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atlus1432
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trader and Excel based software developer of risk management software
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• ##### Scaling or legging out of a winning trade - the empirical evidence using the NEW "Equity Curve" worksheet in the m3 modeler 0 comments
Nov 24, 2009 1:24 PM

In my original m3 platform on the "EquityCurve" worksheet, I allow the user to "check off" which equity curve he or she wishes to see

m3 - Equity Curve Check Boxes
http://www.screencast.com/t/NzY0NGUwY2 (Click to enlarge)

I have addressed this challenge with new programming. In the pic below you will see 2 equity curves.

Random vs. Single Exit

http://www.screencast.com/t/YjFkYzg0OTgt (Click to enlarge)

The 1st seen in a burgundy/red colour is the "SingleExit" equity curve and the white is the "RandomEquity" curve. This new and improved Monte Carlo simulation is superior in every metric. The "SingleExit" equity curve is self explanatory. This is for traders who feel that exiting at a single, pre-defined profit objective is the superior way to go. The results speak for themselves. The "RandomEquity" curve now incorporates lossesin conjunctionwith wins and the wins can be any of the 3 possible outcomes - profit target 1, profit target 2 and profit target 3. Not only can the random outcome be any of the 3 winning profit objectives or losses but the winning outcomes have now been weighted to reflect the probability of reaching any of the winning profit targets. So, a loss is still denoted with a -1 but a win could be any of your 3 profit point objectives and most importantly when a win occurs the probability of which leg will  be reached reflects the user inputs. Given some of the complexities in this explanation I have attached a 5 minute web tutorial highlighting this new and very important dimension to the m3. This is the empirical evidence proving that to scale out of a winning position incrementally with stop loss adjustments is the superior way to go over a large enough sample size.

One final feature that has been added to this latest platform is one you wont see but the capabilities of this new functionality can not be stressed enough. As before the tapping of the F9 on your keyboard engage the RAND or RANDbetween function which is basically a Monte Carlo simulation. Now, with the "DataTables" function added into the mix, a SINGLE tap of the F9 button automatically runs 1000 iterations of your settings. This saves you the user massive amounts of time knowing that result has been crunched repeatedly to produce the final results. You still have the ability to repeatedly use the F9 key but just remember that each result is as if you tapped the F9 1000 times. Here is the screen shot below where I have highlighted the formula.

Data Tables

http://www.screencast.com/t/NGZjMWUwN2E (Click to enlarge)

Enjoy the web tutorial and hopefully this will change the way you approach your trading endeavours going forward.

http://www.screencast.com/t/YmQ2NWIxMGIt (Click to play)