Can money management alone create any edge?

Quote from Ricter:

I'm puzzling over the difference between win-rate and expectancy...
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if you had a system that had 90% winners, then 90% is the win rate.

expectancy is the expected value from each trade.

so if each winner gave you a buck, and each loser took two away from you, your expected value is:

( (90 * 1) + (10 * - 2) )/100= 70cents
 
The way I look at it, Money Management is used to Maximize an edge and make sure you don't blow up, however it is not an edge by itself.

fan27
 
I you have a positive expectancy over the course of all trades it matters not whether 70%/winners 30%/losers or vice versa with 30%/winners 70%/losers. or any other combination.

If the end result is a positive expectancy then money management(AKA position sizing) can help the account grow astronomically.

If the end result is not a positive expectancy then money management/position sizing will not save it.

So step one is make sure your trading has a positive outcome overall through the life of your trading activity. whether you trade a system or discretionary.

Only then can you move to step two, which is to size your positions based on the value of your account using some method that you are comfortable with, suchs as fixed fraction, fixed ratio or rules that you come up with. should be anit-martingale.
 
70%/winners 30%/losers or vice versa with 30%/winners 70%/losers. or any other combination.
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i think it matters psychologically.

probably depends on your character and your level of forbearance.

if you had a string of losers and you're waiting for that "home-run" to overcompensate, you might not sleep as well, right?

i don't know. i don't touch anything that's below 75%.
 
Quote from hanseng1:

Granted, the odds of a long string of losing trades is very high. But I also assume you have backtested the strategy over an adequate number of trades. If you have done proper backtesting and have a couple hundred trades, then you should have a good idea if the system is statistically viable.

I also agree with the minimum rate of 40% or so, but it is for psychological reasons, not statistical ones. If the system is working as expected based on backtesting, you should have a good idea what to expect as far as a losing streak. The odds of having 8 losing trades in a row is very high for a 25% win rate, but if the expectancy is high and statistically valid, then it is a system that should be traded.
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The thing is a trading system will always die one day, and it's easier to see it doesn't work anymore with a 65% winning rate than it is with a 25%. With such a low winning rate, it can take time before you can say that your system isn't reliable anymore. Ans as you say it, it's a psychological factor.
 
Quote from Anseld:

i think it matters psychologically.

probably depends on your character and your level of forbearance.

if you had a string of losers and you're waiting for that "home-run" to overcompensate, you might not sleep as well, right?

i don't know. i don't touch anything that's below 75%.
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Yes, in reality mentally it would be too hard to trade with only 30% winners but technically you can still get positive results regarldess of win rate. The point seems to be that there are a quite a few ways to skin a cat.
 
Quote from NickelScalper:

Without an edge, the market can't be a source of appreciation.
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Actually it could, but this is very theoretical. This is called Parondo's paradox, where a mix of losing strategies brings a positive return. But as I said it, it's only a theory in game theory ;-)
 
Jesus some of you are quite retarded about this. No money management can't make an edge. Sad how brokerages lie and spread these myths for sheep to follow.
 
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