Discussion of article "Raise Your Linear Trading Systems to the Power"
Thank you for an interesting article Jordi. I would add the following points: The fixed fractional method the code implements assumes trading for an infinite period of time, whereas everyone is ultimately constrained to a finite period of time in which to trade -- and this is quite critical. For example, if your horizon is 1 period, 1 trade, 1 play, your expected value is maximized at risking 100% (assuming a positive expectancy, itself a function of the "horizon," a variable I will call Q).
This point then migrates "leftward" from 1.0 as the number of periods/trades/plays increases and settles, asymptotically, at the value known as Optimal f (which would be the same answer as the Kelly Criterion solution if that allowed for losses which were not the [rather arbitrary] cost of the instrument or wager).
More importantly to most traders though, are the other critical points along the curve -- all of which can be calculated with MLQ5. These are points which are more conservative than the peak and are the real optimal to traders because they are the points that maximize risk-adjusted returns (whereas the peak simply maximizes returns without respect to anything). The first of these points is the inflection point of the curve, nu, where marginal increase in gain with respect to marginal increase in risk is maximized. Between the nu and the peak there is another point, zeta, where gain with respect to risk is maximized. Thus, most traders would want to be somewhere between nu and zeta. I'm not trying to sell anything, or direct web traffic anywhere, just share the ideas but there is a lot more on www.ralphvince.com in the "related papers" tab (inflection point paper, blackjack paper, and a forthcoming paper within the month that will be posted there also) as well as the 2012 Risk Opportunity Analysis book.
To summarize, these two points, nu and zeta, like the peak itself, are all a function of Q, a function of horizon, a function of the length of time for someone's market campaign. This leads logically, to the two most important questions for one embarking on trading:
What do you seek to accomplish?
How many periods (and the user determines his period-length) do you want to accomplish this in?
Once these two questions are answered - specifically - the user can then begin to craft a money-management solution to accomplish this.
R. Vince
Thank you for an interesting article Jordi. I would add the following points: The fixed fractional method the code implements assumes trading for an infinite period of time, whereas everyone is ultimately constrained to a finite period of time in which to trade -- and this is quite critical. For example, if your horizon is 1 period, 1 trade, 1 play, your expected value is maximized at risking 100% (assuming a positive expectancy, itself a function of the "horizon," a variable I will call Q).
This point then migrates "leftward" from 1.0 as the number of periods/trades/plays increases and settles, asymptotically, at the value known as Optimal f (which would be the same answer as the Kelly Criterion solution if that allowed for losses which were not the [rather arbitrary] cost of the instrument or wager).
More importantly to most traders though, are the other critical points along the curve -- all of which can be calculated with MLQ5. These are points which are more conservative than the peak and are the real optimal to traders because they are the points that maximize risk-adjusted returns (whereas the peak simply maximizes returns without respect to anything). The first of these points is the inflection point of the curve, nu, where marginal increase in gain with respect to marginal increase in risk is maximized. Between the nu and the peak there is another point, zeta, where gain with respect to risk is maximized. Thus, most traders would want to be somewhere between nu and zeta. I'm not trying to sell anything, or direct web traffic anywhere, just share the ideas but there is a lot more on www.ralphvince.com in the "related papers" tab (inflection point paper, blackjack paper, and a forthcoming paper within the month that will be posted there also) as well as the 2012 Risk Opportunity Analysis book.
To summarize, these two points, nu and zeta, like the peak itself, are all a function of Q, a function of horizon, a function of the length of time for someone's market campaign. This leads logically, to the two most important questions for one embarking on trading:
What do you seek to accomplish?
How many periods (and the user determines his period-length) do you want to accomplish this in?
Once these two questions are answered - specifically - the user can then begin to craft a money-management solution to accomplish this.
R. Vince
Thank you very much for sharing your remarks, you are a super expert!
I am aware of the limitations you note..., it is for that reason that I said that this MQL5 code implements a simple variant of fixed fractional. This article introduces this topic and is written for learning purposes, intended to intermediate programmers.
