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Re: Square root rule
[Re: DdlV]
#475612
12/28/18 10:30
12/28/18 10:30
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Joined: Feb 2015
Posts: 652 Milano, Italy
MatPed
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User
Joined: Feb 2015
Posts: 652
Milano, Italy
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Lovely test! 1) 1200 2) 1200 3) (trading capital of person B) + (square root of profit) + 1200. The situation is similar to fund with extra money your trading. Its not reinvesting 4) as point 3) 5) totally lost...
Last edited by MatPed; 12/28/18 10:30.
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Re: Square root rule
[Re: MatPed]
#475618
12/28/18 17:04
12/28/18 17:04
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Joined: Jun 2013
Posts: 1,609
DdlV
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Serious User
Joined: Jun 2013
Posts: 1,609
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Thanks for the bit of humor, jcl! But in the interest of any who read this thread later, I think it'd be good for you to explicitly state if the square root rule's trading time follows the Initial Capital, or each individual trader. I.e., can one get around the square root rule by moving the funds/account around amongst relatives, friends, etc.? Or no matter how many traders/friends/relatives are involved the total trading time of the Initial Capital is what matters? And in the case where Initial Capital isn't known, be very conservative!? Thanks. P.S. - @MatPed, or is it: 1) $1000 2) $1000 3) ? 4) ? For example, if the $1200 came from, say, wages, then it's clearly the starting point. But if it came from any trading at all, is it "encumbered" with "baggage" and a smaller value must be used for Initial Capital?!
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Re: Square root rule
[Re: MatPed]
#475622
12/29/18 07:12
12/29/18 07:12
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Joined: Jun 2013
Posts: 1,609
DdlV
Serious User
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Serious User
Joined: Jun 2013
Posts: 1,609
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Hi MatPed. If you're telling me I have a think head, you're in good company! Just trying to understand... What you've described is that the square root rule's Initial Capital is per trader. So, an even simpler example: Uncle J has been investing for decades and has grown his $1000 to $50000. For Uncle J to safely continue investing, he should reinvest per the square root rule, and move his Margin slider accordingly. But, lamentably, Uncle J passes away. As his sole heir, the $50000 becomes yours. And you can therefore begin investing it as the whole $50000 without regard to any history or square root rule, correct? In fact, you can just have the name on the existing account changed to yours and run that Margin slider right up, waving at the square root rule as you go by, correct? All just because the trader's name changed, correct? Thanks.
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Re: Square root rule
[Re: MatPed]
#475627
12/29/18 19:47
12/29/18 19:47
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Joined: Jul 2017
Posts: 785
Zheka
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User
Joined: Jul 2017
Posts: 785
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MatPed,c'mon:-) Then I test the TS B and the required capital is 1500€ I start the TS B with 1500€ The profit of the TS B will be reinvested accordingly with SR rule. Change this to : "Then I re-test TS B (which my uncle followed) and the required capital from the backtest is still 1000 ( because a bigger maxDD was still not hit). You have 50K accumulated in that account for over 3yrs,now under your name. What do you use as base capital for TS B in your new account? And why/what are the calcs? "SR rule" is quite a rough one. You will understand this once you try to re-create the specific calculations behind it. The paper referenced by jcl states that the risk of a system ( a continuing sequence of bets) increases with time (regardless if smbdy actually trades it or not). IMHO, Z systems should be implementing a corresponding "dampening" factor on trade size according to the continuously accumulating statistics - under the hood. This would practically mean that if you start trading with 10K one year ago and today - the system would use different base trade sizes.
Last edited by Zheka; 12/29/18 19:49.
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Re: Square root rule
[Re: MatPed]
#475630
12/29/18 22:34
12/29/18 22:34
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Joined: Jul 2017
Posts: 785
Zheka
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User
Joined: Jul 2017
Posts: 785
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If I stop a system and restart it after 2 months I consider it as a brand new one. Right or wrong is how I use the SR rule. In this case you do not really use it. Without why and how such bare POV does not help us answer the question.
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