Hello, can you recommend Chan's book?
Greetings, Thomas On 10.05.2009, 05:17:24 dloyer123 wrote: > > If you are trading a system ( fully backtested, made money > > in real world etc), how can you really know when it is > > starting to fail? > > I think that we all face this question. I ran across a good answer in > Chan's book "Quantitative Trading". > > The short version is calculate returns/stdev(returns)^2. Where the returns > are 1.05 for a 5% win and 0.95 for a 5% loss. The result can be > 1 for a > good system. > > Make sure that your position sizes are always much less than this number as > a fraction of your account. If it starts to get small, then you have your > answer. > > There is a more general version of this equation in Chan's book that > applies to portfolios of trading system, if you know the correlation of > returns between the systems. >
