Fixed Ratio Decreasing Method

Hi,
I did not understand faster decrease rate during drawdowns as stated in Ryan JONES book. Does anybody have an excel spreadsheet for decreasing contracts faster during drawdowns as he told in his book? In Table 7.2 in page 101, he could buy 7 contracts with 60,100 but according to the formula given on preceding page, with this money level he must buy 8 contracts??
Can somebody enlighten me which calculations he uses for decreasing?

Hello senier Mcxindia GOLD, SILVER, LEAD, COPPER, CRUDEOIL.BASE LISTING PRICE

so this thread has to wait for a couple of years to hear from me !!

Anyways here is my understanding:


while we are in winning mode we increase contracts as per delta:
next level = prev level + contracts * delta
================================
delta 40
initial balance 25000

Equity levels Lots shares

25000 0 0
25040 1 50
25120 2 100
25240 3 150
25400 4 200
25600 5 250
25840 6 300
26120 7 350
26440 8 400
26800 9 450
27200 10 500
27640 11 550
28120 12 600
28640 13 650
29200 14 700


In a drawdown, we should reduce the contracts faster rate than the rate we added. Instead of simply reversing the above table when we go down in equity level, we compute new levels with 50% faster decrease in contract count.

current level 25040
prev level 25120
variable % 50

new Level 25080 [i.e cur level + (prev level - cur level)* variable% ]

Note the distance needed by the equity to lose is 50% faster !
In 100% decrease rate (i.e normally) we have to wait till equity comes down to 25040, to reduce 2 contracts to 1, but we are now on 50% faster decrease schedule, we reduce 2 contracts to 1 once our equity level drops to 25080. Since there is only 1 contract making loss in drawdown, our drawdown will be considerably less because of this 50% faster decrease.

When increasing:

new level = current level + contracts*delta

once our equity grows above 'new level' we reinvest the profits to buy one more contract. This is 100% rate of increase.


In drawdown, as per authors example, we end up having 11 contracts with equity value of 80,100

if it were 100% rate of decrease the next level where we would cut our contracts to 10 will be

new level = current level - contracts* delta
i.e 69,100 = 80,100 - 11*1000

since we want to protect our profits foremost, instead of 100% decrease rate we choose 50% rate of decrease or cut 2 contracts instead of 1 when we reach the level 69,100


after reaching 69,100 we end up with 9 contracts.

if the drawdown continues, our next level to cut size will be:

60,100 = 69,100 - 9*1000

just as explained before instead of cutting one position , we cut down 2 positions, reducing to 7 contracts !

---------
so far so good, in the next step author cuts down to 6 contracts, which he could have very well cut to 4, I think he is slightly being arbitrary here, and continues to cut 2 contracts in the next steps...

====
In this process of faster downsizing our position in bad times (just like Software companies!) we stand a chance to protect our profits.

once good times return, author explains about switch back to normal schedule of increase, while switching back to normal schedule we may need to jump from 5 to 9 contracts which is 'okay' and 'necessary' to regain the losses caused by 'previous large positions (i.e 11 contracts)' during draw down.

Hope that helps.
This is my understanding, I hope I have not misunderstood the author's idea !!!!

Here is the dreaded table 7.2

Hope author had some visual pictures and some metaphors (like I said about 'software companies and downsizing')
instead of book full of tables of numbers!

Thank you onlinegtrash for sharing this details .....

I have only confusion with your last part ....

I couldn't understand how i increase Trade size Dabble after DD.......

in your example u said we jump to 5 to 9 ......then why we skip 6,7,8.....

what is the formula we use to do this stuff....

Or I miss something...

plz Bro give a little illustration......


thank you .....

we reduce contracts faster in drawdowns , at 50% of previous two levels.
lets assume previous 2 levels were
40000 - 4 contracts
50000 - 5 contracts
we are trading 5 contracts at lets say 52000
so we reduce to 4 contracts when down to 45000 , not at previous level of 40000.

Ryan Jones has gone wrong in one assumption as very nicely pointed out by Dr. Van Tharpe. That wrong assumption is : He says that one should add 1 lot when ones' Max Drawdown till date is known based on his system back testing.

The flaw here is that, in applying this we assume that our worst drawdown is already done, but in reality any BLACK SWAN can hit the market any time and it could give any different scale of loss, especially in positional trading.

So better option is to follow "R Multiple" concept by Van Tharpe. This is by far superior & realistic than Ryan's or other "Optimal f" concepts

my 2 cents. Let seniors comment further. :thumb:

Thanks & reagrds,
Gaur_Krishna

Hello,

I totally agree with,... what u said.....R Multiple and SQN concepts are superior.
Here in TJ people are using/quoting old expectancy formulae....the Expectancy formulae has been changed by Van K Tharp in his latest editions.

Regards,

can you write those new formulas