Money Management books
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Books by Dr Tharp are a good starting point... pm his son, who is a member here... Robert has the handle rtharp...
Check out:
http://www.elitetrader.com/bo/index.cfm?action=view&B_ID=64&CatID=1
Check out:
http://www.elitetrader.com/bo/index.cfm?action=view&B_ID=64&CatID=1
Some credentials working in the field and a very good publicist and a very good agent. You wouldn't be able to be published at some major publishers if you don't have your submission come in through an agent. Very good publicists are hard to find, most of them, if not all of them, are idiots and can only promote someone whose star is rising in the first place without their help. Publicists are more useful after you're well known, and if you then commit a crime. They can speak to the reporters on your behalf. The agent is still useful at that point because he can sell the book/movie rights of your life while you're incarcerated.
A good proposal for a timely book presented to a publisher who publishes such topics is also key. Be sure to cater to the mass mentality. Like Suze Orman. Ex-stockbroker becomes financial planner offering up such gems as, "invest your IRA to the max!" or get a radio/book deal like Ken and Doria Dolan, who offer gems like, "invest your IRA to the max!".
wow you've got quite a good grasp on this stuff. You're batting 100%. thanks 4 your insights.
I just posed my question coz there are people who buy this stuff and take the advice and spend the money, but who are those giving the advice? What puts them in the position of an 'expert' to give info on 'money managament' to the public. Its kind of a farce if you think about it.
this whole 'book' thing sometimes strikes me as a complete joke.
have a nice day,
triple
Two books come to mind.
The Trading Game by Ryan Jones with his Fixed Ratio MMGT methods
Portfolio Management Formulas by Ralph Vince with his Optimal F ideas
The Optimal F calculates the maximum compounding rate that can be achieved with a given set of trades. He disregards drawdowns so it's more of a theoretical formula. I tried it with one Emini trading 15k on 1/1/98 and had the account up to over 100 mill. by 6/30/2003 using the formula. Of course there were multiple periods of 95%+ drawdowns and it needed to trade 65,000 contracts at a time in daytrading toward the end(dream on). At 1/2 Optimal F the drawdowns were in the 40% range and still compounded to 3 mill. over the same time.
Fixed Ratio is based on the idea of reducing risk as the trade account grows. When you go from 1 to 2 contracts you're doubling your risk no matter what method you use. Fixed Ratio trys to get past this point and get to a practical no return to beginning drawdown. I found the book to be difficult to understand (for me). I bought his Basic and Advanced course "The Secret to Making $1 Mill. in 5 Years or Less" on a friends recommendation. I found it to be much easier to understand (8 tapes and 2 workbooks). Using the basic formula I was able to take the same 15K account up to 765k between 1/1/98 and 6/30/2003 with a max DD of 26%. Only traded a max of 18 contracts, so it was practical.
Good luck with your studies. I think both ideas are worthy of investing research time.
The Trading Game by Ryan Jones with his Fixed Ratio MMGT methods
Portfolio Management Formulas by Ralph Vince with his Optimal F ideas
The Optimal F calculates the maximum compounding rate that can be achieved with a given set of trades. He disregards drawdowns so it's more of a theoretical formula. I tried it with one Emini trading 15k on 1/1/98 and had the account up to over 100 mill. by 6/30/2003 using the formula. Of course there were multiple periods of 95%+ drawdowns and it needed to trade 65,000 contracts at a time in daytrading toward the end(dream on). At 1/2 Optimal F the drawdowns were in the 40% range and still compounded to 3 mill. over the same time.
Fixed Ratio is based on the idea of reducing risk as the trade account grows. When you go from 1 to 2 contracts you're doubling your risk no matter what method you use. Fixed Ratio trys to get past this point and get to a practical no return to beginning drawdown. I found the book to be difficult to understand (for me). I bought his Basic and Advanced course "The Secret to Making $1 Mill. in 5 Years or Less" on a friends recommendation. I found it to be much easier to understand (8 tapes and 2 workbooks). Using the basic formula I was able to take the same 15K account up to 765k between 1/1/98 and 6/30/2003 with a max DD of 26%. Only traded a max of 18 contracts, so it was practical.
Good luck with your studies. I think both ideas are worthy of investing research time.
Hi acrary...
I found this humorous exposition on the net; your thoughts?
For those who don't feel like wading through the books:
Ralph Vince, fixed fractional contracts = constant * account_size
Ryan Jones, fixed ratio contracts = constant * squareroot(account_size)
Rewriting those formulas slightly:
Vince: contracts = constant * power(account_size, 1)
Jones: contracts = constant * power(account_size, .5)
There you have it. The big difference is one uses a power of 1 and the other uses a power of .5.
But hey! Maybe it's better to split the difference! I hereby proclaim that my secret power of 0.7 is the key to the universe. I'm going to hire Richard Josselin to go around the country teaching people that the secret to wealth is my formula: QQQQ (four-Q) Ratio: contracts = constant * power(account_size, .7)
Disciples who master the beginners course will be eligible for my advanced course (for only $2,999 paid in advance) where they learn that .7 can be changed to something else. Flash (lightbulb comes on) we also need to consider the per-contract risk (max possible loss) of each trade in the formula. Four-Q Super Ratio:
contracts = (constant/risk) * power(account_size, power_factor).