Monetary management is a broad field of study in the world of trading systems, IMHO. I am sure that developers interested in exploring real life scenarios will find very good books in your website, and find comprehensive answers.
Author: Jordi Bassaganas
Conclusion
Today we have learnt how to get more profit from our linear trading systems, those implementing a Fixed Lot money management model, by raising them to the power of exponentiation.Linear TS gave a profit above 2026 units of currency deposit and the "effective" non-linear below 887 units of currency deposit. According to the graph balance shows that the linear drawdown as a percentage of the deposit is much lower than that of non-linear.
What is the point of this article?
The author mocks?
Linear TS gave a profit above 2026 units of currency deposit and the "effective" non-linear below 887 units of currency deposit. According to the graph balance shows that the linear drawdown as a percentage of the deposit is much lower than that of non-linear.
What is the point of this article?
Thank you for your comment.
I am not mocking. I backtested ExponentialHawaiian (the power base) in another context.., sorry. Let me explain, please.
I put Figure 2. HawaiianTsunamiSurfer's equity curve from January 2012 to March 2012 to visually illustrate the idea that you first need what I call a linear trading system. The thing here is that HawaiianTsunamiSurfer, the original linear trading system which is available in Code Base, is not coded under the OO paradigm! However, the linear trading system acting as the power base must be OOP in order for you to take cevolution.mqh and raise it to the power.
So I first took the base (HawaiianTsunamiSurfer), rewrote it into another OOP version, and then took CEvolution to raise it to the power. And you are right, the context under which I run my own tests then changed. This is why I say "Once you add the OO logic explained above to your system, do not forget to run your tests!", I think. I mean, I put Figure 3. ExponentialHawaiian's equity curve from January 2012 to March 2012 to visually illustrate that once your linear trading system is raised to the power, then it takes the form of a parabola. focusing on the idea, not the numbers.
I hope I explained. Please, don't consider the numbers of the examples in this article. I encourage you to first code your own linear OO systems (which is difficult, in my opinion), then take the class CEvolution and finally run your own tests, observing how the new system behaves. The point of this article is showing intermediate MQL5 programmers how they can get more profit from their linear systems by implementing a simple OOP idea. For those of you who want more information on this topic, you can read some Vince's texts.
- 2010.07.14
- MetaQuotes Software Corp.
- www.mql5.com
Thank you for your comment.
I am not mocking. I backtested ExponentialHawaiian (the power base) in another context.., sorry. Let me explain, please.
I put Figure 2. HawaiianTsunamiSurfer's equity curve from January 2012 to March 2012 to visually illustrate the idea that you first need what I call a linear trading system. The thing here is that HawaiianTsunamiSurfer, the original linear trading system which is available in Code Base, is not coded under the OO paradigm! However, the linear trading system acting as the power base must be OOP in order for you to take cevolution.mqh and raise it to the power.
So I first took the base (HawaiianTsunamiSurfer), rewrote it into another OOP version, and then took CEvolution to raise it to the power. And you are right, the context under which I run my own tests then changed. This is why I say "Once you add the OO logic explained above to your system, do not forget to run your tests!", I think. I mean, I put Figure 3. ExponentialHawaiian's equity curve from January 2012 to March 2012 to visually illustrate that once your linear trading system is raised to the power, then it takes the form of a parabola. focusing on the idea, not the numbers.
I hope I explained. Please, don't consider the numbers of the examples in this article. I encourage you to first code your own linear OO systems (which is difficult, in my opinion), then take the class CEvolution and finally run your own tests, observing how the new system behaves. The point of this article is showing intermediate MQL5 programmers how they can get more profit from their linear systems by implementing a simple OOP idea.
No, not hope. You have not explained why you have taken a linear system, made it into a non-linear far worse on profit and drawdowns deposit. Then write as if your nonlinear more "efficient" than linear. That is, you are trying to mislead the reader of the article.
