Bullet-proof martingale!?!

Quote from Kevin Schmit:

On the contrary, if your compensation is determined by common
risk-adjusted return measures -- e.g. Sharpe, Sortino, Jensen's
Alpha, etc -- on a discrete sampling interval (monthly, quarterly,
yearly...), then sub-interval martingales make perfect sense.

This can be proved analytically or through MC simulation.

Use this simple rule:

If the Sharpe is above your benchmark in the first half of
an interval, then decrease exposure for the second half,
if below in the first half, increase exposure. Test this, you
will see martingale magic at work.
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Permanent exposure with periodic adjustments. The only thing you have to worry about is not to be in the wrong side. That is, in my opinion, the best way to trade. Probably the only practical form of managing large positions as well.
 
When the position finally turns in your favour, how do you know when to exit?

Certain days can be predicted easily as sideways, when averaging in is a low risk strategy.
 
I'll give it a try. WARNING: If it makes me lose my ass I'll turn my family Winnebgo into a Snakeoil seeking guided missile. Hopefully your parents aren't home when 38,000 lbs of Detroit steel comes crashing through the wall.


Rennick out:cool:
 
I thought about this all night boys and gals. And the stumbling block is the forex angle where the gains and losses are so minute every day one is lulled into a false sense of security-- baring a Mexican revolution or surprise Russian devaluation you never are in mortal danger. Stock traders are a more frisky lot- we live hanging on by our nails, with hundreds of positions, each of which could be halved in moments notice. We are the gamblers you are the quants... as such I find this post so interesting because it should appeal precisely to the gambler not the quants. Think about it-- you are at the casino and in a 50-50 game of luck if there is one- Imagine black, red on the wheel... if you were to lose six consecutive times $1,000 by saying "Black"... what would you do on that seventh roll?... Well the Wink answer is to gamble $6k on Red... but isn't it the same 50% odds? Or is it?

We all know luck runs in streaks...but this is bad luck.. that can be streak too. What I'm trying to say is this philosophy as applied to free markets operates from a position of weakness just like the Double Down Game WHICH I NEVER DO. I've learned my lesson over the years in that regards... I much prefer when I'm ON ONE OF MY CRAZY ASS ROLLS!!!> It is then while on a hot streak that you offer up your big bet in the hope and prayer that you get nail just one more before walking away from the table.... The trouble is of course for the fully invested investor, one never walks away does one...
And so this is really one of the more interesting questions I have dealt with lately...

Your system then eliminates either the act from weakness or the walk away from the table aspect as these are the two main faults. I often scoff at traders who are endlessly looking for that free ride just give me a disk that does it for me please!!! But this is system thinking on a deeper level and I appreciate that. At it's deepest core it weighs the " Law Of Averages " against " Riding The Hot Hand " and I do both but when stocks are plunging I tend to spread out into smaller share lots of higher priced companies ($33-$63 area) and in times of goodness- higher allotment to more low priced names that offer greater potential % reward, in other words I focus the greed... which is the real martingale I wonder? I increase the bet when winning and spread out the risk when losing; am I the anti-Martingale? Or am I just The Wink?

Anyway this is stoney after six cups of coffee and finally a good sleep and just one bowl not bad for 10:00 in the morning.
~ stoney
 
Quote from Algorithm:

Point proven. You mention timing and trends. Reference what I said about your "edge". If your indicators or edge are that good, a martingale system isn't necessary due to the fact that you will just take the trade with full size at the appropriate time.

All that you've indicated is that you need more time and energy devoted to your edge. Believe me the only thing that you've proven here is that you're taking probably too many trades that are too large.

Hell, I'd say you're probably better off working on discipline and going larger on each trade and take less of them. Simply the amount of times a trader exposes his capital to the markets is ratcheting up one's risk (many new traders miss this total concept).

Much better to take your time and only take the best trades.

Good Luck!
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Wow!, Algo, that is the stuff of genius. Seriously! And didn't we all have to learn that before we started making consistent money. When this thread started, I thought "Oh Boy, Here we go. We'll be knee deep in crap before we know what hit us." But I was wrong. This has been a damn interesting discussion. Thanks, guys.
 
Quote from Pekelo:

When the position finally turns in your favour, how do you know when to exit?

Certain days can be predicted easily as sideways, when averaging in is a low risk strategy.
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You are with the trend, so there is no need to hurry out. I let a profit target at a point when I think the market would be too stretched and a short term reversal is expected. I monitor the trend all the time and if I feel the target seems unrealistic I change it (up or down). I don't try to pull the last cent from the market.
 
Quote from William Rennick:

I'll give it a try. WARNING: If it makes me lose my ass I'll turn my family Winnebgo into a Snakeoil seeking guided missile. Hopefully your parents aren't home when 38,000 lbs of Detroit steel comes crashing through the wall.


Rennick out:cool:
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:p :p Be careful. Never martingale against a strong trending market.
 
Quote from JimyJam:

The bullet-proofing that you're looking for doesn't so much come from martingaling (perish the thought) as it does from increasing the bet size and range/duration of bet holding when there is an increase in the likelihood of success of the trade.

Jimmy Jam
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With bullet-proof I mean it will not blow up the account as blind bi-directional martingales do. The safety locks are: 1) Stick with the trend; 2) monitor the trend for reversals; 3) begin small. Losses will be kept small too. Profits are not so small at it may seem at first sight (0.5 to 2% a week on equity will be very frequent).
 
Ok I have a question that im not a great enough mathmetician to work out so maybe someone out there knows the answer. Say theres a system and 95 percent of the time it wins. How do I calculate the probability that it will lose twice in a row. Three times. Or how about what is the probability that it will lose 5 times in a row assuming there is a 95 percent probability that it wins on any given event cycle. If someone can answer this question for me I will be very grateful. Thanks ..
 
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