Lot calculation by Vince - page 12
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The optimal G is the capitalisation factor of the portfolio. To find the optimal G you have to at least optimize the variance of the aggregate portfolio and be fluent in Markowitz portfolio theory. I see nothing of the sort in the above calculations.
There, by the way, further in the original, in his "Mathematics of capital management" right after lot calculation based on the optimum f goes from p.37 up to the end of ch.1, including appropriate formulas and everything else, but it is the subject of at least a separate article, if not a series ... :-)
Markowitz's model ,
Fundamental trading equation
As for Ralph Vince's method, it has pros and cons.
The main plus is that, as Vince wrote, every trader is somewhere on curve F whether they realise it or not. And the consequences of being significantly to the left or even more so to the right of its top make trading inefficient. And the difference can be very significant.
The main disadvantage is that Vince severely underestimates market volatility and overestimates the stability of trading system results. Indeed, even a mediocre TS may eventually become a grail, but it needs to stay within the stability and profitability limits that TS showed on the period of history when the optimal F was found. In reality, most of TS lose their effectiveness quite quickly.
For the Opt.F method to work correctly, the worst trade must be hard (stoploss) and therefore it must be initially set in the parameters of the Expert Advisor, not determined by the results of the run. If an EA does not have a stoploss, it should be attached and picked experimentally before determining the optimum.
When searching for optimum f it is not TWR but GMean - geometrical mean trade, which is calculated as the root of powers N of TWR for given F, where N - number of trades.
My variant to calculate optimal f in deinit () (attached). I calculate opt.f based on results of trades in pips. When Fixed = false (fixed lot is disabled) MM parameters are set in Fopt and Stoploss (indicated by positive value in "big" pips)
Roman, I hope you've understood about the share of capital? Or are you still sure that if we do all the calculations and get a lot size for trading of X value, we do not care about the size of the stop in pips? Or maybe Vince recommends trading without any stops at all?
Read my post again, I've read Vince many times and I know exactly what I'm talking about. I don't care about the definition of optimum f given by you from the book. In ANY case it all comes down to Vince's method of calculating the size of a future possible loss (loss). If there is a loss, there is a stop. If there is a stop, the size of the loss will depend on the size of the lot and the size of the stop. C-4 wrote it correctly, the optimum f is a Fraction of capital. A fraction means a PART. A fraction specifically defined by an amount. This amount is the allowable maximum LOSS. If there is a loss, it means that the trade has a STOP. If there is a stop to a trade - then you are talking utter nonsense about the fact that once the lot size is calculated by Vince's methods, the size of the stop is irrelevant.
I wrote that if optimal f tells me to risk in the next trade $2000 (a fraction of capital, aha), then I will calculate the lot size based on the fact that at a loss of N pips I will lose that $2000 but NOT MORE. The lot calculation given in your functions is NOT RELATIVE to the STOP SIZE. That's why I wrote to you about an important thing being missed.
Or are you still saying that once you get the lot size in X, it doesn't matter how many pips the stop is?
1. Roman, I hope you've understood about the share of capital? Or are you still sure that if we do all the calculations and get a lot size for trading of X value, we do not care about the size of the stop in pips? Or maybe Vince recommends trading without any stops at all?
Read my post again, I've read Vince many times and I know exactly what I'm talking about. I don't care about the definition of optimum f given by you from the book. In ANY case it all comes down to Vince's method of calculating the size of a future possible loss (loss). If there is a loss, there is a stop. If there is a stop, the size of the loss will depend on the size of the lot and the size of the stop. C-4 wrote it correctly, the optimum f is a Fraction of capital. A fraction means a PART. A fraction specifically defined by an amount. This amount is the allowable maximum LOSS. If there is a loss, it means that the trade has a STOP. If there is a stop to a trade - then you are talking utter nonsense about the fact that once the lot size has been calculated by Vince's methods, the size of the stop is irrelevant.
