Comments on Max Dama on Automated Trading: Handbook of Portfolio Mathematics

Intrerestingly, I am unable to think of a position...

2010-02-24T07:13:56.074-08:00

Intrerestingly, I am unable to think of a position any tradable that comports to this definition (whereby there is no concurrently-running offset with an opposed interest in the position) that is not bound on the left side at 0.

Max, I didn't see this posting in your blog until ...

2010-02-24T06:43:05.237-08:00

Max,
I didn't see this posting in your blog until now. Please let me qualify for my disdain for gambling.

I've been surrounded by compulsive gamblers and the tragedy they create since I was born. Later, as a margin clerk, I would have wives come to my workplace and beg to "Please call me if my husband starts trading options." I am averse to proffering gambling situations because they prey on human weakness (as too the absence of enforceable usury laws in the US -- I find we a culture than when it comes to loss created by human weakness, we DO condone it because, "No one had a gun pointed at their head.")
This plays out into gigantic and destructive monsters, such as we saw in late 2008 requiring the rich daddy of TARP to bail out the loser son's gambling losses.
Anything that requires an offset through the course of the transaction is gambling. If I buy stock in a company, and short sales are prohibited, there is no co-running offset on the trade. Similarly, if I buy real property (post-Kelo in the US, however, we can no longer do this as real property has no more intrinsic value to it than a bag of smoke) in a country that honors landholder's rights, whoever sold it to me can walk away, they no longer have a vested interest in it. But when there is a vested and opposing interest to a transaction -- it's gambling, and, historically, always results in calamity attributable to that very himan weakness.

To-wit, TARP.

Eric,Thanks for your suggestion. I'll probably get...

2008-09-17T10:05:00.000-07:00

Eric,

Thanks for your suggestion. I'll probably get that book once it goes on Amazon. The t-score would be a good way to get an idea of what results to expect from a system.

Regards,
Max

Max - I read this book and was unimpressed with a ...

2008-09-17T04:33:00.000-07:00

Max - I read this book and was unimpressed with a lot of it on my first read. I agree there are some good concepts in there though. The book i really liked in the portfolio math & position sizing realm is Van Tharp's 'The Definitive Guide To Position Sizing'. You have to go to his website to get it.

He basically advocates using the t-score of the expected value per trade to analyze a system's potential performance. I think this is good, but would modify the formula to account for # of trades/period & reduce the benefit that a large number of trades has on the std. error portion of the t-score formula.

Regards,
Eric