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Is this strategy good enough?
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Created: by baruchs Attachments:6

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Is this strategy good enough?

  #101 (permalink)
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Trader.Jon View Post
Wouldnt you want to know about the previous 10 to that? Maybe they were 9 heads and 1 tail!?

no what bearing does the previous outcomes have on this one, none. they are discrete events.

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  #102 (permalink)
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baruchs View Post
Very good. So we can make a rule. If strategies are loosly correlated or not correlated or even better, like here (correlation =-1), have negative correlation on the outcomes, then adding even a losing strategy can improve your position!!
Lets look into another example:
you have two strategies:
1. NP=40K DD=6K
2. NP=10K DD=1k
Which is better? If you can prove it I'll be very impressed.

I really cant prove anything with information provided. Extrapolation of data supplied shows that at a level of equality NP=400K the DD for #2 = 40K and for #1 it is 60K, so as I understand it risk of ruin is faster with #1 == no money == no trades and a variety of simulations such as Monte Carlo could offer somre insight into how soon and what propability it happening first, assuming account size of 10k then you would be out of trading sooner with #1 as it is depleted and you cant carry on trading at the same level with reduced account size. HOW SOON the DD happens is a huge factor to resolving these questions. YMMV

I realize not well said, but trying to be brief.

Jon

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  #103 (permalink)
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MWinfrey View Post
no what bearing does the previous outcomes have on this one, none. they are discrete events.

YUP. I was thinking that also, should have said that as well.

Jon

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  #104 (permalink)
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Quoting 
no what bearing does the previous outcomes have on this one, none. they are discrete events.


Trader.Jon View Post
YUP. I was thinking that also, should have said that as well.

Jon

It is probability theory. Although an individual coin toss or the roll of a dice is a random event, if repeated many times, the sequence of random events exhibits certain statistical patterns, which can be studied and predicted. Two representative mathematical results describing such patterns are the 'law of large numbers' and 'central limit theorem'.

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  #105 (permalink)
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Trader.Jon View Post
Wouldnt you want to know about the previous 10 to that? Maybe they were 9 heads and 1 tail!?

And if you assume a fair coin, then any record of the previous flips should have absolutely nothing to do with it.

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  #106 (permalink)
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baruchs View Post
Very good. So we can make a rule. If strategies are loosly correlated or not correlated or even better, like here (correlation =-1), have negative correlation on the outcomes, then adding even a losing strategy can improve your position!!
Lets look into another example:
you have two strategies:
1. NP=40K DD=6K
2. NP=10K DD=1k
Which is better? If you can prove it I'll be very impressed.

If you trade both, and if you assume that future performance will match historical performance (a problematic assumption possibly, but let's set that aside for the moment), then you'd expect net profits of 50K and a max drawdown of 7K (assuming both strategies hit max drawdown at the same time). Min drawdown could be zero (assuming that strat 1 hits max 6K drawdown at the same time that strat 2 is on a 6K winning streak). Actual expected drawdown can't be computed without additional input I believe (need to know correlation for instance).

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  #107 (permalink)
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worldwary View Post
Automatic win under the scenario you've outlined; will win $1K on either heads or tails

Ok, trick question! The trick is that you flipped the role of heads, you win on heads with 1 guy and loose on heads with the other guy on the same coin toss. I thought you were always betting 1 way, just plain win or loose, heads you always win, tails you always loose.

Ok, give an actual trading example to demonstrate your point.

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  #108 (permalink)
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worldwary View Post
If you trade both, and if you assume that future performance will match historical performance (a problematic assumption possibly, but let's set that aside for the moment), then you'd expect net profits of 50K and a max drawdown of 7K (assuming both strategies hit max drawdown at the same time). Min drawdown could be zero (assuming that strat 1 hits max 6K drawdown at the same time that strat 2 is on a 6K winning streak). Actual expected drawdown can't be computed without additional input I believe (need to know correlation for instance).

So, then it becomes a timing equation. I can see that theoretically, but in reality, are you going to put up your account equity against this theory?

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  #109 (permalink)
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monpere View Post
So, then it becomes a timing equation. I can see that theoretically, but in reality, are you going to put up your account equity against this theory?

In my experience, the first week I start live trading the system with a "max $1K drawdown" I'll wind up with a $2K drawdown, so trusing my account equity to any theory remains a problem for me.

But I'm interested in seeing where this thread is going so I can learn more.

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  #110 (permalink)
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You can make odds work in your favor. In Las Vegas, if you go to the "Craps" table and bet the "No Pass" line every time , assuming you have sufficient capital to cover you during the draw downs, you will make money over time.

The "house" is profitable because the odds are in their favor; players will lose eventually. The house has a large enough bank to ride out the streaks where players win more than they lose , a streak that historically is always short lived. By betting against the player throwing the dice, you are aligning yourself with the house position.

BTW... You won't make any friends doing this ... but you will make money.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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