Would you please share this spreadsheet you use to calculate optimal F ? Thanks.

I'm probably reading your post wrong, but are you saying anyone who claims 60% win rate is a liar?

For real?

Yes, it seems some people miss the point of the thread completely, despite the fact I summarized it more than once. To each his own, I suppose.

@Anagami

Would it be possible to re-run your model based on different risk/reward numbers? For example insted of 2:1 use 1.5 and 1.25 etc so we can get a better feel of the sensitivities?

Thanks
DJ

The other book I have read by William Poundstone was a book on game theory. I enjoyed reading it as well.

As far as my understanding goes, @Anagami has presented Monte Carlo Simulations. The worst path on the chart allows for an estimation of the maximal drawdown.

Bad runs are accounted for in that simulation, as the order of the trades is different for every path. The point I am trying to make - and this is understood by very few traders - that the second system, the one with the high win rate and the 1:1 average win to average loss is the better option because

-> it produces smaller drawdowns (your intuition here is false!)
-> can support a higher leverage with equal risk (in particular in a bad run situation)

Both the model that I use and the Monte Carlo Simulation by Anagami have confirmed this with a completely different approach (one is theoretical the other experimental). Ralph Vince has written this again and again, but nobody seems to understand the mathematics.

Of course an edge is an edge, but look at the pictures of the simulation and you should understand. Two systems having the same expectancy, but the second has the better Optimal F!

Correct.


The 20/20 system cannot take the same number of trades over the same time period, but I had already taken it into account! Based on the square root relationship between volatility and time, I had made an estimation that the 20/20 system will be able to enter only one trade, while the 10/10 system enters 4 trades. This assumption is realistic, you can compare the average true range from N-minute bars with the average true range from 4xN-minute bars, and will find that it is approximately the double.

If you read my post attentively you will also understand that I have not directly compared the 6302 trades needed by the 10/10 system with the 218 trades of the 20/20 system, but I have used the above approximation to state that the 10/10 system will be able to take about 872 trades while the 20 /20 system takes 218 trades.

But even after 872 trades (4-times as many as the 20 point system) the 10/10 system is far from reaching the target. I will take about 7 times (!) as long to achieve its target, as it has to generate 28 times as many trades.



The 20/20 system needs 28 times fewer trades (218 versus 6302), and will reach its target about 7 times faster. It is therefore both faster in terms of trades and in terms of time.


Have added the 15 min charts of ES 06-12 from last Friday with the ATR(256) calculated from the primary bars (red) and the ATR(25) calculated from 60 minutes bars (blue)=. The approximation which I have used postulates that the
ATR from the secondary bars should be about twice the size as the ATR from the primary bars, and this is indeed the case, as 3.16 is about the double of 1.64.