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Thank you for your reply
As you suggested, there is a complicated relationship among reward,
risk and position sizing.
Which approach will be better to balance between risk and reward?
Should I compare Expectancy [Reward] vs Max. Drawdown [Risk] or
Profit [Reward] vs Max. Drawdown [Risk]?
Do you have a better selection to balance between risk and reward?
If I get a group of indicators and test each of them to determine
their reward and risk levels, the purpose is to select the most
appropriate one for existing situation. Ideally, high expectancy will
increase the chance for profitable trading, and low drawdown will
increase the exposure of position sizing.
Do you have any idea on how to balance among three factors in order
to get the most benefit from trading strategies?
Reward, Risk and Position Sizing
Do you have any suggestion?
Thank you
Eric
--- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes" <reefbreak_sd@xxx>
wrote:
>
> Eric,
>
> Position sizing controls the profit vs. maximum drawdown of your
> trading system. Each trader is unique in the amount of DD you can
> handle. Here are 2 examples:
>
> Aberration Plus is a well known commodity trading system. Here is
the
> system performance vs profit vs average DD.
>
> PosSize as % Return Avg DD
> % of equity
> 1 32.8 18.5
> 2 65.2 29.7
> 3 96.1 36.2
> 4 125.4 42.1
> 5 153.1 47.0
>
> Here is a stock trading system I developed and use
> PosSize as % Return Max % DD
> % of equity
> 2 13.74 2.64
> 7 56.26 3.62
> 12 28.79 2.80
> 17 36.66 3.38
> 20 32.39 7.44
>
> I have traded the Aberration+ system with about $300K at the 2% risk
> level and have experienced the stated gains and DD's. I currently
> trade the second system at the 9% PS level which has much lower
> returns, but I can sleep soundly each night.
>
> My suggestion is you need to look into your own personality and
decide
> what your tolerance for risk is. Unfortunately this self analysis
> doesn't work very well - what you really need to do is to pick some
> system, then start trading it with your life's savings and actually
> experience those gains and DD's - that way you will find out what
you
> are comfortable with.
>
> Reef-Break
>
>
>
>
>
>
>
>
>
>
>
>
>
> -5-- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@>
wrote:
> >
> > Does anyone would like to share any idea on how to select the
trading
> > strategies based on expectancy vs money management?
> >
> > For comparing strategies, I always select the one with highest
> > expectancy, but when I also need to consider position sizing into
the
> > selection criteria, then I don't know what to do?
> >
> > Does anyone know on how to balance between expectancy and money
> > management [the size of position] in order to select the best
strategy
> > for trading?
> >
> > Thank you for any suggestion
> > Eric
> >
>
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