I wrote that if optimal f tells me to risk in the next trade $2000 (a fraction of capital, aha), then I will calculate the lot size based on the fact that at a loss of N pips I will lose that $2000 but NOT MORE. The lot calculation given in your functions is NOT RELATIVE to the STOP SIZE.
2. That's why I wrote to you about the important thing missed.
Or are you still claiming that by getting the lot size at X, it doesn't matter how many pips the stop is?
1. No. It's not clear. At least, I - did not find an explicit indication in his "Mathematics..." Especially when he himself writes: "If you want to do everything mathematically correct, then you have to be prepared to lose from 30 to 95% of the account balance." - it's more just like trading without stops - all sane investors will run away from PAMM...
2. Not excluded... Just did the function strictly according to his book and that's it.
I'm not claiming, maybe I'm wrong. I will return to R.Vince later when I will optimize by recovery factor MM variants (one of them will be by R. Vince) of portfolio management.
The main disadvantage is that Vince greatly underestimates market volatility and overestimates the stability of trading system results...
+1 to faa1947 adepts and fighters against unsteady market.
Re-read my post, I've read Vince more than once and I know exactly what I'm writing about. I don't care about the definition of optimum f given by you from the book. In ANY case it comes down to Vince's method of calculating the size of a future possible loss (loss). If there is a loss, there is a stop. If there is a stop, the size of the loss will depend on the size of the lot and the size of the stop. C-4 wrote it correctly, the optimum f is a Fraction of capital. A fraction means a PART. A fraction specifically defined by an amount. This amount is the allowable maximum LOSS. If there is a loss, it means that the trade has a STOP. If there is a stop to a trade - then you are talking utter nonsense about the fact that once the lot size has been calculated by Vince's methods, the size of the stop is irrelevant.
I wrote that if optimal f tells me to risk in the next trade $2000 (a fraction of capital, aha), then I will calculate the lot size based on the fact that at a loss of N pips I will lose that $2000 but NOT MORE. The lot calculation given in your functions is NOT RELATIVE to the STOP SIZE. That's why I wrote to you about an important thing being missed.
Or are you still arguing that once you get the lot size at X, it doesn't matter how many pips the stop is?
Don't get hung up on a hard stop price. Understand, you can 't control the size of your losses using stop stops. The main catch here is that you are only looking at the second part of the equation: MO = P * S, where mo is your final mathematical expectation, p is the probability of the outcome s you are so fixated on. As soon as you limit S - the size of your maximum loss, then immediately its P increases, thus restoring mo to its previous level. If before your average loss was 1000 rubles, and the number of losing trades was 50, then after introducing a stop loss of 500 rubles, your average losing trade will be 500 rubles, and their number will increase to 100. The final risk will remain at the same level.
Another example: You are using a system with rules for exiting a position, including at prices worse than your initial entry. The system will close trades at a loss without waiting for the stop loss to trigger. Does it mean that we cannot use the Vince method on this system, just because the outcome of a trade will not be known in advance? No, of course not. The third example: several TPs are traded, each of which has its own hard stop. You do not know at what moment how many stops will trigger, and you will have the same uneven distribution of variance of the obtained results in the output.
Also, pay attention to what the fighters against unsteady markets, led by faa1947, are writing. Your final profit-loss distribution will not only walk around in a wide range, it will not be uniform, with heavy tails. Vince's formula suffers greatly from asymmetric leverage and I have my suspicions, strong suspicions, that the uneven final distribution beats the capitalisation results badly. And the naive use of stop-losses won't fix anything.
+1 to faa1947 adepts
Who is it?
Who's that?
A probabilistic spectral theorist physicist.
I wouldn't really want to reread 12 pages.
Can I summarise?
I understand that we are talking about calculating the optimal f using the following formulas in the terminal:
https://hostingkartinok.com/show-image.php?id=980b260cca13f92b7e45bfdd7d19d8f3,
knowing the statistics for trades.
which post has the appropriate script?
thank you very much.
otherwise i will calculate in excel.
P.S. How do i change my login?
P.S.2. my broker has only mt5. how do i understand it? all the scripts, indicators are for mt4.