Why did you name your inefficient system more effective if it is not true?
Please specify on what trade results of your system is improved compared to the linear?
laplacianlab:
For those of you who want more information on this topic, you can read some Vince's texts.
I'm not interested messages Vince. I do not respect him because he took the ideas of Edward Thorp and made them unfit for practice theory.
You look just like Vince. Since the you have found someone else's idea and ruined it. During that Vince praised you.
No, not hope. You have not explained why you have taken a linear system, made it into a non-linear far worse on profit and drawdowns deposit. Then write as if your nonlinear more "efficient" than linear. That is, you are trying to mislead the reader of the article.
Why did you name your inefficient system more effective if it is not true?
Please specify on what trade results of your system is improved compared to the linear?
I'm not interested messages Vince. I do not respect him because he took the ideas of Edward Thorp and made them unfit for practice theory.
You look just like Vince. Since the you have found someone else's idea and ruined it. During that Vince praised you.
Okay, you are a good reader so let's delve into this topic a bit deeper! I want you to think.
You're thinking that trading is like mathematics, however my article opens a door for you to work your critical faculties, as you are doing now. IMHO, trading requires that for you. It is actually absurd that you raise any system to the power and make you a millionaire! In that case, we would all be rich.
The funny thing here is that the base theory remains true. That's why I say: "Once you add the OO logic explained above to your system, do not forget
to run your tests! Now I am backtesting ExponentialHawaiian, the Fixed
Fractional variant of HawaiianTsunamiSurfer".
This sentence above is true. So strictly speaking, let me say that maybe you made a wrong logical deduction. I don't want the reader to think that he/she will be a millionaire by raising any linear trading system to the power. I encourage you to take CEvolution together with your system and observe your own results. That's trading!, I think.
Okay, you are a good reader so let's delve into this topic a bit deeper! I want you to think.
You're thinking that trading is like mathematics, however my article opens a door for you to work your critical faculties, as you are doing now. IMHO, trading requires that for you. It is actually absurd that you raise any system to the power and make you a millionaire! In that case, we would all be rich.
The funny thing here is that the base theory remains true. That's why I say: "Once you add the OO logic explained above to your system, do not forget
to run your tests! Now I am backtesting ExponentialHawaiian, the Fixed
Fractional variant of HawaiianTsunamiSurfer".
This sentence above is true. So strictly speaking, let me say that maybe you made a wrong logical deduction. I don't want the reader to think that he/she will be a millionaire by raising any linear trading system to the power. I encourage you to take CEvolution together with your system and observe your own results. That's trading!, I think.
Funny thing is that if you have studied Edward Thorp, not Vince, you would know that a fixed fraction may not be suitable for all strategies, because under certain circumstances, you need a lot of transactions, before it will get better results.
See: Edward O. Thorp. The Kelly Criterion in Blackjack,Sports,Betting, And The Stock Market
Read more here: 4. The Long Run: When Will The Kelly Strategy "Dominate''?
You cannot apply a fixed fraction for any strategy. Since it does not always give better results than other strategies for managing capital and risk.
E. Thorp is a good mathematician, gamblers and experienced trader. He earned his practice.
R. Vince - theorist, not a practitioner. He earns incorrectly copying other people's ideas in his books, and receiving royalties for them.
Vince's followers often make mistakes, which have long been known to practice trading, but about which nothing is said in the books of Vince. They try to apply mathematical methods where they can not be used.
I threw the books of Vince, because they have a lot of inaccuracies and of little practical use.
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New article Raise Your Linear Trading Systems to the Power has been published:
Today's article shows intermediate MQL5 programmers how they can get more profit from their linear trading systems (Fixed Lot) by easily implementing the so-called technique of exponentiation. This is because the resulting equity curve growth is then geometric, or exponential, taking the form of a parabola. Specifically, we will implement a practical MQL5 variant of the Fixed Fractional position sizing developed by Ralph Vince.
Author: Jordi Bassaganas