howardbandy

Greetings -- I have Dr Tharp's books, including "Definitive Guide to Position Sizing." I also have Ralph Vince's books. There are five of his, the most recent being "The Leverage Space Trading Model." All of these are worth reading. I have exchanged friendly and constructive correspondence with both gentlemen. Both Tharp and Vince begin with the assumption that the system being traded is healthy and always remains healthy. They also both work with single backtest runs or distributions, and with single mean and standard deviations. From those initial conditions, they develop position sizing procedures. I have written a book, "Modeling Trading System Performance," that extends the work of Tharp and Vince. It includes discussion of methods for determining whether a trading system is healthy or is broken, which I believe is extremely important -- perhaps most important. If a system is broken and trading continues, a loss of money will result. My book discusses specific statistical tests that can be applied to help answer that question. The confidence you have in the result depends very much on the distribution of the trades, or of the periodic changes in equity. There is a discussion of the characteristics of trading systems that lend themselves to making these tests most valuable. I discuss distribution of trading results, which can be actual trades, out-of-sample test results, in-sample test results, or any distribution you want to analyze. Based on the distribution, analyze the probability of drawdown. Compare the drawdown that can be expected with your personal tolerance for risk to determine position size. Rerun the simulations with the position sizing method and parameters you have selected. Compute the distribution of annual rate of return and of drawdown and decide whether to trade the system. Everything is completely explained, so you can replicate everything in the book. It is platform independent, so you can use results from any source. Microsoft Excel is used to run the simulations, and a well documented add-in is included. Both Dr. Tharp and Mr. Vince have copies of my book. Mr. Vince is particularly complimentary. You can learn more about the book at its website: www dot modelingtradingsystemperformance dot com Thanks for listening, Howard