Pete Taylor Member  Posts: 28 Joined: 10/11/2012 Location: N Bradley, England  User Profile | I have previously done some research into R multiples when reading books by Van Tharp. He basically says that a trading system or Portfolio in our example should be ranked in terms of R multiples or Risk multiples. By doing this you gain an expectancy of what your system or our portfolios should achieve over some future time. He states that the more time or number of trades that are calculated by the system or portfolio, the more accurate the R multiple expectations will be. I was wondering if we could use this to calculate that the R multiples as a way of ranking them for the switching process. As the R multiple is changing all the time as the newer trades analysed coming into the system, we could rank one portfolio against others using this. This could be done to highlight which portfolios are becoming “good” against others by analysing the change over the last few weeks or a month. Obviously we want to get in & trade portfolios that are becoming good, rather than looking back several months later & wishing that we had. There is a video link below, of him explaining this on YouTube but you will notice that he refers to you initial stop as your 1R or 1 unit of risk. However, we do not have a stop on any of the typical strategies that we use. So in his book he suggests that if you don’t have an initial stop but you have a list of previous trades, then you calculate your 1R by just dividing the total amount of losses incurred in a system by the number of losses, which we could easily do. As you will see in the video you then express all you trades, losses and profits in R multiples, for example -1R, +1.25R etc etc. You would then add up the total trades for say the last month and the ones with the highest R multiples could be the ones to use. I would suggest this could be done on a rolling weekly basis over say the last 4 weeks, rather than waiting to the end of the month, as in Ed’s example in the presentation. I know its a pretty basic and easily calculated (even for me!) but thought it would just highlight changes in performance, which all we want to do. Don’t know if this is of any interest but thought it was a little different approach from the normal ones that you immediately think of. If you think that this could be of interest I can post a real example from a portfolio. Youtube link http://www.youtube.com/watch?v=JFuF6M7z1jg | |
