did graduate with a degree in Computer Science and a minor in Mathematics.
Risk of Ruin is crap. This means, flush that stupid theory down the toilet.
Wouldn't big money managers know that stupid theory? Yet, they still manage to lose a lot of money. Hm????
And wouldn't pro gamblers know that stupid theory also? Hm? Yet, many gamblers (pro or not) will always lose money. Hm????
In the end, it is about making money...
If you ain't making money, you ain't making money. Period!
Risk of Ruin makes no differences but will only delay the inevitable truth clarifying that you are NO GOOD from the start!
Money management WITHOUT solid foundation such as a good strategy gets you no where!
It is like giving money to a dumb ass who is good at budgeting and managing but gets nowhere.
Money in the closet is dead money. In the end, money dries up eventually.
In conclusion: managing money is NOT the same thing as using money correctly.
Imagine a chess game. Your game pieces are your nickels, dimes, quarters, dollars, and etc...
If you ain't using your money or allocating your pieces correctly to attack, playing defensively and cool headed will force you to lose all your money eventually.
TRUST ME, the MARKET will force you to lose all your money! It is because your strategy sucks!!
I don't give a shit how much money you have. Small losess can add up to a lot.
Abraham Lincoln
16th president of US (1809 - 1865)