Advance disciples will be let in on the ultimate secret (for only $29,999 paid in advance.). Flash (solar flare) we should define our max risk by using an adaptive volatility-based disaster stop. Four-Q Ultimate Formulas:
risk = disaster_stop = constant * volatility contracts = (constant2/volatility) * power(account_size, power_factor) And there you have our ultimate position sizing formula.
The rare students who master it will have discovered the Mother Lode and shall hereinafter be referred to, in hushed tones, as Mother Four-Qers.
Seriously though, that last one ain't bad. Assuming you use a volatility based stop, you can optimize for the terms "constant," "constant2" and "power_factor", as well as how you calculate the volatility, to find something that works pretty well for your particular system, goals and risk tolerance.
The End
Thank You
Send Money
Lots of it
Dennis
Candle
I found this humorous exposition on the net; your thoughts?
For those who don't feel like wading through the books:
Ralph Vince, fixed fractional contracts = constant * account_size
Ryan Jones, fixed ratio contracts = constant * squareroot(account_size)
Rewriting those formulas slightly:
Vince: contracts = constant * power(account_size, 1)
Jones: contracts = constant * power(account_size, .5)
There you have it. The big difference is one uses a power of 1 and the other uses a power of .5.
But hey! Maybe it's better to split the difference! I hereby proclaim that my secret power of 0.7 is the key to the universe. I'm going to hire Richard Josselin to go around the country teaching people that the secret to wealth is my formula: QQQQ (four-Q) Ratio: contracts = constant * power(account_size, .7)
Disciples who master the beginners course will be eligible for my advanced course (for only $2,999 paid in advance) where they learn that .7 can be changed to something else. Flash (lightbulb comes on) we also need to consider the per-contract risk (max possible loss) of each trade in the formula. Four-Q Super Ratio:
contracts = (constant/risk) * power(account_size, power_factor).
Advance disciples will be let in on the ultimate secret (for only $29,999 paid in advance.). Flash (solar flare) we should define our max risk by using an adaptive volatility-based disaster stop. Four-Q Ultimate Formulas:
risk = disaster_stop = constant * volatility contracts = (constant2/volatility) * power(account_size, power_factor) And there you have our ultimate position sizing formula.
The rare students who master it will have discovered the Mother Lode and shall hereinafter be referred to, in hushed tones, as Mother Four-Qers.
Seriously though, that last one ain't bad. Assuming you use a volatility based stop, you can optimize for the terms "constant," "constant2" and "power_factor", as well as how you calculate the volatility, to find something that works pretty well for your particular system, goals and risk tolerance.The End
Thank You
Send Money
Lots of it
Dennis
Candle
the problem with ralph vince' approach, as far as i understand it, is inevitably that the money management inherently knows the future trading results per contract, by knowing the overall ratios. i always found that element of curve fitting hard to swallow.
in futures interday trading many people calculate the position size according to volatility. this can mean: less volatility -> more contracts. i heard of somebody who does the same but increases position size again with very high volatility. the argument is that profitable trends more likely break out of either very high or very low vola, not so much from in between.
basically there are two issues for a diversified portfolio: volatility and correlation. we once have build a machine that could test portfolios historically while keeping them at constant value at risk - a concept which covers both vola and correlation. yet, i must admit - we actually never used it. still think there was some value in it ...
peace
in futures interday trading many people calculate the position size according to volatility. this can mean: less volatility -> more contracts. i heard of somebody who does the same but increases position size again with very high volatility. the argument is that profitable trends more likely break out of either very high or very low vola, not so much from in between.
basically there are two issues for a diversified portfolio: volatility and correlation. we once have build a machine that could test portfolios historically while keeping them at constant value at risk - a concept which covers both vola and correlation. yet, i must admit - we actually never used it. still think there was some value in it ...
peace
I did a few tests and it seems a reasonable estimate for fixed ratio. Of course to obtain the constant you'd have to calculate the optimal f or estimate it by squaring the fixed ratio constant. If you know one I guess you can estimate the other.
Both methods focus on max. losing trade and don't really try to estimate the max dd which is what most of us are most concerned with. I use Monte Carlo analysis to test for max dd which seems to be too pessimistic. There must be a decent formula for estimating it.
One thing I noted was if you use 1/2 of optimal f then fixed ratio beats the performance during the first year or two until the fixed fractional catches up. I'm working on estimating the crossover point to see if it makes sense to start with one and switch to the other.
One of Ralph's assumptions is that optimal f is stable and doesn't move much in the future of a decent system. I've tested it on several systems and found it to be true. I may have a past optimal f from 96-2000 of .31 that moves to .34 from 2001-2003. I'm also interested in Ralph's way of computing optimal f for a portfolio. I haven't tested it yet, but it looks interesting.