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Search: Posts Made By: Fat Tails

Forum: Psychology and Money Management

August 18th, 2016, 10:11 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Risk of ruin is the key to position sizing....

Risk of ruin is the key to position sizing. Position sizing is the key to growing a trading account, once you have found an edge and mastered trading psychology.

Forum: Psychology and Money Management

February 22nd, 2014, 02:19 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Nicolas11: You are right, I did not follow you in...

Nicolas11: You are right, I did not follow you in depth. I have checked your calculations and came to a slightly different conclusion. The main challenge was not to do perform the calculations but...

Forum: Psychology and Money Management

February 21st, 2014, 06:53 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

The risk of ruin is not independent from the...

The risk of ruin is not independent from the target chosen. If your starting balance is $ 100.000, if you consider that you are ruined if less than 25% of your initial capital is left (at that stage...

Forum: Psychology and Money Management

November 16th, 2013, 03:08 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

The Excel table is a simple tool, which was not...

The Excel table is a simple tool, which was not meant to be applied to complex trading strategies.

In your case a Monte Carlo simulation can be used for determining the risk levels.

Forum: Psychology and Money Management

November 10th, 2013, 12:07 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

https://nexusfi.com/psychology-money-management/15...

https://nexusfi.com/psychology-money-management/15602-risk-ruin-7.html#post207948

Forum: Psychology and Money Management

October 26th, 2012, 02:14 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Don't hesitate to attach a document with your...

Don't hesitate to attach a document with your equations. :)

Forum: Psychology and Money Management

September 23rd, 2012, 04:59 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

I would not consider Kaufman as a reference for...

I would not consider Kaufman as a reference for the risk of ruin. Ralph Vince certainly is.

The formula that you have attached looks nice, but I believe that it is incorrect. Here are the reasons....

Forum: Psychology and Money Management

September 9th, 2012, 04:57 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

The problems of any model / closed formula are...

The problems of any model / closed formula are the model assumptions. The great economists have always failed, because they have applied their models without taking into account model limitations.
...

Forum: Psychology and Money Management

September 9th, 2012, 09:03 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

As far as I know, you cannot use the average...

As far as I know, you cannot use the average amount of a winning and a losing trade and apply the Kelly formula. The Kelly formula only applies to Bernoulli distributions, which means to a set of...

Forum: Psychology and Money Management

September 8th, 2012, 12:29 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

rosariod: Please read #44, #46, #53, #65 and all...

rosariod: Please read #44, #46, #53, #65 and all other posts of this thread first. You will find the Kelly formula and its limitation to Bernoulli distributions explained. You will also find a...

Forum: Psychology and Money Management

April 26th, 2012, 06:13 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Model Limitations I am not yet satisfied...

Model Limitations

I am not yet satisfied with the result of this thread. We have shown, that it is possible to build a model for the most basic case of a Bernoulli distribution , that is when you...

Forum: Psychology and Money Management

April 12th, 2012, 07:25 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

The question is not obvious to answer, I need to...

The question is not obvious to answer, I need to make a lot of assumptions first.

(1) First of all the model relies on fixed-fractional betting. If you say I have a system doing 2,000 trades with...

Forum: Psychology and Money Management

April 12th, 2012, 06:03 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

I wanted to keep the formula used for the...

I wanted to keep the formula used for the expectancy simple, but it really makes no difference.

The comparison is made with the same expected gain per contract traded for all three systems, which...

Forum: Psychology and Money Management

April 12th, 2012, 05:56 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Comparing Different Systems with the Same Expectancy

Now let us play a little with the Excel application and compare three different trading systems that have exactly the same expectancy per trade!

System 1:

- Average Win : 30 points
- Average...

Forum: Psychology and Money Management

April 12th, 2012, 04:02 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

@redratsal...

@redratsal (https://nexusfi.com/member.php?u=8812): This is like shooting at sparrows with cannon balls.

https://nexusfi.com/attachment.php?attachmentid=69751

Traditionally risk falls into...

Forum: Psychology and Money Management

April 12th, 2012, 07:52 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Absolutely. The main limitation of the model in...

Absolutely. The main limitation of the model in its current shape is

- that it only applies to Bernoulli distributions, that is trade setups where you either win X or you lose Y
- that some of...

Forum: Psychology and Money Management

April 10th, 2012, 07:21 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

@BenosBanderos...

@BenosBanderos (https://nexusfi.com/member.php?u=26483): Thank you for putting up this question, as it is really the key to the problem.

The risk here is NOT the chance that the edge assumption is...

Forum: Psychology and Money Management

April 3rd, 2012, 06:46 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

As @TheTrend...

As @TheTrend (https://nexusfi.com/member.php?u=16938) is busy, I have enhanced the spread sheet.

The left part of the spreadsheet is used to adjust Optimal F for the tolerated risk of ruin, when...

Forum: Psychology and Money Management

March 31st, 2012, 07:08 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

I will leave it to TheTrend. It is his...

I will leave it to TheTrend. It is his spreadsheet.

Forum: Psychology and Money Management

March 17th, 2012, 06:05 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

Yes, this is possible. The formula supposes fixed...

Yes, this is possible. The formula supposes fixed fractional betting, which typically leads to geometrical growth. What you need to calculate is the account growth g expected from a single bet. If...

Forum: Psychology and Money Management

March 10th, 2012, 03:28 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

If you are down 90% your trading approach may be...

If you are down 90% your trading approach may be flawed, or you have simply been unlucky. The calculation of risk of ruin supposes that your trading approach is not flawed, but that you have an edge....

Forum: Psychology and Money Management

March 10th, 2012, 09:16 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

@TheTrend...

@TheTrend (https://nexusfi.com/member.php?u=16938):

Thanks for modifying it, it now reflects the formula, which I have suggested. So at least it is something on that we can agree. :)

I think it...

Forum: Psychology and Money Management

March 10th, 2012, 06:50 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

The Kelly formula is all about compounding...

The Kelly formula is all about compounding returns.

If you have developed a betting (or trading) approach with a known edge (positive expectancy), then you want to know which fraction of your...

Forum: Psychology and Money Management

March 10th, 2012, 06:34 AM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

TheTrend: I have only quickly checked the...

TheTrend:

I have only quickly checked the risk of ruin formula, and it does not look equivalent to my formula. In the formula (E5/E4) should stand for b and (E6/E4) for a. a and b seem to be...

Forum: Psychology and Money Management

March 9th, 2012, 01:02 PM

Replies: 147

Sticky: Risk of Ruin

Views: 96,859

Posted By Fat Tails

I took the Kelly formula from the book by Ralph...

I took the Kelly formula from the book by Ralph Vince.

The formula for calculating the risk of ruin is discussed in the paper "Risk Formulas For Proportional Betting" by William Chin and Marc...

Showing results 1 to 25 of 31

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