Q: I want to test a trading model, bet sizing method where I can adjust bet according to if win/lose and also stop, based on probability of win or lose. Are there any good programs to help. Can I do this with spreadsheet?

A: Position sizing based upon probability of winning is suicide. For example, suppose you have 9 1R winners and 1 10R loser. That would be a negative expectancy and there is no way position sizing could turn it into a long term winner, but it is right 90% of the time. If you are basing your position sizing off of the probability of winning, then I can only assume that is how you gauged the quality of your system, as well.

I have created a concept/equation to calculate the quality of your system. My new book, The Definitive Guide to Position Sizing (which has not yet been published) deals with this concept in greater detail. I suggest that you read through my book when it becomes available to make sure that your system is even worth trading before you try to lay a position sizing method over it.

Posted by Van K Tharp at 02:32 PM | Permalink | Comments (0) | TrackBacks (0)

Q: What is your opinion on Monte Carlo Simulations and do you think they are useful for assessing a trading system? If you think it is useful, then what should somebody look out for in a Monte Carlo Simulation ( i.e. what results make a good trading system)? Do you know of a good resource (hopeful one of yours) where I can learn more about it? Thank you for taking the time to read my questions.

A: I think that simulations are very important. When you backtest you have basically done one simulation. But if your sample is large enough and represents the six different kinds of markets, then you can basically assume that you understand the R-multiples that your system will produce.

However, you don’t know what different samples from that population will produce. For example, you can get 10-20 losses in a row. What will that do? What if you position sizing is too big (what will that do) and what is too big? What will I have to live through with a high probability and with a low probability? All of these questions can only be answered by Monte Carlo simulations. So yes, they are very important.

Posted by Van K Tharp at 08:09 PM | Permalink | Comments (0) | TrackBacks (0)

Q: How do I learn your material in the most efficient way: Is there a recommended order to how I should read your books / reports / courses / attend workshops, etc. Like first read X, then attend workshop Y, and then go through course Z?

A: I like this question a lot. Let me give you what I recommend to our supertraders in their two year program and perhaps that will help.

1) I suggest that they spend the first year working on themselves. This includes the Peak Performance Course, and the two workshops PPTS 101 and 202. When you work on yourself first, then your biases don’t come into your business plan and your systems.
2) Next I recommend that you develop a business plan. For this I’d recommend our business planning CDs and our workshop Blueprint for Success. The Blueprint workshop probably answers your whole question and will give you an overall big picture of what you need to do.
3) Third, I recommend that they develop three non-correlated system that fit them. Here I recommend Trade Your Way to Financial Freedom, The System Home Study Course, The Systems Workshop, and our various technical workshops (Swing, Day, ETF) to learn various ideas for systems.

This is a minimum two year process with a substantial time commitment.

Posted by Van K Tharp at 02:52 PM | Permalink | Comments (0) | TrackBacks (0)